Sunday, February 27, 2011


I almost never do product endorsements or whatever on this blog, and I guess I'm technically still not, but I did want to share my rather positive experience with using TaxACT.

I fondly recall the days when I could do my own taxes. I had a W-2, a 1099-INT, and that was it. I was renting in a low-tax state, so I just took the standard deduction and filled out the 1040-EZ. Bliss.

It's been a few years since I could do that. Back in 2005 I had a really complicated tax situation: I'd lived in three states, and worked for companies in three states, and so had to reconcile what I'd paid all of them; I also wanted to claim a tax credit for my final cross-country move. It all seemed complicated, and I was nervous about getting it wrong, so I went hunting for tax software.

The cheapest then was TaxACT; I think that at the time the deal was that you could do a free federal return if your income was below a certain threshhold, and state returns were, like, six bucks each or something. There were a bunch of other pseudo-free options out there, and I think I picked a winner; not only have I been consistently happy with them over the years, but most of the older free options have since faded away.

Every year since then, my tax situation has changed, generally getting more complicated. One year I had to deal with stock options; another year I accidentally started a small business; this past year I bought a home. One of the great things about TaxACT is that it's just one flat fee that covers pretty much everything, no matter how simple or complicated your tax situation. This past year my return included a Schedule C (business income), with a home office deduction; a Roth IRA conversion; a bunch of investment stuff (dividends, foreign income and tax, capital gains); and, of course, that ever-popular home mortgage interest deduction. All that work just meant that it took me more time to complete my return, unlike, say, using an accountant, where it would have been way more expensive than in previous years.

Overall, my experience with TaxACT is that it can be time-consuming, but is easy. I've gotten in the habit of keeping a file folder marked something like "Taxes 2010". Throughout the year, I'll toss anything that is tax-relevant in there: charitable contribution receipts, investment forms, my closing statement, etc. Once I think I've gotten all my forms (typically mid-February), I take a weekend afternoon and set it aside for taxes. TaxACT is a web-based program, and it's structured as an interview. It asks a series of questions like, "Did you inherit any money this year?" or "Did you buy or sell a home?" Based on your answers, it will either skip ahead, or dig in to ask more details. It will eventually prompt you to enter actual figures, and has a great interface where you can directly copy stuff from your forms into on-screen boxes.

I think the program also has an option to skip the interview and just complete the return directly, but I prefer the interview; it makes me much more confident that I'm not overlooking something.  It does let you skip around a bit, and you can double back and edit old information. I usually need to do that at least once during any given return; either a form comes in late, or I realize later on that I'd earlier made a mistake.

Speaking of mistakes, they have a great "alerts" system. As you're filling out the return, and again at the end, they will scan your return for any potential issues. Green alerts are strictly informative: for example, it might point out that you've saved money due to the lower capital gains tax rate. Yellow alerts warn you about areas where the IRS may be especially inquisitive; in my Roth IRA conversion, they had me triple-check the figures I was using for my distributions. A yellow alert may prompt you to change the information you'd previously entered; or you might just dismiss it. A red alert flags a clear error that you've made, such as when the numbers you've entered from a form are internally inconsistent. Red errors must be corrected before you can submit your return.

IF you feel like nerding out, at any point in the interview you can check out some of the help links that they have, which often links into IRS-authored descriptions of the forms. This is the sort of stuff that makes even an engineer's head swim after a few sentences, but still, it's cool to be able to connect the friendly English questions you're answering with the legalistic structure behind it. It reminds me a little of dropping into a bash prompt from KDE or OS X.

Their help actually is pretty helpful, too. I was pretty happy with this year's experience, but I was having trouble with the Roth IRA conversion; I'd gone all the way through the interview, and had never been prompted to enter those details. I hunted around a little and couldn't find it, so I emailed their tech support. About a day later, I got an email back that described the exact steps I needed to take to complete this part of my return, along with links that provided more context for the conversion process. As someone who generally loathes contacting tech support, I was really pleased.

I have just a few tiny niggles with the software, some of which have been around for a few years now. First of all, each year I enter my student loan information; and, each year, I'm told that my income makes me ineligible to claim a deduction for student loan interest. Um, okay, I'm glad you told me, but you really should have already known that BEFORE you asked me to input my student loan interest. It seems silly that they only check for eligibility at the end instead of the beginning. Also, they have a worksheet system that generally works quite well: for example, you can sum up your charitable contributions in a pseudo-Excel sheet, entering dates, amounts, and descriptions for each. The software will automatically add it up, insert the total into the correct field, and then append your worksheet to your return. Which is all well and good, but if you end up not using that part of the return, they still append the worksheet. For example, this year I started off doing my home office calculations in the wrong part of the return. I realized that I was doing it wrong (they have a separate section just for that), and deleted out the stuff I'd previously entered; but, since some of my data was buried in the worksheet, that stuff still gets printed in my return. It probably isn't a big deal, and I doubt the IRS cares, but still, it kind of bugs me. Finally, I've learned that while the program is generally fine with you jumping around a bit in the federal return portion (e.g., you can easily go back and add a new W-2 later), it gets very unhappy if you try to change anything later. If you go back and alter something, it will make you re-do everything else in your return. Most of the time you can just click "Next" and accept the values you'd previously entered, but it's a bit aggravating... I wish they could detect which parts of your future return were affected by your change, and only have you update those parts.

Over the years, TaxACT has tweaked their pricing. I think that they used to be free for filers under a certain income level, plus more for states. They've always retained the free federal filing hook, but most of the time, it makes sense to pay for the "deluxe" version, which offers slightly more features and a significant discount on the state return. For example, at the moment a free federal return requires you to pay about $15 for a state return; buying the $10 deluxe version means the state return is just $8 extra. Of course, if you live in a state without an income tax, the free federal option is a no-brainer.

Like almost all tax software out there, they reward you for starting early: this year I paid for mine early, and got federal and state for just $14. That's a savings of four bucks! That's huge! I can buy a burrito with that money!

Aaaanyways. Taxes are never fun, but if you've been doing them yourself or paying someone else to do them for you, I recommend checking out an electronic tax preparation version. To be honest, since I haven't used any other ones I can't really compare TaxACT to, say, TurboTax or TaxSlayer; but, my experience with TaxACT has been really positive, and they're definitely priced well.

Well, I'll get off my soapbox or whatever now. Everyone has another month and a half left to go, so no rush and no worries. Happy tax season!

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