Some thoughts for DIYers
by Charles W. Evans
The W-2 forms have arrived, the 1099 forms aren’t far behind, and it’s time to choose your best line of defense against the IRS.
Three companies lead the pack for desktop tax software. By my ranking, they are TurboTax from Intuit; TaxCut by H&R Block; and TaxAct by 2nd Story Software.
You can find web-based versions of these three programs, as well as of CCH’s CompleteTax and Petz Enterprises’ TaxBrain.
Generally, the higher-priced packages include a greater level of help and provide a more in-depth interview to help populate your tax forms. But their areas of focus vary - and that’s a plus, because everyone’s tax situation is different.
How do you know whether your return is complicated? Consider these factors:
- Mileage deductions, particularly in multiple categories, such as medical, charitable, and business (your own or one where you are an employee).
- Depreciation expense, which you can claim on Schedule C or Form 2106 or both. Depreciation is more complicated if it involves continuing to expense items purchased earlier.
- Noncash charitable contributions exceeding $500 or a large contribution to a single group.
- Anything that might trigger the Alternative Minimum Tax (AMT).
- Asset sales or complications resulting from the ever-changing treatment of stock sales and dividends. (For example, selling shares that you purchased at several different times).
Here’s the crux: If you successfully used a tax program last year, stick with it this year. The sole exception is when your tax situation becomes considerably more complex (or more rarely, when your taxes get simpler).
Both H&R Block and TurboTax market separate programs to help you value noncash donations to charity. H&R Block’s DeductionPro costs $20 but is included as a free download with TaxCut Premium. TurboTax’s ItsDeductible also costs $20 and values items based on eBay data. Both guarantee to find at least $300 in additional deductions or the vendor will refund the purchase price.
If you made numerous noncash donations to charity during 2003, either of these add-ons will be worthwhile. You should use the deduction finder companion to the tax program you choose, because you’re virtually assured of compatibility.
Here’s the summary
If all you file is Form 1040EZ, head straight to TaxAct and download the program - the price is right (0$s). You can pay the small e-filing fee or print out your return and mail it yourself.
If you have a complex tax situation, however, carefully consider which IRS schedule is likely to cause you the most difficulty. Then choose the package that handles that form best.
Another variable to consider is complications arising from the sale of investment assets. Stocks and bonds are the simplest items in this category. Sale of real business property such as rental housing makes a return even more complex. You might be best served by a Premier version of the product you choose.
Again, TurboTax is the most thorough of the three, but each program has positive aspects. The one to pick depends on the year you had - and what Uncle Sam is expecting from it.
A few things to remember if you are going to “go it alone”....
If you plan to do your accounting and tax reporting, we recommend that you choose your accounting and tax preparation software from the same manufacturer. This will cut down on incompatibilities and smooth the “tech support” process if you do run into trouble.
Make sure your software includes all the forms you need for the type of company you are operating - sole proprietorship, partnership, LLC, “C” corporation or “S” corporation (or non-profit organization).
Is the software’s “advisor” easy to understand and work with? If you don’t understand the question - there’s a good chance you could make a costly error. Take advantage of “trial” versions or demos on the vendor’s website to make sure you’re comfortable. Talk to your friends and colleagues and see whether they found the software’s tax instructions helpful.
Special “e-Filer” note: As part of a congressional mandate to increase participation in electronic filing, the IRS has contracted with fifteen Web sites to offer free online federal tax preparation and e-filing to qualified individuals. The good news is that almost everyone qualifies for at least one program.