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.
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Maura says
Are you familiar with the IRS Free File program? If you meet certain criteria, such as income and age, you are eligible to use the software of various companies for free.
I realize that using an online tax prep does contribute to the security issues you mentioned, however, good for the old wallet?
Disgruntled ex-turbotax user says
Ah, the issue of multiple returns. This can be an issue even if you’re completing a return for just one person, but they need to file with multiple states. You can’t do that on-line. Believe me, I tried!
The other problem with the on-line versions is that they do not allow you to pull up the actual forms. Last year, Turbotax made an error on one of my forms in the on-line version. It was very easy to correct (uncheck a box), but I could not do so through the interview process. I was told by their staff that they disable access to the actual tax forms in the on-line versions.
Furthermore, let me also point out that some states allow free state filing on their websites. The state programs offered by Turbotax et all do nothing but import your federal information. I’ve actually found it easier to do my state tax returns “by hand” on the state website. It also saves me lots of money, because I can get the basic software versions ($4.95 for Turbotax, and free for Taxcut) instead of having to buy one with a state included.
Harry Sit says
Thank you for bringing up the free state filing programs offered by the states.
Don says
I still do it on paper. Yes, I even read the books. And frankly I’ve done better than the professionals I’ve hired (because I later caught things that they should have caught for what they were paid).
I do use a spreadsheet to predict things forward for the next year. But there’s nothing like understanding taxes for yourself. For example, I’m pondering already how the “stimulus payment” is likely to change things for me next year.
Rick says
Hi Harry-can you share where you purchased the $40 “package?”
Thanks,
Rick
Gabe M says
TaxAct just effectively ended its desktop software. One has to go online and sign in through their server to get back into one’s own desktop computer and use the “desktop” program. They claim the IRS made them do this. It is insane! They force you to be online and thereby exposing yourself to attacks. The IRS only asked software companies to build in password security which they had any way. There was not hing forced.
No sense in this!
Olivier says
What do you all think of https://sites.google.com/site/excel1040/
It looks good to get a good understanding of the mechanisms and allows one to easily and instantaneously see the effects of a cell change.
However, I don’t know how to cope with the state returns if using this.
Thanks for any thoughts.
Olivier says
I have a Linux PC instead of Microsoft Windows PC so I cannot use the desktop version of TurboTax, Taxcut.