Bedeviling Prep Programs And the Tax Code From Hell

Among the differences between these dueling programs: TurboTax offers a time-saving shortcut; TaxCut costs less.
Among the differences between these dueling programs: TurboTax offers a time-saving shortcut; TaxCut costs less.
By Rob Pegoraro
Thursday, March 15, 2007

After spending two mind-numbing days trying to feed the same numbers into the two leading tax-preparation programs, I'm stuck with this puzzler: H&R Block's TaxCut says my wife and I owe the feds $18,000, but Intuit's TurboTax says our bill comes to $3,000 and change.

The scary thing is, I don't think either application is right. Their numbers for our income are way too high; something got entered or counted twice. I'm going to have to pore over our returns, line by line, until the mistake surfaces -- just as I did last year, except then I didn't find the error until after filing.

This isn't supposed to happen with tax-prep software. Even when these applications function perfectly, though, they're nobody's idea of fun. And yet, what alternative is there?

For people with a life of average financial complexity -- in our case, a house, a decent variety of investments, some stock options from my wife's former job, a little freelance-writing income for me -- the tax code cannot be deciphered. You have to trust a third party to extract you from an accounting quagmire.

Outsourcing the job to a paid professional has its attractions, especially if you need help with value judgments like "should I claim this deduction?" But for people with simpler tax scenarios, a tax-prep program promises to simplify the yearly agony at a lower expense.

Up to a point, these two applications delivered on that promise.

The big differences between them are convenience and cost. TurboTax (for Windows 2000 or newer, Mac OS X 10.2 or newer) can download a decent chunk of your data for you. TaxCut (Windows 98 or newer, Mac OS X 10.3 or newer) lacks that time-saving shortcut.

Preparing and e-filing federal and state taxes, however, will cost most home users about $75 in TurboTax, compared with $60 in TaxCut. Web-based versions of each program cost $15 to $20 less, but they require you to store your tax data online.

In operation, the two programs can seem suspiciously similar -- the Coke and Pepsi of tax-prep software. Both start by offering to bring over relevant data from last year's tax-software data and personal-finance programs such as Quicken or Microsoft Money.

Then they quiz you about one financial topic at a time while hiding the actual forms from sight.

TurboTax's main advantage is its data-download option. If your employer supports Intuit's online services (my wife's did; mine did not), the program can fill in your W-2 info for you. It can also download data from your mutual funds or other investments if your account allows online access.

TaxCut can't do that and feels slower overall because of the way it often requires three screens of questions to complete one form. TaxCut also exhibits a certain annoying fussiness: If you try to type a date as "3/15/06," TaxCut won't accept the shorthand; it requires all four digits for the year.

TaxCut was least helpful when I entered expenses for my freelance work. It kept demanding details that only a CPA could know, or that were listed in the 2006 tax-return file it had already imported.

TurboTax, meanwhile, got stuck in a loop at one point, repeatedly inviting me to sign up for an unnecessary expense-tracking service. I had to restart the program to move on.

Both programs offer sidekick applications to track charitable giving and suggest cash values for in-kind donations such as clothing and books. TaxCut, however, crashed when I tried merging a report prepared by its DeductionPro counterpart.

Had I stopped at this point -- a solid day's work -- TurboTax would have been the clear favorite.

But then I tried entering my wife's modest stock-option profit. TaxCut and TurboTax treated this sale so differently, it was hard to believe that both applications were dealing with the same transaction or even operating under the same legal system. And neither quite meshed with the brokerage's paperwork.

This is where the tax math must have jumped the tracks. At least I have a month to fix it.

Intuit and H&R Block deserve some blame for this kind of problem, but not as much as the elected representatives who inflicted the tax code upon us. That monstrosity is riddled with cryptic exceptions and options that seem only to show who hired the most persuasive lobbyists.

What social purpose can possibly be served by having five flavors of capital gains? Does Schedule C need four kinds of asset depreciation? Where's the logic in deducting interest paid to buy a stock, but not a car? Must we subsidize every alleged good deed with a tax credit?

Throughout my miserable week, I kept yelling the same thing at the screen: "I don't know! I don't care!"

Programs like TurboTax and TaxCut often do a heroic job of alleviating this pain. But they shouldn't have to exist in the first place. We ought to be able to construct a tax code that normal human beings can understand on their own, one for which the only necessary tax-prep tool would be a calculator.

Living with technology, or trying to? E-mail Rob Pegoraro

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