Taxing situations. (tax preparation software) (Buyers Guide)
by Richard O. Mann

When the W-2, 1099-INT, and other related tax forms start showing up in your mailbox, you probably begin to feel your annual Excedrin headache tuning up. It's time to dig out of the old bank statements, check registers, receipts, and all the other financial minutiae you'll need to do your taxes.

While some taxpaying pain is inevitable, there's a relatively painless way to prepare most tax returns. Today's tax software can help you quickly convert your piles of financial paperwork into an accurate tax return. If you enjoy using your PC all, this can be an almost pleasant experience--if you can keep from thinking about the government's taking your money.

Tax software for the PC has been around for about ten years now, and the software companies have just about got it right. Competitive pressures, long years of experience, and increased hardware capabilities have combined to give us tax programs that interview you, offer tax advice, do all the calculations and schedule preparation, compare your deductions to national averages, audit the return, and print it in ready-to-sign-and file form. You still have to fold the return and stuff it into the envelope, but the software does just about everything else. (Of course, most software can actually file your return electronically, relieving you of the envelope-stuffing step as well.)

Is It Really That Easy?

Can an inexpensive tax program really make preparing your tax return quick, easy, and painless? For most of us, the answer is clearly yes. If your return does not involve truly unusual items, the software can handle your return. If, on the other hand, your return is like the first one I ever prepared for money--involving interest on government bonds from Zimbabwe--the software may not give you the specific advice needed to complete the return. It can't cover everything.

If you've never prepared a tax return and you're not fairly comfortable using your PC, even a routine tax return can be tough for you--even with the easiest software. If you're the slightest bit adventuresome, however, the chances are excellent that one of the programs that offers the most handholding will get you through the task without a hitch.

An Endless Parade Features

Through the years, new feature after new feature has been added to the software; most of today's programs contain a common set of powerful features. I'll review the basic feature set here; then, as I work through the individual programs, I'll mention any missing features as I go.

Interviews. The most popular programs offer extensive interviews. The software asks you questions, often offering definitions, clarifications, and advice as it goes. It posts your answers to all the appropriate places in the tax return.

Data import. There's no sense in rekeying data that you already have in your computer. All programs import the basic data about you and your return from the prior year's program. Some also import from prior-year versions of competitor's programs.

It can also be useful to import your financial information from your personal finance program (such as Quciken, Managing Your Money, or MoneyCounts). This isn't always worth the trouble, however, since the process may be more tedious than rekeying information from the printed reports from your personal finance program.

Shoebox input. Interviews and checklists presuppose that you have your tax data all sorted, totaled, and ready to insert into your return. That may not be the case. When presented with a mass of unsorted receipts, checks, statements, and whatnot, an accountant calls it a shoebox return. So that you don't have to sort all this stuff (that's what computers are for), most programs offer a shoebox mode (which may be disguised under another name), wherein you look at each random item, call up the place where it would be entered, enter it, and move on to the next.

IRS instructions. Sometimes nothing but the original, uncensored IRS instructions will do. If you're lucky, you'll never look at them, but programs provide as much of the IRS's documentation as they can fit in.

Audit flags. When you think you're finished, the software audits the return. It checks that all required information is present, that your answers to its questions are internally consistent, and that choices you've made make sense. If, for instance, you've elected to itemize your deductions but your Schedule A total is less than the standard deduction would be, the software tells you.

The audit also checks your deductions against national averages published by the IRS and flags amounts that are out of line.

What-if analysis. Useful for both planning future years and making strategic decisions about the current year, what-if worksheets let you change basic amount and decisions in your return. They report what your tax liability would be under each assumption, allowing you to pick the best alternative.

State returns. Your state return draws most of its information from your federal return. If you live in one of the larger states, there's almost certain to be a state tax return module available (at extra cost). Those in less populous states will want to know if a state module is available before selecting a program.

Electronic filing. Electronic filling of tax returns is a popular option because it speeds up the refund process by as much as three weeks. Returns must be sent by modem or on disks to a private agency that gathers them up, checks them for proper formatting, and sends batches to the IRS. These agencies charge for this service, usually about $20. If you plan to file your return electronically, check the software before you buy it to see how much this service costs and whether the software supports it directly. Some programs sell the electronic filing module separately.

Form 1040PC. A long-overdue innovation from the IRS arrived last year--Form 1040PC. It replaces the Form 1040 printed on an exact IRS-replica form and the many pages of other forms and schedules. Think about it: 90 percent or more of th e lines on virtually every tax form you file are blank. You enter data on only a few lines on each form. The 1040PC prints only the lines with data and briefly identifies them with form- and line-number references. That's all the IRS needs to process your return. The form is designed for plain-vanilla computer printing and can handle most routine 1040s in less than two printed pages. You'll love to the 1040PC.

Headstart editions. Many of you start working with your tax return well before the end of the year. By putting an estimated amounts and working changes in your tax solution before year-end. Tax developers offer Headstart or EarlyBird editions of their programs in late October. The features of these early versions of the programs are essentially complete, but the programs lack the final approved forms and changes in the law that may transpire before final IRS forms and regulations are issued in early January. Buy the Headstart edition and register it, and the final version comes to you (at no extra cost in most cases).

The Programs

The realities of magazine publishing require me to write this article several months before you read it. In order to give you information on these programs early in the tax season, I must work with advance information rather than actual working copies of the software, which won't be able (to anyone) until at least early January. These reviews are based on the 1992 programs and interviews with the developers about their plans for their 1993 editions. At the time of the interviews, program features were set, but programming was not complete. Be aware that I can't guarantee that everything will work exactly as described to me.

TurboTax. TurboTax, the first successful consumer tax preparation program, is still the best-selling one. Over the years, it has developed into an extremely strong program with all of the features mentioned above. Its roots are still in the form-based approach to tax preparation, so it's easy to drop out of its interview and work with the actual forms.

TurboTax offers the EasyStep System, which walks you through the entire tax preparation process in six steps. At no point in the process are you left wondering what to do next. Even a tax and computer novice will have little trouble with TurboTax; it's holding your hand and gently leading you every step of the way.

New this year is as a completely automated import from Quicken; previously, you ran Quicken to create an export file and then read that into TurboTax. This year, the tax program goes directly into basic Quicken data, bypassing the export stage.

The overall look of TurboTax, both in Windows and DOS, has improved. The DOS version looks a lot like the Windows one but works well by keyboard. The Windows version sports new icons with text labels and pictures so no one can misunderstand their purpose, a small but surprisingly significant improvement.

A new set of automatically generated tax graphs shows analysis of income, deductions, and types of taxes paid. I'm not sure how useful these are, but they certainly provide a colorful show.

ChipSoft developers enhanced the final review by adding Deduction Finder, an intelligent function that searches for any deductions you might have missed.

To encourage electronic filing, TurboTax this year comes with modem software built in, so the tax software can take over the whole process of filing. All you need to supply is the modem.

ChipSoft has beefed up its telephone support with the opening of a new state-of-the-art, 300-person Call Center in Tucson last October. There's fax-back support, taped voice messages for the most common questions, and immediate access to a live human technician when needed.

TurboTax has programs for all states that require tax returns, which can make it the program of choice for those living in less populous states.

With the emphasis on simplifying, clarifying, and streamlining the program this year, TurboTax reaches new heights. It's a great program for everyone from complete tax novices to professionals.

Andrew Tobias' TaxCut 1993.

TaxCut, in both the DOS and Windows versions, excels in the art of the interview. From the opening screen through printing the return, TaxCut guides you gently along the way, asking intelligent questions, defining terms in the questions, and offering salient advice.

The interview backbone of TaxCut is superb. Like other Andrew Tobias products, TaxCut talks to you in a down-to-earth way, often using mild humor to ease the pain. The program feels like working with a kindly uncle--one with a law degree from Harvard--at your side.

Questions appear at the top of the screen with explanatory text at the bottom of the screen. Difficult terms are highlighted in the questions and defined in the text. Some questions require lengthy explanations because of the convoluted way or tax law works.

The program uses artificial intelligence to streamline the interview. It evaluates every item of information it receives from you to determine which questions it needs to ask. It also audits the return item by item as you go, rather than waiting for you to run an audit routine at the end of the process.

This year, the interview is controlled by the Navigator, which graphically tracks your progress through the tax return and allows you to quickly jump back and forth in the interview or the forms.

The new Instant Update feature shows your last year's data in one window with blanks for this year's data in another window. You can mark those items which haven't changed for direct update to the current year's return.

A similar new feature, the Keyed-Entry Quick View, shows an onscreen list of all data you've keyed in so far, allowing quick proofreading and correction. Any changes here, of course, ripple through the entire return, making all necessary changes in all forms.

For those filing electronically, TaxCut also includes the complete telecommunications software needed to file the return. If you have a modem, the software handles the rest of the process.

TaxCut rivals TurboTax for the topdog position. Picking between them is really a matter of personal style.

Kiplinger TaxCut 1993. Having sung the praises of Andrew Tobias' TaxCut, I need to up the ante for this Kiplinger version of TaxCut. It's the same TaxCut program with extra value added by the Kiplinger people. Kiplinger, the highly respected personal finance publisher, adds help and advice screens with more information, additional tips, and deeper discussions of important tax issues.

New this year is a tight integration with the new Windows personal finance program, Kiplinger's CA-Simply Money. You also get a copy of Kiplinger's Sure Ways to Cut Your Taxes, a 470-page book, revised for 1993. This version of TaxCut is not sold in stores; you must call the 800 number to order it directly from Kiplinger.

Personal Tax Edge. parsons Technology has a reputation for providing solid, no-nonsense programs at a great price; its tax offerings are no exception. Last year's new Windows version arrived on the scene in a good-looking, full mature form.

Both the DOS and Windows versions provide the full list of features delivered in a particularly accessible interface. the interview is good but not outstanding.

Unusual features include tax advice for the upcoming year based on the tax return information, special calculators for depreciation and financial matters, and a powerful interest calculator called Interest Vision.

Personal Tax Edge also evaluates your current withholding status for use in 1994. If changes are appropriate, it prints a new W-4.

If you order by direct mail before year-end, you can get the planning edition for $19 and the final edition for another $12. Even at the list price of $49, Personal Tax Edge is a tremendous bargain.

If you want an even bigger bargain, check out the bargain hunter's dream Parsons released just as the story was going to typesetting: Tax Mate, a special edition of Personal Tax Edge. Parsons will be giving away 250,000 copies of the program free (first come, first served). It includes forms 1040, 1040A, and 2441 and schedules A, B, D, R, and EIC. State modules will cost the same as for Personal Tax Edge (see the grid). Further, Parsons guarantees the accuracy of Tax Mate, promising to pay "any IRS penalities resulting from computational errors in the software."

CA.Simply Tax. Computer Associates, the giant mainframe software developer that also offers a full line of PC software, bought the former EasyTax from Softkey, renamed it CA-Simply Tax, and launched it with a rousing fanfare in late October. CA is giving away an unlimited number of copies for the cost of shipping and handling, $9.95 for the Headstart edition and an additional $3.95 for the final version (which should be available by the time you read this). The product will be free through April 15, 1994.

Call the toll-free number, (800) 737-3382, and it's yours.

CA-Simply Tax, cut from the same mold as TurboTax and TaxCut, is an easy-to-use program full of helpful features for tax novices. It has an interview function, numerous tax tips, and most of the standard features. Improvements over 1992's Easy Tax include a new interview system with a more conversational style and help for complete novices, many new forms (over 90 in all), and a series of tax strategies and tips for 1993 and 1994 from Gary Klott, a leading syndicated newspaper tax columnist.

AM.Tax Personal 1040. AM-Tax is an lean-and-mean speedster. If you have no hard disk, AM-Tax can prepare your return, although you'll have to give up the online help files.

A few frills have sneaked into the program this year, including what-if calculations for filing status, an audit alert that checks more than 100 potential omissions and inconsistencies, comparison to national averages, online help, electronic filing, and the useful ability to print blank forms.

Also new this year is the combining of the two former versions of AM-Tax Personal into a single version with more features and a lower price than last year's top version. AM-Tax won't, however, print the 1040PC form.

TAXPERFECT-PC Personal 1040. TAXPERFECT is a program in transition. From the no-frills, DOS-text, mouseless program of yesteryear arises the new 1993 version--modernized, frill filled, and updated in every way.

The 1993 TAXPERFECT has an interview, direct entry onto DOS-text IRS form lock-alikes, almost 700 pages of online IRS instructions, a full complement of worksheets and notepads, a robust mouse-based interface, and a host of smaller improvements. The people at Financial Services Marketing, the developer of TAXPERFECT, are dead serious about bringing their previously old-fashioned program into the mainstream of consumer tax programs.

One unusual new feature is the string search of the entire set of IRS instructions. Enter a word or phrase, and the program lists all occurences of that string in the IRS documents.

Tax Preparer. HowardSoft's Tax Preparer is a speedy tax program designed for professional preparers, although it could be a godsend for a tax-literate consumer with an ancient single-floppy computer.

One way HowardSoft Keeps the use of resources down is to put all the instructions and help in the manual, a 600-page wonder. The company also provies excellent phone support, vowing to provide a live human voice within one minute.

The interface is pure mid-eighties DOS text in a very basic sort of interview, where you will fill in lines onscreen which the program posts to the forms. You need to know your way around the forms, however, because the questions you're answering are limited to a single line less than half a screen wide. Some of the abbreviations might stump even an experienced tax preparer.

Tax Solver. Tax Solver from Intex Solutions isn't a stand-alone tax program at all. It's a collection of spreadsheet templates that convert Lotus 1-2-3 (versions 2.3 or higher) or Excel into a powerful tax preparation program.

As a series of spreadsheets, it doesn't provide much handholding (there's an audit function and a checklist to jog your memory). Spreadsheets provide unmatched what-if analytic ability and also allow printing of IRS-replica versions of all 147 IRS forms (they actually look better than the originals).

To use use Tax Solver effectively, you'll need serious hardware with lots of memory and a killer mastery of your spreadsheet. For people who meet those criteria and need the extra forms that none of the other programs provide, Tax Solver is perfect. Ordinary computer taxpayers, however, may quickly find themselves in well over their heads.

Final Thoughts

Remember that the best computer tax programs cannot offer professional tax advice. If you have doubts as to the legality or propriety of deductions or other tax matters, get professional help.

These programs represent a full range of approaches to the tax preparation process.

Find the program that matches your style, your budget, and your hardware, and retire the Excedrin bottle for the duration of tax season.