Compared: Four online tax filing services

April 15 is quickly approaching, which means we all need to buckle down and spend a Saturday preparing our taxes. I prepare my own taxes, and I know all too well how hard it can be to find the right program to help out. Let's look at four online tax preparation software packages that are good places to start.

H&R Block TaxCut Online: Powerful, but not ideal
H&R Block may offer its tax services in franchised locations across the U.S., but it also provides its software online. And although those who are less knowledgeable about tax law shouldn't have too much trouble preparing their taxes with the company's TaxCut Online software, there aren't enough options to justify using it if you file a complex return.

TaxCut Online is free when you e-file your federal taxes, but just like every other service in this roundup, it charges you to e-file your state taxes. With TaxCut Online, that will run you $29.95. Aside from the free edition, TaxCut Online is also available in Basic for simple returns for $14.95 or Premium for those who have more complicated returns for $39.95. Neither of those fees include the state e-file charge.

TaxCut Online makes the hard stuff simple.

(Credit: H&R Block)

I created a fake return (without filing) to evaluate each service and found that TaxCut Online works beautifully for those who have simple returns. In a matter of seconds, I was able to work my way through wage income, interest, and basic deductions to create a return. It was quick and easy.

But when I tried to create a complicated return that featured the sale of a home, self-employment income, and investment income, TaxCut Online proved to be a relatively useless tool, at least compared to TurboTax Online. It didn't maximize my tax credits, it failed to provide me with enough control to pinpoint specific deductions like self-employment insurance, and it delivered a tax liability that was almost $1,000 higher than the figure TurboTax Online calculated. That said, its "Worry-free Audit Support" tool came in handy and its error correction feature fixed mistakes it found along the way, which certainly helps put the mind at ease.

But I can't even recommend using TaxCut Online if you file a basic return. It's too expensive. Nor do I recommend using TaxCut Online if you file more complex returns. TurboTax Online is a much better alternative.

TaxAct Online: Simplicity is king

TaxAct Online isn't nearly as powerful as TaxCut from H&R Block or TurboTax Online, but it's not meant to be. Instead, TaxAct is aimed at the taxpayer who doesn't want to pay an accountant $250 to prepare a relatively basic return.

When I first started using TaxAct, I was impressed by its simplicity. It doesn't feature all the extras you'll find in more capable products and it's obviously designed for someone who wants to get their taxes filed as quickly and efficiently as possible. If you want to find obscure tax code topics, you won't find it in TaxAct. It's simply not that kind of preparation tool.

Quick and easy is TaxAct's motto.

(Credit: TaxAct Online)

TaxAct comes in three versions: Free, Deluxe, and Ultimate. After you e-file your state taxes (for free), it will cost you $13.95 to file federal. The Deluxe and Ultimate versions will both run you $16.95. That's a fair price for what you're getting with the software.

When I prepared my basic return on TaxAct Free edition, it couldn't have been easier. I input the wages, interest, and other data and within 30 minutes, TaxAct had my return ready to be e-filed with the government. The refund it calculated was exactly the same as the refund the other tax preparation solutions determined.

But as good as TaxAct was on my basic return, it was equally poor on my complicated return. Inputting self-employment income and expenses was too difficult, and the software's import feature, which attempts to find tax data from your banks and employers, was useless; it found nothing. Once I finally completed the return, it calculated a tax liability that was more than $2,500 higher than what I calculated with TurboTax Online. Suffice it to say that TaxAct Ultimate is best-suited for someone who has wage income, owns a home, and hasn't sold any investments over the past year. Anything more than that and the software becomes difficult to use.

Is TaxAct worth the $13.95 it charges for the basic edition with state e-file? You bet. It's simple, it's quick, and most importantly, you can't screw anything up. But if you have a complicated return, don't waste your time trying to save a few bucks on TaxAct. You'll lose more when you file your taxes.

TaxSlayer: Best for your simple return
Like the others, TaxSlayer is one of the chosen tax preparation software solutions advertised by the IRS for those who want to e-file their federal taxes for free. And much like TaxAct, it does the easy stuff really well.

TaxSlayer, much like TaxAct, is affordable. The company's classic version only costs $9.95, including your state return. The premium version is $14.95, which includes more menus and a deduction walk-through.

TaxSlayer makes tax prep quick.

(Credit: TaxSlayer.com)

When I started creating my basic return, I was quite pleased with the software's ability to cut down on preparation time by asking for basic information like name, address, and social security number first, and maintaining that information throughout the process. Whenever I wanted to fill in W-2 information, most of the data was already available, making it as simple as inputting figures and moving along. Because of that, TaxSlayer had my taxes ready to be e-filed within 20 minutes. It calculated the same refund as every other tool in this roundup.

But when I started using the premium version, all that usability was eliminated and I was lost in a tool that simply couldn't handle all the complexity I was giving it. Its deduction walk-through was nice and that helped somewhat, but when it came time to input investment and business data, TaxSlayer didn't provide quite enough guidance or tax help to ensure I was saving every penny I could. In fact, the payment it calculated was almost $2,000 higher than the payment calculated by TurboTax Online. Much like TaxAct, it's not really meant for power users.

For just $14.95 for the premium version and $9.95 for the classic version, TaxSlayer is an easily affordable service. And although it may not be able to provide the same level of guidance as powerhouse software from H&R Block and Intuit, it's an ideal solution for anyone who wants to get their simple tax return filed as quickly as possible.

TurboTax Online: Your go-to tool for complex returns

TurboTax Online is the most expensive tax preparation software, but it's also the most capable. With a host of features that aim at substantially reducing your tax liability, the software is, without a doubt, the best on the market.

If you don't want to pay for the best tax preparation software, you might as well forget about TurboTax Online. The software's basic version is free to e-file your federal taxes, but you'll be forced to pay $25.95 to e-file your state taxes. Worse, it adds $34.95 to the price of its paid versions to e-file your state returns. And depending on your needs, those other versions cost between $29.95 and $109.95.

To calculate my basic return, I used TurboTax Online's free version. It's bare-bones and doesn't feature all the extras you'll find in more capable versions of the software, but it got the job done. Unfortunately, because TurboTax Online is more powerful than competing products, it takes more time to prepare your taxes. In fact, it took me over an hour to file my basic return with W-2 wage income, interest, and basic deductions. After all that work, it returned the same refund as the other tax preparation tools.

Although TurboTax Online's most expensive offering is $109.95, it's not necessarily the most useful, since it's specifically designed for corporations, partnerships, or Limited Liability Companies. Because of that, I opted to use Intuit's Home and Business software to prepare the complicated return. That package costs $79.95 before the state e-file charge of $34.95 is factored in.

Go it alone or let TurboTax help.

(Credit: Intuit)

As soon as I started using TurboTax Online Home and Business, I quickly realized that the software was nothing like the other tax preparation tools I had used earlier. It offered more menus, much better tax guidance, and a slew of options that allowed me to work through each phase of my taxes independently or let TurboTax guide me. I chose the latter to find every deduction I could.

Inputting information in TurboTax Online Home and Business was simple, but because the software contains so many more deductions and tax considerations, it did take much longer to prepare those taxes than on other services. In fact, it took me more than three hours to finish preparing the complicated return.

But it paid off. As I worked my way through preparation, TurboTax highlighted possible areas where I could deduct cash that the other services didn't and when it was finally complete, the TurboTax error check found issues that the other tax preparation software packages missed. Most importantly, TurboTax performed a sweeping audit risk check and returned a tax liability that was a whopping $1,000 lower than its closest competitor, TaxCut Online.

If you're looking to prepare a basic return, don't waste your time with TurboTax Online. It's too expensive and it takes too long to calculate the same refund you'll find with basic services like TaxSlayer or TaxAct. But if you're preparing a complicated return, TurboTax Online is the best service on the market. Sure, it might cost a little more, but if you can save as much as I did by using the package, the extra cost is a pittance compared to what you could lose in tax payments if you use another product.

Related: The software versions of TurboTax and TaxCut 2008 compared.

[MSTinPA]

Don - thank you for this great review of these online tax preparation tools. I have used TaxCut for the last few years and filed my 2008 taxes with TaxCut online last weekend. While I wish this review had been available to me a few weeks ago, it was still a helpful read and I will consider my options again next year depending on the complexities 2009 brings to my tax situation.

[jsibelius]

TurboTax doesn't charge everyone for e-filing state taxes. I only paid the $25.95 to do my state tax return. E-filing was free. This was the first year I used the free federal filing. In the past, I've always used the more complicated forms and gone through all the questions, and while it did take a long time, I was confident that I hadn't left anything out and I really was getting everything exactly right.

[Posey2sum]

I found free efile for both Federal and AZ State on Arizona.gov/government/online services/Revenue Dept of/Payment of Personal Taxes with a link to Intuit Tax Freedom Project SM. Works for incomes under 30K, Active Military, and those who qualify for EIC. This is a Turbo Tax Product, but appears to be different from Turbo Tax Online

[repete_7]

Through the IRS, you can also use FreeFile (lower income) or FreeFile Fillable Forms (all incomes, but you have to know what you're doing).

State of Virginia offers free iFile (all incomes) at http://www.tax.virginia.com .

[drno7]

Actually, on TaxAct federal is free and the state costs you $13.95

[atish505]

Your chances of getting audited are higher if you e-file vs. the same return on paper. E-filing data is is used by several trigger programs (software) that determine if a return should be short listed of audit.

That process takes lot more time and effort on part of IRS and FTB.

[SueDN]

I disagree that TaxAct is best for someone who hasn't sold any investments in the past year. I have used it for the past 2 years and have had to input several stock sales, and it has filled out Schedule D for me perfectly. The only thing I don't like about TaxAct is that it seems slow to save info and go on to the next screen. I do like the price, though.

[abcd9009]

File California Tax Return Online for FREE (no income limit) - https://webapp.ftb.ca.gov/calfile/

It's not as comprehensive as TurboTax but can't beat FREE for simple State Return.

[sbruce45]

I hope when you say that TaxAct is good if you don't sell any investments, you only mean that they don't lead you through the details as well, since TaxAct certainly handles selling investments properly.

I am wondering what was the situation(s) in which TurboTax resulted in your tax liability being $1000 less, and what allowed that to happen. Was it that the others did not handle some situation, or they handled it differently so that you owed more tax, or that the others just did not ask you about something that you could have entered if you knew to do it. Was most of it due to one situation, or was it spread of various situations? I know that they handle the tax on state refunds differently, and that they handle foreign taxes paid differently. What was the situation resulting in owing $1000 less in taxes?

[polis12]

This is the first article from Don that I actually thought was useful.

[markdoiron]

I stopped using TurboTax several years ago when the rules for military retirement pay changed in Oklahoma. TurboTax would only deduct $10K from the taxable amount, rather than the full amount of military retirement income ($33k). When I called up their tech support, the gentleman was most insistent that TurboTax could not help me to resolve my "tax question." He absolutely refused to believe that there could be a problem in their software--it was obviously the user's problem. I went to FreeTaxUSA and got the correct tax calculated-- $1700 saved on my ***state*** return alone from that one "user mistake!" I've been there ever since, but I wonder how many retired GIs were overtaxed by TurboTax's refusal to properly incorporate an update from the state (I even provided them the text of the original notification from the state tax office that they e-mail to me)? --mark d.

[abcd9009]

Just to give my 2 cents... Since all (or at least most) of online tax return apps are FREE to start, it's worth spending some extra time to run your numbers from all of them and whoever gives you the largest return + lowest fee, efile from them.
As @markdoiron points out, I doubt any one tax software is perfect for everyone. Since these softwares are designed for mass audience there is bound to be something missing in every software to suit everyone especially for filing State returns.
For the past 3 years, I always start off my tax return using TurboTax online, TaxCut online, and TaxAct online but usually end up efiling with TaxAct online since it's the cheapest and yes it does handle investments pretty well but doesn't have the deductions as indepth as TurboTax. I can now add FreeTaxUSA and TaxSlayer to my list.

[Eludium-Q36]

Contrary to Don's limited survey, I've always found TaxCut to be superior to TurboTax both in value and ease of use. One of the problems with your survey is that you didn't discuss the service's storage of your return for ease-of-import the following year. TaxAct doesn't offer that, you have to start from scratch every year. This becomes very important when you've got stock losses for instance (and who doesn't) that you can carry from year to year.

One of the problems us readers have with Don R is that he's grossly biased and in this case biased for TurboTax and apparently after only one survey. Your analysis, Don, would carry more weight if you surveyed/used these products year after year, but you assert a ridiculous bias towards one product after only one limited survey! Is ANYBODY over at Cnet giving you guidance ?!

[ElizabethMoressi]

Thanks for the tax application tips.

I took a quick ride on all 4 to see for myself, and I have to agree that TaxCut seemed more capable of handling my ever-increasing complex depreciation schedule year-to-year.

Hey did anyone notice the Green Url Bars-- they all have Extended Validation SSL certification. Always a bonus when you're sharing your world of personal/financial info.

[dedlnr]

I used TaxAct for Wisconsin a few years ago and discovered that the program allowed a tuition deduction of up to $5,000. The state income tax booklet, and state tax help staff, clearly stated the deduction was $3,000 maximum. I called TaxAct to tell them about their problem. Their response? "Go ahead and file, and if you get caught, we will pay the fine." I'm sorry, but I won't do business with a company that knows it has a problem with its product and won't correct it and then encourages customers to cheat! Maybe the president of TaxAct back then is now running that peanut company that knowingly shipped tainted food!?

[jmack1848]

Overlooked 1 item. "FreetaxUSA". Low income earners, FREE, it is. When finished, with State file, all the frills, including a CD mailed priority, the cost is at the big outfits starting costs, that get close to a personal CPA, with all their frills.

TaxAct also has a downloadable version that runs on your PC without having to have an internet connection open. In contradiction to what a previous poster claimed, it also allows importing of the previous year's data which considerably shortens the time needed to file! I've used this program for several years for my income involving wages, investments, and small business and have found it very friendly.

I used the downloadable version of Tax Cut this year, after having bought TurboTax for several years (I was unwilling to pay the drastically increased price this year.) So I don't know if it is included in the free online version, but I was pleasantly surprised at the end of the Federal and State forms to be asked if I would like a printout of the answers I would need to complete a FAFSA form, my next task. Yes, the FAFSA tells you what lines to find the information on, but it was handy to have the information I needed from my son's 1040 and my own all on a single sheet.

[drcrui]

I agree with SueDN that TaxAct does Form D very well. I have used TaxAct for three years now on fairly complex returns (13 pages including passive income and K1's). I run TaxAct on LINUX with the Firefox browser. As far as I'm aware, TaxAct is the only income tax software that works under Linux.