In its current ad campaign, tax software giant TurboTax insists that you don’t need to be a Nobel Prize-winning physicist—or any kind of genius—to do your taxes, as long as you use TurboTax. For once, we see truth in advertising: Indeed, TurboTax and its competitors simplify the chore of filing your taxes. They’ll do the math for you, alert you to tax breaks you might overlook, and flag questionable data entries that could raise eyebrows at the IRS.
But do-it-yourself taxpayers face numerous potholes when navigating tax filing programs. Extra costs aren’t always clearly disclosed, so you could end up spending more than you planned. Baseline prices may even rise by the time you finish filling out your forms. (All prices cited here are as of February 16.) Some programs rely too heavily on tax jargon or offload you to jargon-filled IRS documents, rather than explaining them in plain English for you.
And despite recent efforts to improve security, hackers and identity thieves continue to look for ways to penetrate these mother lodes of sensitive data. TaxSlayer and TaxAct recently disclosed that customer data was stolen in late 2015. Last year, identity thieves hacked into the IRS database of prior years’ tax transcripts and stole information about 350,000 taxpayers. So it’s more important than ever to use hard-to-crack passwords and update antivirus programs before you embark on this annual chore.
This year, we reviewed five online versions of tax-filing programs. (You can download software versions rather than filling out your forms online, but doing so is generally more expensive unless you prepare more than one return.) We gave our hypothetical taxpayer a mortgage, some modest investments and a health savings account (HSA), an increasingly popular tool for workers with high-deductible health insurance plans. HSA account holders who take money out for medical expenses are required to report it on their tax return; failure to do this could trigger a large penalty. Here’s what we found:
Intuit’s product continues to impress with its easy navigation, clear instructions and ability to import thousands of documents from employers, investment firms and other institutions. Although other software programs also allow you to import documents, none are as comprehensive as TurboTax, which imports information from more than 1.4 million employers and financial institutions.
TurboTax handled our hypothetical taxpayer’s HSA with aplomb, which wasn’t true of some of the other programs we tested. Similarly, the reporting requirements under the Affordable Care Act are easy to follow.
Pros: TurboTax is the most user-friendly program we tested. If you discover you’ve omitted something—a charitable contribution, for example, or interest from a small bank account—it’s easy to go back and update your entries.
Cons: Cost. We tested the online version of TurboTax Deluxe, which costs $34.99, plus $36.99 for a state tax return. If you have investment income, other than interest and capital gains distributions from mutual funds, you must upgrade to TurboTax Premier, which costs $54.99 for a federal tax return, plus $36.99 for a state tax return. Prices could rise as the tax filing deadline approaches.
This program is a breeze to navigate, and we especially like the checklists — such as a list of commonly missed tax forms to look for prior to filing your return. Block wants to make sure you have the documents you need. The program also does an excellent job of explaining the new ACA requirements.
Throughout most of our test drive, Block seemed to anticipate our questions and provide links to answers. The “Learn More” icons next to sections such as mortgage deductions and real estate taxes are clear and comprehensive.
Pros: H&R Block’s Deluxe version, which costs $34.99 for a federal tax return ($36.99 for a state return), allows you to report investment income, making it a better deal than TurboTax Deluxe. In the unlikely event that you’re audited, Block will provide an enrolled agent, at no cost, to help you “manage the entire audit experience.”
Cons: The search function is disappointing. A search for “health savings accounts” produces a generic description of HSAs, instead of guidance on where to report contributions and distributions.
TaxAct has long been popular with budget-minded taxpayers, but it’s not as cheap as it used to be. If you itemize, you’ll need to use TaxAct Plus, which costs $14.99, plus $14.99 for a state tax return. That’s still a good deal compared with the cost of filing a state and federal return with some of its competitors.
TaxAct’s summaries of income, deductions and credits allow you to review your work. However, if you realize you’ve left out some information, such as a charitable donation, you’ll have to traverse some of the ground you’ve already covered before you can update the entry.
Pros: New security features are rigorous and reassuring. For example, if you start the program and take a break to walk the dog, TaxAct will log you out after a few minutes of inactivity. TaxAct offers a “Price Lock Guarantee,” which means the price of your program won’t increase between the time you start the program and the time you file.
Cons: Updating entries is time-consuming. TaxAct doesn’t provide as much hand-holding as some other programs.