TurboTax, TaxCut, and TaxACT Compared Side By Side

Over the President’s Day long weekend, besides reading the book A Fool and His Money, I also did my taxes.

In a previous post Free E-File Is NOT Free, I said I’m going to try TaxACT this year because it’s substantially cheaper than TurboTax and TaxCut. A couple weeks ago, I got TaxCut Standard for $1 at Dollar Tree. TurboTax also sent me a trial CD some time last year. With all three major tax prep software on hand, I was able to do a side-by-side comparison.

The tested versions are (all on Windows):

TurboTax 2008 Deluxe TaxCut 2008 Standard TaxACT 2008 Standard
Cost $38 $1 FREE
Federal return Included Included Included
Federal e-file Included Included Included
State return Included $30 extra $14 extra
State e-file $20 extra $20 extra $8 extra
Cost for 1 federal return and 1 federal e-file $26 (TurboTax Basic) $1 FREE
Cost for 1 federal return, 1 federal e-file, and 1 state return $38 $31 (TaxCut Premium) $14
Cost for 1 federal return, 1 federal e-file, 1 state return, and 1 state e-file $58 $51 (TaxCut Premium) $22

* Retail prices from Amazon.com on Feb. 19, 2009.

I tested with my real data. My moderately complex return includes:

  • salary on W-2
  • self-employment income and solo 401k contributions
  • interests on 1099-INT, both taxable and tax-exempt
  • dividends, both qualified and non-qualified
  • short-term and long-term capital gains distributions from mutual funds and ETFs
  • investment sales with both short-term and long-term gains and losses
  • foreign tax credit
  • capital loss carryover from last year
  • restricted stock units (RSU) sales and ESPP non-qualified dispositions
  • mortgage interests and property taxes
  • charity donations
  • IRA contributions
  • Alternative Minimum Tax (AMT)

Installation: No major problems.

TurboTax installation took a lot longer because it requires a Microsoft component called .NET Framework 2.0 SP1.

Unlike last year, TaxCut didn’t install the ad-supported pdf995 by default this time. From reading the reviews, I see it will install pdf995 only if you want to save your return in PDF. Because I already have the open-source software PDFCreator, I will not touch the “save as PDF” functionality in TaxCut.

TaxACT installation went very fast.

Update: Both TurboTax and TaxCut CD installations required updates, which went smoothly. Just follow the prompts. TaxACT download didn’t require any update because they had the latest version up on their web site.

Launch: No problem launching either TurboTax or TaxACT under a limited user account in Windows XP. TaxCut still required running as an administrator.

They all show the software registration screen but you don’t really have to register. Just go File -> New Return and skip directly to a new return.

Import last year’s data: TurboTax imports last year’s file in TurboTax, TaxCut and TaxACT formats. TaxCut imports last year’s file in TurboTax and TaxCut formats. TaxACT does not import last year’s return in any file format except its own.

I imported my TurboTax file from last year to both TurboTax and TaxCut. I had to enter my personal info in TaxACT. If I’m going to use TaxACT next year, it’s a one-time deal I’m willing to endure. I’ll be able to import next year.

Import W-2 and 1099: TurboTax offered to import my W-2 and 1099s from payroll providers and financial institutions. TaxCut does not import W-2 or 1099 from anywhere. TaxACT can import from W-2 eXpress by TALX (I’ve never heard of this payroll provider before).

I didn’t use this import feature due to privacy and data security concerns. Importing probably will save some time if it’s done accurately. However, it can also cause problems if you don’t know what were imported and what were not. You have to check each import to make sure it got everything correctly. I’ve seen other people report problems because some fields were defaulted to zero, which made the calculated tax much higher than it should be.

I think importing W-2 and 1099 is more trouble than it’s worth. It’s a lot harder to fix bad imports than entering data on your own. I don’t mind typing my numbers. It wasn’t too bad.

Import from Financial Software: TurboTax and TaxCut can import from Quicken, Microsoft Money, or TXF files generated by other software. TaxACT does not import these files.

Interview and Data Entry: Like in last year’s versions, the interviews in TurboTax and TaxCut are similar. They are both easy to complete. TaxACT, however, uses the bottom half of the screen for the tax form view. It splits W-2 entries into multiple screens. If you have to make a correction, you have to page through the screens to find the right spot.

TaxACT also doesn’t mark the required fields versus optional fields. For 1099s, it asks payer’s address, which isn’t used anywhere in the return. I ended up typing a bunch of things before I realized I could just leave them blank.

TurboTax seems to ask more obscure and sometimes confusing questions. Those questions are irrelevant to me but perhaps they are relevant to 0.1% of the users. TaxCut strikes a good balance for me.

All three software have a topic list. You can jump ahead or jump back. They all let you open a tax form directly (disabled in TurboTax trial until I pay).

TurboTax still requires splitting the 1099-INT into two if not 100% of the tax-exempt interest is also tax-exempt for the state. TaxCut and TaxACT both handle it more elegantly with an extra field in the interview.

Valuing Donated Items: As I mentioned in a previous post, valuing non-cash donations is not dependent on which tax preparation program you use. Therefore it’s not a criterion for this comparison.

Built-in Help: I am familiar with the tax ramifications of my transactions. I didn’t really use or test much of the built-in help or online support.

Refund Calculation: All three programs produced the same bottom line.

TurboTax trial does not let me see the form or print the return unless I pay. The numbers from TaxCut and TaxACT are nearly identical for all lines on all forms, except for rounding a dollar here and a dollar there.

TaxCut rounds everything to the whole dollar as soon as you enter them in the interview. A reader pointed out to me this is technically illegal (26 USC 6102). You are supposed to keep everything in dollars and cents on the worksheets and only round the total when you enter it on the form.

Both TurboTax and TaxCut were able to calculate the maximum contribution I can make to my solo 401k plan. That’s really helpful. The calculation matched what I got from my spreadsheet. TaxACT does not have this functionality (at least not in the Standard version), but it’s OK because I can use my spreadsheet.

The bottom-line result being identical didn’t surprise me. That’s the way it should be. These software are like fancy calculators. Given the same inputs, the result should always be the same.

Conclusion: All three software did an adequate job for my return, although none is perfect.

TurboTax is much more expensive. It can be confusing with its irrelevant questions. Requiring splitting one 1099 into two is lame.

TaxCut requires running as an administrator. It’s also technically illegal with its rounding method.

TaxACT should really work on importing TurboTax and TaxCut file formats and importing TXF files. The way it splits entering a tax form into multiple screens is not as convenient as having everything on one screen as in TurboTax and TaxCut. It should also mark the required fields for data entry.

After weighing the pros and cons, I decided to use TaxACT this year. Before I did this side-by-side comparison, I wasn’t sure if it can handle my moderately complex return. It did the job well. Now that I know how it works, I can easily work around the features I don’t like.

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Comments

  1. Ulysses says

    Thanks TFB! Love these types of comparison reviews. If you purchase Taxcut State for $20 after buying the Dollar Tree version, do you know if it costs anything to e-file state or is the state e-file include in the $20?

  2. says

    Ulysses – State e-file costs extra in all three software. State program costs $30, not $20, for the $1 TaxCut program. I updated the table with that information.

  3. Ulysses says

    Thanks! So I take it you can upgrade to Taxcut Premium from within the $1 Standard version, thus gaining the state + state-e-file features?

  4. POP says

    I have been using TAXACT for three years now and I find that it serves the purpose. This year they gave a great deal early on. Taxact premium which includes Federal +Efile and one state +efile for state was available for 12 dollars. As I use premium I can import info from my previous year return as well. TAXACT has worked well for me over past years.
    I have always wondered whether I am missing any “extra money” or “new found money” in the form of some deductions by NOT using Turbotax or TAXCUT my question to the author is whether the tax you owed or your refund is same on all software? Is taxcut or turbo tax able to find ‘extra deductions’ for you?

    P.S: I agree I am getting stupid by watching their commercial so just checking :-)

  5. says

    @Ulysses – I’m not sure about the upgrade. If you want to upgrade, you might as well buy TaxCut Premium + State + E-File from Amazon for $31. State e-file is still $20 more. The best deal for the $1 TaxCut Standard version is doing the federal return with it, and doing the state return with pen and paper or doing it online directly with the state. If you want to do everything with one software package, TaxACT is a better deal at $14 without state e-file or $22 for everything.

    @POP – You may have missed it in the long post. I said the bottom line refund number was *identical* from all three software. No software was able to find any “extra deduction” for me. The extra money is better spent on a tax book.

  6. Larry says

    Two questions:
    When do you think the Feds will stop subsidizing the private software industry and permit us to directly e-file on an IRS-managed site?
    And what do you think of the new option to free e-file at any income level by inputing final numbers (assumedly calculated by software) on the forms in the Free File Fillable Forms site?

  7. Geoff says

    I managed to pick up TaxCut Premium for $31 which included 5 free federal e-files and 1 free state e-file. I called my relatives and we decided to all use the same copy, just mail the CD when finished. My brother and I live in TX, so no need for the state e-file. Dad lives in NM, so he used it. 3 returns w/ e-filing for $31 isn’t too shabby, and we still have 2 left over!

  8. says

    Larry – The cynic in me says the IRS will never let us e-file directly. They want us to support the private industry. Be careful with the Free File Fillable Forms. It’s not what you think. You are not e-filing directly with the IRS. The entity behind it is a private company, or more precisely a group of private companies. Your tax data go to a group. The group will pick out a private company for you, perhaps on a rotation basis. I won’t use it.

  9. Eddiy69 says

    TFB,
    Thanks for the actual user review. I have used boxed TaxCut for over thrre years; it is still quirky about data entry and removing/correcting is even worse. Lat year I also used free boxed TurboTax and on-line TurboTax to do several “what if” comparisons. Neither program is “novice proof”; I still believe peopel shpould know basic tax rules/methods before blindly following electronic calculator. One past year I mistakenly entered data into TaxCut form and did not self-check final return logic/reasonableness, and then later had to file an amendment (first time in over thirty years). So recommend always doing reasonableness check of final Form 1040.

    Which of these boxed versions require on-line Activation tying to single, specific PC? Seems Geoff had no such troubles with TC 2008.

  10. says

    Eddiy69 – I agree 100% people should learn the basic rules and logic, in the same way people should know the basic math before using a calculator. None of these three programs require activation. I didn’t check any license agreement to see if they prohibit sharing.

  11. Irwin says

    TFB- I hope this isn’t too prying, but how can you contribute to an IRA and still be subject to AMT? I’m not a tax pro at all, but in my case I can’t contribute to IRAs/Roths due to AGI, yet I still haven’t been clipped by AMT.

  12. says

    Irwin, you can always contribute to a traditional IRA regardless of income. The question is whether the contribute is tax deductible or not — you do not get a deduction when your income exceeds a certain threshold.

  13. says

    Irwin – Good for you for having a good income and not being hit with AMT. You are more likely to get AMT if you:

    * have children; or
    * live in a state with high state income tax or sales tax; or
    * live in a place with high real estate price and property tax

    I’m guessing you don’t have high state income tax and property tax.

    indexfundfan is correct. My IRA contribution is not deductible. See previous post A Non-Deductible IRA Is Worth It For Me.

  14. JustAsking says

    TFB,

    Thanks for being ahead of the curve (as usual) in comparing these three. I tried TaxCut years ago and was annoyed by the way they took you by the hand and led you through like a dummy, asking questions that I could have just answered myself by filling out the tax forms.

    I just tried TurboTax but hated it for the same reason and gave up after an hour, uninstalled and returned it. As you point out, they ask a lot of irrelevant questions or those I don’t want to have to figure out–and if I guess wrong, how will it affect my return, and will I be able to correct it easily? My feeling is, when you have to spend more time figuring out the software than the tax forms, it’s easier to just do it on paper. True, you can use the forms in Turbo, but they’re not really the same as the IRS forms–they have additional fields you have to fill out for the sake of the software.

    I decided to try TaxACT, and it was a pleasant surprise to find that it’s much more intuitive. They of course have the lead-you-by-the-hand option, but the forms are straight-up IRS clones in most cases, with automatic calculation. If you try to fill in a field that affects others, you get a message asking you to enter the info on the supporting document. (You can override, but it’s not recommended and won’t be automatically calculated.)

    There were a few minor things I didn’t like, but in speaking to tech support, I found that there are reasons for them, and I can certainly live with them. The software created a clean printout and corrected some math errors I had made on the paper version. I was impressed and will be using this again.

    JA

  15. JustAsking says

    I should also mention that TaxACT is cheaper than the others–their Ultimate version (federal and state) is $20.

  16. Itchy Brother says

    TFB,

    Thanks for the reviews.

    Regarding the TaxCut rounding issue, are you sure that TaxCut isn’t just displaying rounded values while maintaining actual dollars and cents values internally? In my opinion this would be a silly thing to do, but it wouldn’t be the first time UI programmers have done things I think are silly. I would be surprised to find the TC folks are ignorant of the law on this particular point.

  17. says

    @Itchy Brother – Unfortunately that’s not the case. As soon as you enter any number in TaxCut, it’s rounded to the whole dollar. The calculation continues from the whole dollar.

  18. Guraaf says

    Does anyone know if TurboTax or TaxAct handle foreign income and Form 1116 well enough? I have a bank account in Switzerland and the bank interest income wasn’t easily handled by H&R TaxCut at all. It wanted me to fill in the form and I had trouble doing so.

    Thanks!
    Guraaf

  19. FairTaxFan says

    Has anyone tried TaxBrain? They charge $69.95 for their top package, plus $29.95 to add on the state return, but they also offer discount codes up to possibly $30, but that still makes it the most expensive I have seen. Is there something better with TaxBrain over TaxAct? Or the others? I am self-employed, so need to use Schedule C and other forms that force the Top Packages apparently.

  20. Phil says

    This year Taxcut and Turbotax do not import data from my rentals (addresses, basis, and so on) . Last year they did do that. Means a lot more work for me entering all the rental addresses, basis and so on. Why did they change?

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