Online Tax Prep: An Upgrade Year

Web-based tax preparation sites are better than ever, with improvements in design and interviews.

Tony Lima, special to PC World

Why do your taxes on the Web? Portability is one good reason: You can work on your return anywhere there's Web access. And unlike with shrink-wrapped software, which you must take care to update, you never need to download patches or state files for Web services. The vendors install these information on the server, so you always have the most up-to-date software. An added bit of good news: Prices generally include free e-filing.

But don't wait until April 16 to start your Web return. The servers will be awfully busy this year. (April 15 is on a Saturday, so the IRS has kindly given us two extra days to file this year.)

Web-based tax preparation has really grown up (and consolidated a bit, with H&R Block's acquisition of last year's newcomer, TaxNet).

Each of the sites from the five major services I looked at--CCH's CompleteTax, H&R Block's TaxCut, Intuit's TurboTax, Petz Enterprises' TaxBrain, and 2nd Story Software's TaxAct--has improved its user interface and interview process over last year's version.

The interviews--a series of questions designed to solict the information necessary to fill out the tax form--are also noticeably different from each other. While wending your way through the tax maze is never much fun, choosing a site that fits your style can reduce the agony a bit.

Ranking the Services

Overall, TurboTax provides the best overall experience, with comprehensive tax help, a thorough and detailed interview, and superior navigation tools.

Those who don't feel comfortable with a structured interview might consider CompleteTax. It has some flaws, but its interview is considerably more flexible than those of the other four products, thanks to fine navigation design.

If, on the other hand, you're ultra-organized and are willing to work your way through all your IRS forms, TaxBrain is the Web site for you. However, I had some problems with this site and its pricing (see review below).

TaxAct remains the low-price leader, with free basic federal returns and e-filing for those with uncomplicated tax situations who don't need a lot of advice (but might not qualify for any of this year's offers in the IRS-backed Free File program).

I'm less enthusiastic about Web version of TaxCut, however: It's not nearly as good as the shrink-wrapped software.

TurboTax.com, CompleteTax, Taxcut

Here are my evaluations of the individual sites.

TurboTax.com: Still King (Total Cost: $45)

Intuit's TurboTax Web interview is now identical to the company's top-rated shrink-wrapped software interview. There's even a version of Intuit's ItsDeductible deduction management software included in the Web interview. TurboTax.com charges $20 for the federal return and another $25 for the state.

Like several sites this year, TurboTax provides excellent multilevel tabbed navigation: Top-level tabs let you choose the broad area you wish to work in (personal information, income, deductions, and so on); subtabs (which also appear in CompleteTax and TaxCut) identify specific topics within the top-level tab; and checkboxes or radio buttons then bring you to specific screens.

The TurboTax user interface offers numerous navigation options.

TurboTax offers additional navigation options. You can select items from the list of form categories. If you can't decide which to select, click the Walk me through all button to get the full interview. Or if you know what you want to do but don't know where to do it, click Where do I enter?

With its elegant and economical design, strong online help (including all IRS tax publications, a significant video library, and its own tax help), and an interview that goes into the depth any particular tax situation requires, TurboTax.com still ranks number one among the tax prep Web sites.

CompleteTax: Most Improved (Total Cost: $35)

CCH's CompleteTax interview rates as most improved from last year's version. One new and unique feature of this $35 ($25 federal, $10 state) service is its treatment of investment income, capital gains, and margin interest in a single interview topic. (Those who have had to hunt around for the margin interest deduction will thank CCH for this.) And its dependent status questionnaire is the best of any I've seen. Unfortunately, if you earned income in two states or need to file a nonresident state tax return, you can't. CompleteTax does not include that feature with its state products.

CompleteTax's comprehensive tabbed interface is the only one I saw with a separate top-level tab for investments, covering investment income, capital gains, and margin interest. This is a nice touch that gives CompleteTax users much more control over the interview process.

CompleteTax also differs from the others in that it sometimes adds new top-level tabs, depending on how you answer interview questions. For example, you won't see the "investments" tab unless you say you had investments. The state tab is shown only once you've said you want to submit a state return.

Using more tabs this way means there are fewer choices consigned to checkboxes. Checkboxes limit the interview but the interview itself remains linear once you've begun. Tabs let you jump around to different parts of the return whenever you want. This will appeal to those who like to make new entries as new tax documents arrive.

Others may find that the virtues of CompleteTax's user interface are largely negated by the product's many annoying quirks. For example, you can't enter a number that includes a comma: Typing $1,234.56 will produce an error message and require you to retype the number without the comma.

When you've finished the "dependent status questionnaire" you still must enter the result on the form by hand; the software doesn't do it for you. Sometimes CompleteTax wants dates entered in MM/DD/YYYY format and other times it wants MM/DD/YY.

And the asset classes in the depreciation schedule are too broad. I was left guessing whether cell phones belonged in "typewriters, calculators and photocopiers" or "business equipment and furniture." Worse, the online help was no help at all in sorting out where my newly purchased cell phone belonged in the depreciation schedule.

A minor annoyance was the program's insistence on automatically filling in the entry fields for my wife's and stepchildren's last names with mine. I had to erase my last name four times! And at one point the software asks California filers to erase an entry on the previous screen--even though the software had asked users for state information.

TaxCut: Not as Good as the Box (Total Cost: $45)

H&R Block's Web version of TaxCut ($20 federal, $25 state) includes even more second-level tabs than the company's shrink-wrapped software. The TaxCut.com interview style is also very similar to that of the desktop software. But using TaxCut online this year felt like using the shrink-wrapped product last year: Too many screens ask one or two simple questions, wasting desktop real estate. It looks as though the folks who redesigned the software user interface didn't bother to keep the Web site designers in the loop.

The TaxCut interview is disorganized in places. For example, consecutive screens about business income ask for some of the same information. This is another way in which TaxCut for the Web uses too many screens to get a simple job done.

TaxCut cannot prepare your online return if you made contributions to a health savings account, a medical savings account or other tax-advantaged healthcare account. An H&R Block representative says the site should support these contributions next year; in the meantime, the company suggests that people in this situation use an H&R Block tax professional instead.

This contributed to my perception that H&R Block is trying to push people to either its shrink-wrapped software (which handles HSA and MSA contributions just fine) or its storefront service. In fact, when you exit the Web site, one of the options presented is "Let an H&R Block tax professional complete my taxes." (To be fair, you can also choose "Come back and finish my return" or "Prepare my taxes another way.")

TaxAct, TaxBrain

TaxAct: Low Price (Total Cost: $23)

Like its shrink-wrapped counterpart, 2nd Story Software's Web-based TaxAct remains the low-price leader. TaxAct's Deluxe Web package will cost you $10 for the federal return plus $13 for the state. For those who don't need help, the real bargain is the standard package, available for free to everyone. This includes all federal forms and schedules, as well as federal e-filing. Adding the state will still cost $13.

But the company seems to have let its Web site slip. For example, when I answered questions about my dependents, TaxAct didn't blink at my claim for a (hypothetical) 25-year-old daughter who lived at home for all 12 months. The other four programs asked a few more questions, such as whether she earned over $3200 (correctly noting that if her earnings were greater than $3200 she could not be claimed as a dependent).

But TaxAct did want to know whether my (also hypothetical) 21-year-old son was a full-time student. Why they had questions about someone under 23 years old but failed to ask anything about a 25-year-old is a mystery. The most egregious omission, however, was for an unrelated 22-year-old who had been living with us all year and who was not a student. This person was accepted as a dependent with no questions asked!

TaxAct compounds these problems by including many screens trying to sell you various services, upgrades, and add-ons. This year the other products have pretty much eliminated "upsell" screens from their software and Web sites.

TaxBrain: Odd Man Out (Total Cost: $100)

Petz Enterprises' TaxBrain is the only site I looked at that doesn't use tabbed navigation: While its initial screen, with 14 checkbox-style questions, appears straightforward, any item for which you check "yes" may open another set of questions.

Once you've answered somewhere between one and five pages of these questions you can actually begin your return--and proceed very efficiently. But this works only for superorganized types who have all their paperwork in hand and don't expect to be working on different parts of their return at different times.

TaxBrain is also expensive. It would have cost $70 to prepare my sample federal return and another $30 for the state. It's not particularly easy to use, nor is it easy on the eyes. For example, its sales tax deduction calculation screen is a forbidding conglomeration of questions and tables. Of the three shrink-wrapped products and five Web products I checked out, this is far and away the worst handling of sales taxes.

And there are other annoyances. When entering multiple dependents, after each one you have to click a link in small print that says "additional dependents" and is located on top of the data entry fields. If you forget, and click the much larger Save button at the bottom of the window, you'll return to the main menu and have to remember to click the link to "Dependents information" to start the process all over again. Granted it's only one extra click, but it's still poor design.

TaxBrain is laid out pretty much the way IRS forms and schedules are laid out. That means, for example, that you can enter employee travel expenses and a few other items on Form 2106, but must go to Schedule A to enter any depreciation or other employee expenses.

Since most of us organize our paperwork by category, I tend to put all our employee expenses in the same shoebox. Sorting them out for TaxBrain's convenience seems like unnecessary extra work.

The Schedule A displayed is very rudimentary: There's no way, for example, to break out mortgage interest paid to different lenders, so you have to do those calculations yourself offline, increasing the chances of math errors. Also, the entry field for "state taxes paid" includes a warning not to include W-2 amounts. It would have been nice to see the W-2 total transferred automatically, and also a new line for any additional state taxes paid.

Conclusion

Online tax preparation sites are catching up with shrink-wrapped software. In fact, TurboTax uses virtually identical interviews for both. Luckily, the Web sites are moving in slightly different directions from each other, giving customers more choice about the experience they will have filing this year's return.

So choose carefully and maybe you'll only need the medium-size bottle of tax headache reliever this year.