TaxAct Online Review

By Jay Garmon

TaxActis the cheapest of the Big Three consumer tax preparation products, but is there a hidden cost to what you don’t pay? We work it out in this review.

First, a word about my tax return, which I will be using to test-run TaxAct online and a few other tax preparation Web apps. In , I received unemployment pay, did freelance work, started a new job for an out-of-state employer, paid down a student loan, had a child in daycare, bought one house and sold another, and maintained a home office as a primary workplace. In short, mine is not a simple tax profile, and if these tax apps can handle what I throw at them without making me want to tear my eyeballs out, they should be able to stand up to the typical taxpayer pretty easily.

GETTING STARTED

TaxAct online has multiple tiers of services, including a free federal form (basically, the equivalent of a 1040EZ with no complex deductions), a $9.95 federal form with itemized and assisted deduction, and a $17.95 form for combined federal and state filing. This is easily cheaper than H&R Block At Homeor TurboTax. You don’t pay until you file and you don’t have to create an online account to prepare your return, though you can’t save your progress, file, or print a return until you create an account. Unless you just enjoy filling out tax forms without actually filing them, this feature is largely irrelevant. (The online account does have the advantage of starting a return on one PC and finishing it on another, should you have to change locations to track down some data.) I selected the $17.95 Ultimate Bundle, created an account, and dove in.

Worthy of note, TaxAct online requires that you create a strong password for your account — to the point that the password can’t contain the word tax— which was actually somewhat reassuring. The site also prominently features a number of embedded video assistants (yes, the whole service is Adobe Flash-based, for better and for worse) that walk you through the process at regular intervals. These were more calming than directly helpful; after listening to the first couple I simply ignored their these are the forms you’re about to fill out commentary.

After you’ve created your account, you’ll be asked if you wish to import last year’s tax return. Ideally, this would be the return you prepared with TaxAct lastyear. If not, you can theoretically import a PDF copy of last year’s return (which most competing tax prep programs generate). I uploaded my existing TurboTax-generated PDF of 2008 return, with middling results.

TaxAct online was able to glean my and my wife’s names, social security numbers, and address from the 2008 PDF, but it couldn’t find phone numbers, our dates of birth, or notice that we have a dependent (our daughter, who figured prominently on our past return). Some of this is immediately correctable, some of it isn’t, and for the latter category I had to be sure to make the appropriate edits during the data entry process.

INTERFACE & EASE OF USE

TaxAct online uses the standard interview technique to prompt you to enter the appropriate data into the appropriate fields, and it does this reasonably well. A running tally of your expected tax return (or tax debt, if you owe) appears in the upper right hand of the screen. Unfortunately, the software has a little trouble getting out of its own way.

For example, TaxAct offers a Life Events outline which explains the tax implications of various actions you took during the last year. Bought a house, had a kid, invested in a foreign semipublic green energy exporter? TaxAct has advice for how to handle any earnings or expenses related to these events. Two problems: The advice is just a quotation of the IRS form instructions found in a traditional tax booklet, which isn’t that helpful; the Life Events outline in no way links to the data entry forms where you input your tax data. Thus, the Life Events outline can tell you whether your home internet service is tax deductible, but it doesn’t link to the field where you input what you paid for your home internet service. Not helpful.

When it comes to actually inputting data, TaxAct online usually offers two options: Quick Entries, and Step By Step Guides. Quick Entries are replicas of standard IRS forms; the W-2 looks just like a basic W-2, and you simply copy over any data from your paper forms into the virtual forms. As long as you don’t miss any fields, you’ll be fine.

Step By Step Guides are questionnaires that prompt you to enter specific data into specific fields, usually by referring to a numbered box on your W-2 or 1099. These can occasionally get a little confusing as TaxAct asks for form data out of order (or doesn’t prompt you to enter a second W-2 even if it knows you and your spouse are filing jointly) but generally works out without any major hiccups.

OVERALL EFFECTIVENESS

TaxAct online had real trouble with me buying and selling a house in the same year. I honestly have no idea whether the system calculated the value of my home office using the home I bought, the home I sold, or some combo of both. It had similar trouble dealing with my various business expenses, including vehicle mileage. None of this was likely to prompt an audit, because by TaxAct’s measure, my itemized deductions weren’t worth more than the Standard IRS deduction, which was frustrating but not unexpected.

When I was done, TaxAct online offered to perform a color-coded error check — green for potential savings, yellow for areas I should review, and red for items I almost certainly screwed up. The scan brought up a few areas I should review for possible savings, and one area (again, with my home office) that it wanted me to double-check. Of course, TaxAct didn’t link me to those portions of my return, nor did it offer advice on how to reassess or recalculate those data points. It just said hey, you should look at this, and left it at that.

Similarly, TaxAct online offered to compare my return to my 2008 return, which I had previously imported in a very loose sense of the term. As almost none of the data from my 2008 return PDF was actually imported, I got to spend about 15 minutes manually inputting the data. And what did I get for my trouble? A note that I made less money in than I did in (I already knew that) and an itemized list of differences in income and expenses in various areas that I should review. Put simply, the comparison was worthless, because all TaxAct did was tell me that I had two different tax profiles in two different years, which I knew before this whole process began.

CONCLUSIONS

According to TaxAct online, I am due a $359 return from the IRS, and I owe the Commonwealth of Kentucky $361. It cost me $17.95 — and about two and half hours — to find that out. I have comparatively less confidence in the conclusions of TaxAct than I do other tax prep apps I’ve reviewed, largely because the system’s calculations are so barebones and opaque. I simply don’t feel like I was given the opportunity to properly itemize my deductions, and TaxAct’s error check system didn’t do much to reassure me. If you have a very straightforward tax profile, TaxAct online’s simplicity — and very low cost — is worth your time. If you have a more complicated return in front of you, it might be worth springing for a more expensive, and robust, tax prep app.

You can also check out our Buyer’s Guide to find the best tax preparation softwarefor you.

PROS

• Very inexpensive
• Video assistants to guide you
• Choice of data entry methods

CONS

• Useless error-check
• Advice just quotes IRS text
• PDF import is worthless