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Tax-preparation software from TurboTax and H&R Block have drawbacks, benefits

By Rob Pegoraro
Washington Post Staff Writer
Sunday, March 14, 2010; G05

Tax-preparation programs are an unnecessary evil.

We don't need special software to pay other bills, but our elected representatives' perpetual tinkering with the tax code makes paying for our share of government so mind-numbingly complex that most of us must outsource the math.

It's alarming and maddening, then, if you cannot count on two different tax applications to yield the same figure. But that's what happened in both last year's review of tax-prep programs and in this year's test.

At least this time around, the two contenders were only $13 apart, and that's good enough for government work.

Once again, I tested Web-based versions of software -- they easily outsell stand-alone programs -- from H&R Block and Intuit, the Pepsi and Coke of this business. H&R Block At Home Online Deluxe (http://hrblock.com), formerly known as TaxCut Online, and Intuit's TurboTax Online Deluxe (http://turbotax.com) each sell for $29.95 and run in any new Web browser, using an interview approach to collect your numbers before spitting out what you owe or are owed. You don't have to pay for either until you file, either online or by printing out forms.

If you employed one of these programs to do your taxes last year and didn't hate the experience, you should stick with the same application. Each program will use last year's data to pre-fill some forms, and you also won't have to learn a new interface.

But if you're starting from scratch, go with TurboTax, which beats Block in its ability to download tax data for you and calculate charitable donations. In my test, TurboTax also yielded the bigger refund -- but I'm not sure exactly why, or whether that number is correct.

Then again, I'm not sure the IRS does either.

TurboTax does best in the early stages of tax preparation, when it can download tax-form data from what Intuit says are some 270,000 employers and 100 financial institutions. Although I couldn't fetch W-2s for me or my wife, TurboTax did collect 1099 forms from four investment companies, saving a non-trivial amount of data entry.

TurboTax can also import data from Intuit's Quicken program -- but not Mint.com, its Web-hosted personal-finance software.

Block added a similar feature to its Web application only this year and covers far fewer sources, none of which applied to us. It can also bring in data from Quicken.

If you have any sort of side business, TurboTax makes the work of adding up business expenses go by much faster; Block required six pages just to collect the details of a depreciable asset and threw around a lot more accounting argot in the process.

Most deductions are straightforward to enter, but not those for charitable donations. Block makes you type recipients into a tiny onscreen form too small to show the names of most charities, while TurboTax prolongs the process by requiring you to enter a recipient on one page and the value of your gift on another. Both waste your time by asking for information that the IRS doesn't care about, such as a charity's city and state (in TurboTax) or what type of organization it is (Block). TurboTax's ability to estimate the value of items donated to charity using Intuit's ItsDeductible software sets that program above Block.

Intuit also offers the cleaner interface overall, including the helpful option of seeing the math behind its current estimate by clicking that number. Block's software showed some disturbing sloppiness: The "Back" links at the bottom left of each screen sometimes didn't respond, forcing me to use its main menu to retreat to the start of a segment, then click forward to fix the one item I'd left out.

These programs can also do your state taxes, but in many cases you may not need to bother. The District, Maryland and Virginia all offer free online tax-preparation interfaces. Their interfaces may not be as sharp as Block's or TurboTax's (though the former program, unlike Virginia's iFile site, didn't ask if I had a 529 college-savings plan), but their prices cannot be beat.

The IRS offers nothing similar, and President Obama has yet to take any action on his campaign pledge to provide taxpayers with pre-filled forms -- remember, the IRS already knows anything printed on a tax form you got in the mail.

Shockingly enough, Intuit has lobbied states offering free online tax preparation to switch to the IRS "free file" model, in which the government cedes the field to private companies that promise to offer tax-prep tools at no charge to people below a certain income level.

Virginia seems to have bought that foolish argument. A bill that would close iFile (for an estimated savings of, at most, $49,200) in favor of a free-file system now awaits the signature of Gov. Robert F. McDonnell.

So not only does the hideously complex tax code force us to use software to perform a basic job of citizenship, it's given rise to the sickening spectacle of the vendors of this software asking governments to write laws locking in their business. This needs to end.

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