Apr 13, 2008

Is TurboTax Worth the Price?

Last year I used TaxCut to prepare my income tax returns. I did it because TurboTax - the program I used for the prior five or six years - kept asking me about a leased car that was long gone from my life. Many years ago I used the car for business, then returned it to the leasing company when the lease ran out. After that, the car was sold, probably more than once. Meantime, TurboTax kept obsessing about it, kept demanding information about its mileage and expenses, kept refusing to let me delete the thing from my tax preparations and move on with my life. TaxCut made the deletion simple, just as I hoped it would. My prior experience with both programs indicated that TaxCut always performed better than TurboTax in regard to deletion of irrelevant, obsolete data. Maybe its makers should go into the divorce business? This year I went back to TurboTax because I got a better software bundle and rebate with it. But when I got to the end of the filing procedure, the program disappointed me. It charged me $17.95 to electronically file my federal return, just as the package said it would. Then it whacked me another $17.95 to file state tax forms. This charge is a large bump-up from last year, when I used TaxCut. Was it really worth almost 36 bucks to file electronically? Probably not. So what's a frugal person to consider in regard to tax preparation software? First, do you need it all? Well, probably you do:
  • For all but the simplest tax situations, a computer program for doing your tax returns is a must! If your tax situation is complicated enough to require you to use the long Form 1040, it's unwise (errors will occur) and very difficult to do your return by hand.
  • All major tax preparation programs guide you through an interview which will allow you to prepare an accurate form. Needed information is automatically placed in all the proper spaces and all calculations are guaranteed correct.
  • Using a program saves a lot of time compared to doing taxes by hand. It might even be faster for you than using a tax preparer! I still shake my head over how long it took to gather tax materials, organize them, write notes and then drop the package off with my accountant. Even more time was burned up in inevitable phone calls and emails needed to clarify things. When I started using software to prepare my own taxes, I saved time.
  • Using even the most expensive program probably costs less than taking your stuff to a tax preparer.
The big problem with tax preparation software is that it is way overpriced! This is especially true of the most popular programs like TurboTax or TaxCut. No matter that you factor in rebates and bundles, your final cost for such programs has steadily increased far more than inflation during the past several years. What justifies the increase? Even when there are huge changes in the tax code, the bulk of the material in the tax forms filed by individuals changes little from year to year. When tax regulations require program adjustments, the software manufacturers need do little except tweak the code and the programs will compute taxes perfectly for their targeted tax year. If you use these programs long enough, you will see that any advertised "improvements" are mostly marketing hypes that ultimately benefit the software company, not you. Real improvements occur slowly and incrementally. That's why there are no substantial differences between the most popular tax products - competitors have plenty of time to copy one another. Any minor differences that exist are probably going to be undiscoverable until you purchase and install the product and fill out your tax forms. By that time, you are not going to ask for your money back so you can start from scratch with something else. Confronted by these unjustifiable price increases, most people just suck it up: They pay a bloated price for software that remains, from the user's perspective, basically unimproved from year to year. Then they get over it! But there are other things you can do:
  • Watch for the best sale prices you can find. For example, consider what I thought was a good deal at Staples. Here's an update. I got Quicken Starter bundled with TurboTax but had to pay for electronic filing. The Quicken, TurboTax and filing fees finally cost about $75. At the Intuit website, I would have gotten "free" filing, but would have paid $84.90 for state and federal tax programs and would have gotten no free Quicken. Total savings: Around $40 on $85 purchase.
  • State and federal tax sites are improving every year. Be sure to check out how they can help you deal with regular income taxes. What do they offer in the way of free filing, online or otherwise? What do they do for you in terms of free electronic payments or refunds? Practice frugality by exploring these resources well before you need them. For example, do it around December or January instead of shopping and partying.....Weeeeell, NOT! Just do it early.
  • If you should pay estimated federal or state taxes, check government websites for programs which will automate the process for you without any charge.
  • There are three reasons to electronically transmit your tax forms: Transmission leads to fewer errors than scanning paper forms, it is said. Transmission is faster if you let things go to the last minute and the post office has closed. Finally, your government likes it because it makes things easier. Should you pay $35 for someone to transmit your forms and payment to the government after you have already paid a bloated price for software? That doesn't seem fair.
What's the most frugal solution to the problem? Before the tax deadline, check with your friends and relatives. Who will be installing tax software on their computers? Prepare your return on one of those computers and print the return. Then drink some beer with your benefactor. Later, mail the return to IRS with a check. Frugal and fun! If you are in a hurry to file and your form is simple enough, another alternative might be to transfer the information to forms on a free government website and pay taxes or get your refund electronically. That would be frugal and fast. Either way, you're not paying $36 for a service which would be fairly priced if it were reduced by 50 to 75 percent.

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