Comparison: Tax Preparation
Com
C
SServices
er
OnLine Exclusive
By Z. Joe
By
J Lan
A
s another new year starts,
investors look forward to an
exciting time—tax season! If you are
one of the many who dread the arrival of April 15, fear not; this article
can help you find a service to sort
through all of the tax implications of
your 2011 finances.
Capable tax programs have been
around for a number of years. All of
these programs are now available on
the Web. Although you can still find
software versions, completing
your tax forms directly on a
website is the fastest and easiest way to file your return.
The Services
three services keeps a running tally of
your tax refund or liability on the top
right of the browser window.
All three online services allow
you to create a basic federal tax
return (1040-EZ) and file it for free.
Furthermore, each service allows
you to complete both the deluxe and
premium tax returns and pay only
when you are ready to file. To minimize costs, you can start with the
basic version and upgrade if you feel
TurboTax and TaxACT (all three of
which we review in this article).
H&R Block starts with a “Your
Year in Review” page, which allows
users to check any major events that
occurred during the year, including a
change in marital status, family, education expenses, medical bills, real
estate holdings and job. The next few
pages are straightforward and involve
filling in your personal information.
Make sure you enter the appropriate
amount of dependents that
may be claimed. On the final
page of the personal information section, the website
allows you to review your
entries before finalizing them.
H&R Block categorizes
income into several groupings:
common; business, rental,
partnership, farm and royalties; investments; retirement
and Social Security; sales and
transfers; and other income.
Expand each section and
select the types of income that you
have received during the course of
the tax year. In our test, the incomes
selected were employment; dividend
and capital gains; sale of stocks and
bonds; and Social Security. The separate income categories allow experienced users to save time by simply
checking the income items that are
pertinent. The service will automatically skip the other income sections.
After you have selected your
income sources, H&R Block will
ask you to input the information
from your Form W-2, Wage and Tax
Statement. Each section of the W-2
is laid out for you and the boxes are
all separated. Once you receive your
W-2 form from your employer, there
should be no problems filling out
this section. In addition, H&R Block
can automatically input the required
data from certain companies based
on the company’s employer identification number. Users have to input
the figures manually if their company
is not supported by H&R Block for
“These services are all similar
in that they offer step-by-step
guidance; however, some
offer more hand-holding
than others.”
This year, we chose to
review only three services—
H&R Block, TaxACT and
TurboTax. Jackson Hewitt,
which was reviewed in last
year’s comparison and which
filed for bankruptcy protection last year, was dropped this year
because it does not seem to have
anything unique to offer (in addition,
a quick Google search on the company brought up a list of customer
complaints).
For this comparison, we used the
online versions of all three services.
There is no difference between each
service’s software and its online
counterpart. However, if you are hesitant about having so much personal
information on the Web, then by all
means, use the software-based version. The online versions are offered
at a lower price, but they only allow
you to file a single return (H&R
Block and TurboTax software allow
five federal e-files).
These services are all similar in
that they offer step-by-step guidance;
however, some offer more hand-holding than others. Each does an outstanding job of finding appropriate
deductions and credits and maximizing your tax refund (or minimizing
your tax bill). In addition, each of the
a more advanced version is needed.
Although the services create and file
your basic federal tax return for free,
they each charge a fee to file your
state return. The bright side is that
the services will transfer your information from your federal return to
your state return, making the process
less tedious. Also, keep in mind that
many states offer taxpayers the ability
to file their taxes online for free.
The grid on page 6 provides a
side-by-side comparison of the three
services, including their costs (online
and software), features and minimum
system requirements.
H&R Block at Home Deluxe
H&R Block offers several levels
of service. For testing purposes, we
used H&R Block at Home Deluxe
and started completely from scratch,
opting not to import data from the
previous year’s tax return. However, if you choose to import data,
H&R Block allows importing from
three separate sources: H&R Block,
February Online Exclusive 2012
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Figure 1. H&R Block at Home Deluxe
data import.
Filling in the sections on dividend
payments and sale of stocks and
other assets requires 1099-DIV and
1099-B forms, respectively. Once
again, H&R Block can automatically
fill in the appropriate data by connecting to your brokerage account.
The website can handle all of the
most popular discount brokerages,
such as Scottrade, E*Trade and
Charles Schwab. Users can also opt
to input the figures manually.
When your income section is complete, H&R Block will show a brief
summary of your income figures. In
addition to wages, dividends, capital
gains and Social Security, the service
also provides separate income lines
for unemployment, interest, IRA
distributions, retirement and alimony,
among others. Two links are provided next to each income type: one
explaining the figure that should be
provided and one bringing you directly to that particular income section
2
for quick
editing.
If you are
satisfied
with your
income section, move
on to adjustments and
deductions.
Common
records for
adjustments
and deductions include
homeowner
expenses,
taxes (real
estate,
vehicle and
personal
property tax
bills), medical expenses
and job-related expenses. Just as
with income,
users can
check off
specific adjustments and deductions
that are relevant. The service offers
two sections. The first deals with
common adjustments and deductions such as student loan interest,
traditional or Roth IRA information, home mortgage interest, real
estate taxes and charitable donations.
The second section addresses other
adjustments and deductions, such
as job-related moving expenses and
alimony.
In the case of student loan interest,
H&R Block offers assistance in calculating the deductible amount even
if you do not have a 1098-E form.
H&R Block also offers DeductionPro,
a separate feature for $19.95 that
helps users determine their charitable
deduction for the year. DeductionPro
opens as a new window in your Web
browser. After filling in certain personal information, including income
range, DeductionPro assists you in
finding the value of your donations.
There are numerous categories of de-
ductions offered along with fair values for a large number of frequently
donated items, such as clothes and
electronics. If you choose not to use
Deduction Pro, you may manually enter the charitable organization, type
of charity and amount.
H&R Block goes through each item
that you checked off in deductions
and adjustments, skipping the deductions that were not marked. At the
end, a table displays a list of deductions and the amount of each deduction. Go through this table carefully
because all of the deduction categories are listed here again. Users who
forgot to select certain deductions
can use this list as a reminder.
A separate section is included for
tax credits such as child care, tuition
and adoption expenses. H&R Block
also provides assistance on expense
credits for foreign tax paid and for
homebuyers and the elderly and
disabled. Once again, users are able
to check each pertinent tax credit. In
addition, a “What qualifies” link is
provided next to each tax credit.
As a final check, H&R Block examines your various payments throughout the year to assess whether any of
them qualify for a tax break. Documents that you need for this section
include statements of IRA and HSA
investments, Form 1040-ES showing
any federal estimated tax payments
made, Forms 1099-INT and 1099DIV for a child under 24, records
detailing household employees’ wages
paid, and COBRA health insurance
coverage. Be sure to check off all
payments that may apply to you, even
those you are not sure about. Doing
so makes it less likely that you will
miss a tax break.
H&R Block runs an accuracy test
at the end to catch any mistakes and
oversights. Problems are brought to
your attention, and you can choose to
either fix or ignore the issues. After
the federal tax return is completed,
the service also fills out your state
tax return with minimal additional
inputs. Inputs from your federal tax
return are used to obtain your state
tax bill; any specific tax deductions
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that are pertinent to the state tax
return are brought to your attention.
Once you are satisfied with your
tax return, H&R Block can electronically file your tax return at no
additional cost. However, filing your
state tax bill is an additional $34.95.
The website allows you to designate a bank account for the IRS to
automatically deposit a tax refund
or withdraw a tax liability. If you are
eligible for a refund, H&R Block can
automatically deduct its fees directly
from that amount.
While filing your tax return, H&R
Block offers answers to common
questions on the right-hand side of
the page. For additional help, H&R
Block offers a Q&A section on its
website, where user questions are
answered by tax professionals at the
firm. This area also contains tax tips
and a blog.
Figure 2. TaxAct Deluxe
TaxACT Deluxe
TaxACT is the least expensive of
the three services reviewed. The
Deluxe version, which allows importing of prior-year data and offers free
email and audit support, costs only
$9.95. You can start your tax return
free of charge and pay at the end
when filing.
Begin your tax return by entering
your personal information, including any disabilities you have and the
number of dependants you can claim.
Just as with H&R Block, TaxACT
asks you to fill out life events that
occurred in the tax year that may
impact your tax bill. Life events
are separated into the categories of
family; employment and retirement;
home, auto and personal property;
money and investments; state filings;
and other topics. TaxACT provides a
brief description and guidance when
you choose any of the sections. Make
sure to check off all life events that
are applicable.
A federal question and answer section is required when starting your
federal tax return. The questions are
very straightforward and help the
website ascertain which sections of
the federal tax return are needed in
your personal case. During the question and answer process, TaxACT
will ask you to complete sections that
require further data. For instance,
one of the first questions asked is
whether you received any wages
or salary from an employer. If you
answer yes, TaxACT will require you
to fill out the W-2 section. You can
choose Quick Entry or Step-by-Step
Guidance. Choosing Quick Entry
brings up a W-2 that you can quickly
fill out by jumping to the various
fields. Step-by-Step Guidance leads
you through each of the fields.
The W-2 that pops up when you
select Quick Entry contains two links
at the top left: Form Instructions and
TaxTutor. Clicking on Form Instructions brings up a new window with
instructions for filling out the form
W-2. Clicking on TaxTutor Guidance
presents the table of contents for
TaxACT’s comprehensive help section
designed to assist you in preparing
taxes. The design is the same for all
Quick Entry pop-up windows. Simply
click on either of the links if you
need help.
February Online Exclusive 2012
The federal tax filing goes through
each section in the same manner—asking whether you have made
income through various methods and,
if you have, requesting additional
information. Unfortunately, I was not
able to import dividend and capital
gains information directly through
a brokerage account using TaxACT;
that particular function does not
seem to be available. For dividends,
interest and capital gains, TaxACT
once again allows you to enter the
information into an online 1099-DIV
(or 1099-INT) quickly or with stepby-step guidance.
For help reporting capital gains
TaxACT offers Stock Assistant. Enter
a description, the dates at which you
bought and sold the stock, and the
purchase and sale proceeds into the
Stock Assistant and the service will
calculate your tax liability. Although
TaxACT does not offer the ability to
download the figures straight from
your brokerage account, you are able
to import from GainsKeeper or a
CSV file.
TaxACT progresses through the
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mary table is presented.
Finally, TaxACT reviews all your
entries and searches for possible errors or omissions. When you are satisfied with the information contained
in your federal tax return, TaxACT
can file the return for you electronically. If you are receiving a tax
refund, you may elect either to have
it wired electronically to an account
of your choosing or to have a check
mailed to you. If you owe taxes, you
may elect to have the IRS withdraw
the funds directly from your account,
mail in a check, or have it charged to
a credit card. TaxACT will also file
your state return electronically for an
extra fee of $8.00.
Figure 3. TurboTax Easy Guide
TurboTax Deluxe
income section with questions regarding income from sale of home,
business income, rental and royalty
income and retirement plan income,
just to name a few. At the end of the
income section, TaxACT provides a
summary of each income category
and the amount that you entered.
You can jump to and edit any section
by clicking on the review link at the
right-hand side of the table.
Deductions is the next section, and
it is set up in the same manner as the
income section. TaxACT uses a series
of questions to determine which sections need further inputs. The service
asks whether you would like to fill
out itemized deductions, and it is
recommended that you answer yes.
TaxACT will only use the itemized
deductions if doing so lowers your
tax bill, so there is no harm in filling
out the page, unless you are certain
that the standard deduction is greater
than the sum of your itemized deductions.
Review your entries at the very end
and make sure that your expenses
have all been entered into the Deduction Examiner table. The itemized
deductions section in the table is
broken down into medical/dental
expenses, taxes paid, interest paid,
gifts to charity, casualty and theft
loss, miscellaneous and other miscellaneous.
4
The tax credits section proceeds in
very much the same manner. A series
of questions determines which sections are pertinent to your personal
situation. If you are unsure, answer
yes, and the service will go into
more detail. At the end, make sure
to thoroughly go through the Credit
Examiner table to make certain that
nothing was missed.
TaxACT also includes a miscellaneous section after you have completed your income, deductions and
tax credits sections. This area allows
you to set up estimated tax payments
for the next year and enter additional
information to avoid an underpayment penalty in the future.
While filling out any of the sections, there are several links provided
on the right-hand side of the page to
provide assistance along the way. The
Tools tab includes the Donation and
Stock Assistants tools and the Loan,
Savings and Tax Calculators.
After completing all the sections,
TaxACT will provide a comprehensive summary (TaxACT Final). You
may also view the completed form
1040 (TaxACT 1040). Just as with
H&R Block, TaxACT can complete
the state tax return using the answers
that you provided in the federal tax
return. TaxACT asks several questions that are only relevant to the
state return, and at the end a sum-
TurboTax offers a free edition
that allows you to file a simple tax
return free of charge. The website
suggests that those who own stocks,
mutual funds or rental properties
use TurboTax Premier. However, we
found that TurboTax Deluxe was
able to handle stock and mutual fund
transactions. TurboTax Deluxe costs
$29.95; if you are using the service
to file a state return, it will cost an
additional $36.95.
One of the main advantages of
TurboTax is the live community
shown on the right-hand side of the
window. This feature allows users to
ask questions about common problems. The questions shown on the
page correspond to the section you
are working on. A ratings system
ensures that the best answer to each
question is shown.
To get started, you need to fill out
your personal information, including
occupation, state of residence, birth
date and any disabilities you may
have. Much like TaxACT, TurboTax
guides users through this section with
a series of questions designed to ascertain which future sections are relevant. Once again, it is recommended
that you answer yes to questions
that you are unsure about, allowing
the website to walk you through the
process and ensuring that you receive
the proper deductions.
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After entering your personal data,
TurboTax offers two options for the
Wages & Income section: EasyGuide
or Explore on My Own. EasyGuide
provides assistance by asking simple
questions to determine whether a section is relevant to your tax situation,
while Explore on My Own offers you
total control over the sections you
fill out. It is recommended that you
choose EasyGuide if you are new to
filing taxes online. Explore on My
Own allows experienced users to
quickly finish the filing process. For
our testing purposes, EasyGuide was
used.
The first section that most users
need to fill out is the W-2 section.
If the employer identification number that you entered is compatible
with TurboTax’s import feature, the
website will allow you to import your
W-2 figures directly. Otherwise, EasyGuide will walk you through each
section and show you where to find
the information (Figure 3, TurboTax
EasyGuide). An “explain this” link is
provided for certain sections of the
W-2 that provides further explanations of the information found in that
section. TurboTax also checks for
errors after each section. If figures
are omitted on the W-2, the website
prompts you to double-check your
entries. In addition, if TurboTax
calculates that too much for Social
Security or Medicare was witheld, it
will prompt you to get a corrected
W-2 from your employer.
The next few questions ask about
other income received, such as
unemployment benefits, interest and
dividends, and capital gains. For
investment income, TurboTax offers
the ability to import directly from a
wide range of brokerages. In fact, the
major brokerages are all compatible,
including discount brokerages such
as Scottrade, Fidelity and Charles
Schwab, as well as full-service brokerages such as Morgan Stanley, UBS
and Merrill Lynch. In addition, users
may import directly from Mint.com,
an online personal finance website
owned by the makers of TurboTax.
Of course, you can always type in
Figure 4. TurboTax Final Review
the figures manually. After completing each income section, TurboTax
presents a checklist of items you may
have missed.
TurboTax categorizes income
into nine separate sections, and
EasyGuide walks you through each
one. It is very difficult to miss any
income items using EasyGuide,
although more experienced users will
inevitably find the process tedious.
Furthermore, the website asks about
any foreign income, trusts or assets
that you have.
Deductions and tax credits are
grouped into a single section. Again,
TurboTax allows users to choose
between EasyGuide and Explore on
My Own. After completing the 10
deduction and tax credit sections,
TurboTax will bring errors to your
attention so that you can verify any
discrepancies. Your final deductions
will then be listed.
During the review process, your entire tax situation is presented. Be sure
to check this section carefully before
proceeding. In order to go back to
any of the sections, simply click on
the Revisit button on the right-hand
side. TurboTax will also run a final
error-check of your tax return before
filing. If errors are found, the nature
and location of the error are shown.
February Online Exclusive 2012
The data on the completed federal
tax return (Figure 4) is then transferred to your state return. TurboTax
will ask a series of questions designed
to minimize your state tax bill or
maximize your state tax refund. The
website also determines any underpayment penalty that you may have
incurred.
The final Wrap-Up section summarizes both your federal and state
tax returns and allows for one final
chance to correct errors. TurboTax
also shows your audit risk and offers
to represent you in case of an audit
(for an additional fee).
Just as with TaxACT, you have two
choices when receiving a tax refund:
to have it wired directly to your bank
account or to receive a check in the
mail. Also like TaxAct, if you owe
taxes, there are three options for
making a payment: to have it withdrawn from your bank account, to
send a check to the IRS, or to have it
charged to your credit card.
Conclusion
Each of these tax services is capable and deserves to be highlighted
in our annual review. As you can see
from the screen shots, they all calculated the same federal tax ($2,887)
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PRODUCT COMPARISON: TAX PREPARATION SERVICES
Website
Online Cost
Software Cost
(download or CD-ROM)
Cost of State E-File With Software
(after cost of state forms)
Program
Free trial
Functionality Import last year’s data
Import data from
financial institutions
Import W-2 Forms
Transfer data from federal
return to state return
Error check
Deductions
Automatically checks for
& Credits
applicable deductions
Deduction wizard (cost)
Printing and
E-file option
Filing
Direct deposit/withdrawal
Check status of e-file
Email confirmations
of IRS receipt
Technical/User Ask a tax professional (cost)
Support
Phone/online chat with
Features
company reps (cost)
Email questions
Ask, answer and read
other user questions
Guarantees
Audit support
Maximum refund/deductions
Accurate calculations
Calculates audit risk
Min System
Windows
Requirements Mac
for Software
Min System
Internet Explorer Version
Requirements
for Online
Mozilla FireFox Version
Safari Version
Google Chrome
in our tests. TurboTax shows a slight
discrepancy for the state tax return
($2,665 instead of $2,905) because I
chose not to have the service calculate any underpayment fees. As a
confirmation, the state tax calculated
by TurboTax coincides with the actual tax due line item for H&R Block.
H&R Block at Home Deluxe
www.hrblock.com
$29.95, e-file one federal;
$64.90 incl. state
$44.95, e-file five federal;
$64.90 including state e-file
$19.95
TaxACT Deluxe
www.taxact.com
$9.95, e-file one federal;
$17.95 incl. state
$12.95, e-file one federal;
$19.95 including state
$7.95
TurboTax Deluxe
www.turbotax.com
$29.95, e-file one federal;
$66.90 incl. state
$59.95 state +
e-file five federal
$19.95
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
Deduction Pro ($19.95)
✔ (free federal)
Donation Assistant (free)
✔ (free federal)
It’s Deductable (free)
✔ (free federal)
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔ ($19.95)
✔ (free)
✔ (free)
✔ (free)
✔ ($29.95)
✔ ($29.95)
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
XP, Vista, 7
Mac OS X 10.4.11
2000, XP, Vista, 7
Mac OS X 10.0
XP, Vista, 7
Mac OS X 10.4
XP (IE 6+); Vista (IE 7+);
Wind 7 (IE 8)
3
4
IE 6
2
4
XP (IE 6); Vista (IE 7);
Wind 7 (IE 8)
3
3
✔
✔
✔
Each year, these websites become
more expansive, and it is harder to
choose a clear winner for Editor’s
Choice. However, the nod this year
goes to TurboTax once again. The
EasyGuide provided by TurboTax is
still the most comprehensive aid to
filling out an individual tax return.
Z. Joe Lan is assistant financial analyst at AAII.
6
The website provides nine categories
for income and wages and 10 categories for deductions and credits, and
EasyGuide goes through every one,
listing the common items in each. If
you are experienced at filing taxes
online and need no assistance, the
websites offer no significant advantages over each other. In this case, the
recommendation would be to use the
least expensive option—TaxACT.
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