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By the end of the last year's tax filing season, 78 million of the 150 million tax returns filed were electronically filed by tax professionals, and another 48 million were e-filed online individually. Even more taxpayers are expected to e-file this year—many of them using Intuit's TurboTax, the most popular tax preparation software, or its main rival, H&R Block's TaxCut.
How do the two compare?
TurboTax and TaxCut offer free versions of their software for taxpayers who have simple returns and don't itemize deductions. But to see how the programs handled more complex returns, we filed federal tax returns for a hypothetical couple of high-earners with two children. We used the deluxe versions of Intuit's TurboTax and H&R Block's TaxCut for the PC.
TurboTax Deluxe retails on its website for $54.99 and TaxCut Deluxe costs $54.95 on H&R Block's website, but you can buy TaxCut Deluxe for more than $20 less than TurboTax Deluxe at Amazon and other online retailers. (Fidelity and Vanguard customers and AAA members can get up to $20 off the list price of TurboTax products by going to those sites.) Versions of the software that let users file state tax returns can add to tax prep costs. TurboTax charges $39.99 per state for its software and TaxCut charges four cents less, $39.95 per state.
The test couple was well off and generous. One spouse earned $160,000 and the other earned an income of $100,000, and they both made an additional $25,000 in income from renting their second home. They had paid $10,000 in property taxes and $15,000 in mortgage interest on their main house and second home. The couple had $8,000 in child-care expenses for their two children and made $12,000 in charitable contributions.
While the prices for the software were different, the federal tax refunds produced were the same. Both programs generated a $574 federal tax refund for this couple. (The average refund as of April 3 is $2,815.)
So why spend the extra money on TurboTax?
"The tax calculations for both software packages should be similar," said Bob Meighan, a CPA and the vice president of customer advocacy at Intuit. "What sets our program apart is its user-friendly interface and our sophistication to go deep on complex returns." Even though it didn't do so for the test couple, he said TurboTax can help people who run their own businesses or have rental properties and a variety of investments to identify more tax deductions.
H&R Block spokesman Gene King cited the ability to chat with H&R Block tax preparers at no extra cost and free in-person audit representation as distinctions of its program. TurboTax offers audit defense services from TaxAudit.com at $49.99 per tax return. (The chances of an audit are rare, but here are eight ways to lower your risk of being audited.)
E-filing may not be the solution for everyone, of course. For those with particularly complex returns, tax professionals can help streamline the process, identify deductions and minimize taxes, financial advisers say.
"There are a few situations that would lead me to strongly suggest that someone work with a tax professional," said Craig Bartlett, a certified financial planner with U.S. Bancorp Investments. Among them: families with multiple income sources and those with high enough incomes that a number of deductions and exemptions could be phased out.
"A skilled tax professional can find ways to mitigate those effects," he said, adding that "consistently using a professional also means that there is someone else who has a thorough knowledge of your financial situation, which many people find comforting."
Correction: An earlier version of this story incorrectly stated the list price of TaxCut Deluxe.