Guide to Filing Taxes Online
Tax preparation sites offer fast filing, fast refunds.Mike Hogan, special to PCWorld.com
This year, tax savings get real: Rates are down, tax-deferral opportunities are up, and deductions have more flexibility. Of course, the new rules make tax preparation more complicated, as well.
The Web can provide a shortcut through IRS paperwork, speeding you to your refund. A tax preparation site is available for every budget. Such services are (mostly) easy to use, and electronic filing has been shown to increase accuracy and reduce refund turnaround time from weeks to days.
Hands-On Overview
I prepared returns in the premium versions of TurboTax for the Web from Intuit, H&R Block's Online Tax Program, and TaxAct Online by Second Story Software. I also briefly checked a few less-traveled sites such as CompleteTax.
None are perfect, but they're definitely friendly enough and complete enough to meet the needs of most taxpayers. You can log on and off at any time day or night, and (except for a few state-specific questions) your state return is prepared while you answer questions for your federal return.
In general, you pay only a third to half as much as you would preparing and e-filing your taxes using the same providers' packaged tax software--and you don't have to juggle rebate coupons. Preparing and e-filing both federal and state returns can cost as little as $16 (see the chart), and you don't pay until you're ready to e-file or print.
Unlike packaged software, though, a Web service lets you file only one person's return for the price. And unless you used the same site last year, you should expect to enter most of your tax data by hand; tax sites don't accept prior-year data from each other or, in most cases, from personal finance programs such as Intuit's Quicken and Microsoft Money. Importing electronic data from your financial institutions is still very much a work in progress. Oh, and doing your taxes over dial-up can be sl-o-o-o-w.
But tax Web sites are cheap. Particularly if you're a wage earner with a straightforward return, they're the most painless way I know to make the annual stroll across the coals. The feds encourage e-filing, too.
TurboTax for the Web
TurboTax for the Web 2002 offers the biggest variety of versions, all of which employ Intuit's extremely thorough and thoughtful interview. The higher-priced editions include a unique year-to-year comparison of your deductions, as well as best-of-breed investment and retirement-planning tools. I thought the extras interesting, but not really essential to the job at hand.
I found myself taking the most time trying to figure out TurboTax's needlessly complex routine for importing data from Quicken. Though TurboTax perfectly imported my 2001 return from its servers, I spent fruitless hours attempting to upload my latest Quicken data--a task that should be a trivial procedure. What ought to be TurboTax's biggest time-saver can be a major time-waster.
When I turned to Intuit's online help, I found it both bureaucratic and superficial. I thought support staff might help me with this clearly technical problem, but Intuit charges $5 to chat online or $15 for a phone call. Why should a customer pay to sort out a design flaw Intuit has been alerted to for several seasons?
Then, I pointed my calculator at TurboTax's price tags. Whoops--prices on state returns have increased 15 percent, and TurboTax Basic charges $5 (20 percent) more than last year's fees for returns filed before April 1. The Premier edition costs 50 to 66 percent more than last year's counterpart, depending on when you file. Intuit also charges a buck--or 20 percent--more to taxpayers who file using the simplest state version.
For truly sticky tax questions, $20 will buy you 10 minutes with an Intuit subcontractor. That same consultant will check your completed 1040 for another $40--or $60 if it includes schedules C, E, or F. That's fair.
H&R Block Online
If you think you might need a little professional backup, a better choice might be H&R Block's Online Tax Program. It offers the most comprehensive menu of for-pay preparation assistance.
You can start out with the OTP interview and, if necessary, have an online Block preparer take over; depending on the forms you need, the service will cost $80 to $200, plus another $30 to $60 for your state return. If you need just a little help, you can click an OTP link and ask a Block tax expert a question for $20 or have one review your completed return for $30.
OTP also does a good job providing free tech support, with a well-indexed online reference backed by an easy-to-use chat room where you can get quick answers. Toll-charge phone help is available too, if you can find the number. Staffers are friendly and helpful, though the ones I chatted with could use a tad more product experience.
Neither the feature set nor the price of Online Tax Program itself has changed from last year. H&R Block now also offers Online Tax Program Plus, which adds a few tax calculators and planning tools for an extra $20.
Both versions are spare, and not nearly as lucid as TurboTax, but they do a good job homing in on the forms that apply to you and avoiding the myriad tax questions affecting only a fraction of taxpayers. The site effectively imports data from last year's return and from a few online institutions, but not from Quicken or Money.
One inscrutable oversight: OTP doesn't keep a running tally of your tax obligation at the top of every screen--as every other tax program and service has done for years.
TaxAct 2002 Online
This year's best tax preparation value is TaxAct 2002 Online. Second Story Software's site offers no frills, just a solid, easy-to-follow alternative. It actually costs 33 percent less this year, charging only $16 to prepare and e-file your federal and state returns (see chart). The new TaxAct 2002 Online Deluxe shortcuts data entry by importing last year's TaxAct return; this version is particularly handy if you have capital gains you must declare. Deluxe also adds some updated financial reports for $2 more.
So what do you give up? TaxAct is missing some of the interesting-but-not-vital investment and retirement planners in TurboTax and OTP. Instead, it offers a clean, clear, and sensible interview that easily navigates every IRS twist and turn. The process would be even better if there were more than one question per screen, though.
Onsite help also is rather basic, not really context-sensitive, and not well linked. But you are backed up by excellent free phone support (not an 800 number), and its e-mail support personnel are knowledgeable and quick to respond. TaxAct worked so well that for my informal evaluation I had to invent technical questions, which the support staff fielded promptly.
Choosing for Yourself
You have an overwhelming number of tax preparation alternatives this year--most of them versions of TurboTax, whose interview feature is really without equal. Intuit also tries to entice you up the price scale by dangling an increasing number of calculators, wizards, and planners.
In my opinion, these tools' usefulness plateaus at TurboTax for the Web Deluxe. In focusing on frills, Intuit seems to have lost sight of what you really need heading toward April 15: help. Despite its premium prices, TurboTax for the Web fails to provide an advantage over the competition in regards to import functions, tech support, and tax help.
If you think you might end up paying for tax assistance, H&R Block's Online Tax Program is the ticket. But TaxAct is the best bargain, and the best online choice for the widest number of taxpayers.
Online Tax Preparation Sites (chart)
| Product | Federal price | State price | E-filing fees (federal/state) | Extras |
| 2nd Story Software: TaxAct 2002 Online | Free | Free | $8/$8 | n/a |
| 2nd Story Software: TaxAct 2002 Online Deluxe | $10 | Free | Free/$8 | Data import from TaxAct 2001 return; more help with capital gains |
| H&R Block: Online Tax Program | $20 before 4/1/03, else $30 | $10 | Free/free | n/a |
| H&R Block: Online Tax Program Plus | $40 before 4/1/03, else $50 | $10 | Free/free | Everything in Online Tax Program plus deduction and planning advice |
| H&R Block: Professional Online Tax Preparation | $80 before 4/1/03, else $90 | $30 or $60, depending on forms needed | Free/free | H&R Block prepares your return after online Q&A |
| Intuit: TurboTax for the Web Basic 2002 | $20 before 4/1/03, else $30 | $15 | Free/free | Electronic postmark tells when return was filed, downloads 1098, 1099, and W-2 data directly from participating institutions |
| Intuit: TurboTax for the Web Deluxe 2002 | $30 before 4/1/03, else $40 | $15 | Free/free | Adds help, advice, tips, and year-to-year deduction comparisons. |
| Intuit: TurboTax for the Web Premier 2002 | $50 before 4/1/03, else $60 | $15 | Free/free | Adds extra investment and retirement calculators and planning wizards |
| Intuit: TurboTax for the Web Premier 2002 Home & Business | $60 before 4/1/03, else $70 | $15 | Free/free | Everything in Premier plus small business deduction and depreciation help |
| Intuit: TurboTax for the Web 2002 1040EZ | $10 before 4/1/03, else $13 | $6 | Free/free | n/a |
| Quicken Tax Freedom Project | Any version free for adjusted gross income of $25,000 or less | Any version free for adjusted gross income of $25,000 or less | Free/free | Varies with version; see above |
| CompleteTax | $25 | Free | Free/free | Interface improvements |