Year end tax forms started coming in now. It’s time to think about tax filing. If you don’t use an accountant (I don’t), your best bet is using a tax preparation software. I will post my thoughts on choosing the best software in 3 parts. Other posts in this series:
Part I: Online or Desktop?
There are three major tax preparation software packages, TurboTax, TaxCut and TaxAct. They all have both an online version and a desktop version. With the online version, you create a login and password on the software vendor’s web site and start filling your information there. With the desktop version, you install the software on your own computer from either a download or a CD in a box you buy from a retail store.
I think desktop software works the best for many reasons.
1. More Secure. When you use a desktop software, your tax data stay locally with you, not on the vendor’s web site. I’m sure the vendors all tell you they have the greatest security for their web site and servers but we also often hear about data loss from different companies who also said they had the greatest security. If they didn’t have my data in the first place, they can’t lose them. Wait until phishing attacks to the tune of “Your tax return had a problem. Please log in and correct them.” then we will hear about people losing their tax data to phishing.
2. Multiple returns for the cost of one. If you do multiple returns for people who live with you, parents, children, sibling, etc., you can use a single desktop copy and do them all. It’s permitted by the software license. However if you want to do the same with online software, you have to pay for each return separately.
3. Flexibility to switch vendors in the future. If you want to switch to a different vendor in the future, it will be a lot easier if you used desktop software. Vendors want you to switch so they build import functions into their software. Say if you used TurboTax before and want to try TaxCut instead, TaxCut’s desktop software can import your prior year’s TurboTax file. But if you used TurboTax Online, I don’t think other vendors can do anything because there is no file to import. You will have to start keying your data from scratch.
4. What-if analysis and projections throughout the year. When you have possession to your own tax data, you can easily make a copy of it and do what-if analysis and projections with it. You won’t mess up the real tax filing because you are working with a copy. If you used the online version, there is only one copy on the vendor’s server. If you change the data, you will affect the tax for next year.
5. Lower price. The vendors want you to use their online versions. The list prices for the online versions are cheaper than those for the desktop versions. Some financial institutions also offer discounted price to their customers for the online versions, but never the desktop software. But retail stores and other software vendors often offer incentives that make the boxed software even cheaper than online software. I just bought TaxCut, Norton and McAfee security software, and Microsoft Money for a grand total of -$40 after tax and all rebates. That’s right, at the end of the day, I get paid $40 for all those software. You can’t get deals like that with online software.
To be continued: