Tax Software: Good Company for a Tough Task
By STEVEN E. BRIER
s if tax forms were not confusing
enough, many of the changes made in tax laws several years back did not go into effect
until this year, showing up for the first time in the tax forms now piling up in
mailboxes.
Changes like those in the child tax credit, the Roth I.R.A. and education tax
incentives; similar changes in the tax laws of many states; the number of people
moonlighting, and the effect of stock market volatility on individual portfolios -- things
like these have made the traditional way of doing income taxes, sitting down at the dining
room table on a winter weekend, seem hopelessly quaint.
Although you can still prepare taxes without anything more than the Internal Revenue
Service forms, work sheets and a pencil, more people are turning to outside help.
That outside help ranges from professional tax preparers to desktop software packages
and Web sites. Professional tax preparers can offer a level of hand-holding not available
from software and the Internet. But they can also be intimidating, and their services
typically cost much more than a desktop software package. And for many people, talking
about salaries and net worth is something to be done only in the privacy of their own
homes.
Another form of professional help, desktop software, is available for those who are
comfortable with computers and would rather do their own taxes.
Such packages offer help in the privacy of your home for a reasonable cost. The cost is
even more reasonable if you take advantage of the many discounts and rebates available.
Most of the companies selling desktop tax software also sell professional versions, and
both have the core components that compute taxes. These companies usually offer to pay the
penalties if the actual computations are incorrect, a comforting thought when staring at a
bewildering array of tax laws.
CONSUMER INFORMATION
Here are some things to consider before buying tax software:
Make sure the software works on your computer.
Many tax packages have demanding system requirements.
Make sure you get all the forms you need.
Make sure the program handles your state returns.
Not all programs handle all states. State software can cost extra.
Look for a program that will import data you already have.
If you used tax software last year or use personal financial software, some programs can
make use of that information.
Compare with Web-based programs.
Using the Web to prepare taxes can cost less than using software, but Web software tends
to be slower than a desktop package, have fewer features or both.
Never pay list price.
You can save money with discounts and rebates, and it is often cheaper to download
software from the Web. You may be able to deduct the cost on next year's return.
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By necessity, the full-featured desktop packages lean toward a "one size fits
all" approach. They tailor the questions you are asked according to your earlier
answers and figure out which I.R.S. forms you need, but it occasionally seems as though
you fell through the looking glass as you answer what appears to be the same question for
the third time.
An added benefit is that most of the packages offer electronic filing and electronic
tax payments, which the I.R.S. is pushing quite hard this year. The tax agency predicts
that about 30 million individual tax returns will be filed electronically.
Bob Barr, the assistant I.R.S. commissioner for electronic tax administration, said the
agency saw a 10 percent increase in electronic filing last year, to 28 percent. "This
year we are projecting a 20 percent increase and crossing our fingers," he said.
The reason to push electronic filing, which the I.R.S. calls the E-file program, can be
deduced from simple arithmetic. Every paper return has to be entered by hand into I.R.S.
computers, a task that keeps tens of thousands of people busy at 10 regional centers.
Electronic returns do not have to be entered by hand.
And electronic returns go through rigorous error checks before they can be transmitted,
reducing their error rate to less than 2 percent. For paper returns, that rate is about 20
percent.
Fewer errors mean fewer contacts with the I.R.S. and faster refunds, something to
please most taxpayers.
Steven E. Brier is a freelance technology writer based in New Jersey.