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|
|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.