TaxACT needs to get their act together for complicated returns
Written: Feb 12 '03 (Updated Feb 13 '03)
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Pros: Good help files, link to Lasser's Your Income Tax (Deluxe only), quick customer support, inexpensive
Cons: navigation difficulties, lack of overrides, incorrect state calculations, possible formatting errors on printed returns
The Bottom Line: Too many errors to recommend. If you have already calculated your taxes by hand or by another program, and the results match, I'd probably trust it for E-filing.
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| Arthur.Rubin's Full Review: TaxAct for the Web |
I decided to try E-filing this year -- but then I thought better of it after trying TaxACT for the Web.
First, let me explain my background in taxes. I've been a professional tax preparer (registered in California 1990-1997. I've stated E-filing is a bad idea here. However, due to unexpected medical expenses, and construction of a block retaining wall, I have a significant refund coming this year, so I thought I'd try it. (I should note that I'd already calculated my taxes on a spreadsheet, so I knew what the results would be.)
I thought better of it.
I selected TaxACT on the Web because of the IRS free E-file program -- because my (Federal) Adjusted Gross Income is over $50,000, I'm eligible for a free Federal E-file. Since I'm in California, a high-tax state, I thought I'd E-file the state return, too.
My detailed tax situation
Basic information: married, no kids, under 65 years of age, not blind
Income sources: Wages, interest (no 1099s due to the small dollar amounts), state tax refund, business income (Epinions), rental loss, miscellaneous income (recovery of previously deducted medical expenses from 2001)
Itemized deductions: Medical, taxes, mortgage interest, charitable contributions
Good points
The basic questionnaire would have caught all the income and expenses except for the miscellaneous income. I knew that was income, but the program wouldn't have prompted me for it. Each page has a Help link to general information about the section of the tax return you're working on, even without selecting Deluxe service.
Most state returns (resident and non-resident) are available.
Points -- it did prompt for and correctly calculate the points on Schedule A line 14, even though I refinanced my mortgage this year, so the remainder of the amortized points are deducted in full.
Once I got the depreciable assets properly entered, it correctly calculated the depreciation and 30% bonus depreciation, and recognized that California doesn't have bonus depreciation, and correctly calculated the California form 3885A (depreciation adjustment under California law), but failed to transfer the result to the California schedule CA. This would have resulted in an underpayment of about $100 on my California tax return if I had filed it. Well, it started out as a good point.
Federal AMT -- in the Alert section, it correctly calculated the difference between regular depreciation and AMT depreciation. It also prompted for me to enter the amount of mortgage interest which is not deductible for AMT calculations.
Alerts -- this section (which they recommend you go through 2 or 3 times to be sure you understand all of them) gives a list of items on the return which might cause it to be processed improperly or audited. My return had the red flag mentioned below, a yellow flag also relating to depreciation, and a green flag asking me to confirm the AMT depreciation adjustment, which it did compute correctly.
Specific problems:
As in most tax programs and preparers, when you give a list of items to be accumulated into a single entry on a tax form, TaxACT rounds each entry to the nearest dollar, rather than accumulating the exact amount and then rounding to the nearest dollar. It's common, but still incorrect.
It's difficult to enter interest not reported on 1099s. I finally had to enter the information as if it were on a 1099. My problem was that I had less than $10 in interest, but this could be a problem for you if you make a personal loan, and the interest you receive is less than $600, so that they aren't required to give you a 1099.
It was almost impossible to get the correct depreciation for the window coverings on the rental. TaxACT has various asset categories, but the only way I could get the correct result was to tell TaxACT it was "residential real estate", and override the asset life (5 years for property used in a rental) and 200% DB (see my reviews on Depreciation and Accelerated Depreciation for definitions.) This produced a Red Flag in the alert section. (Customer Service reported that overrides were only available in the downloaded software, which is available at the same price as the Web service.)
Also, I had to page through the entire rental information subsection in order to get to the depreciation subsubsection.
It's impossible to enter mortgage interest paid when the bank doesn't give you an accurate 1098. (This may be a function of E-filing, where the IRS crosschecks the amount on the 1098.)
There is no good way to apportion expenses. For example, if you own a duplex, where you live in one of the units, you need to split expenses between personal and rental expenses.
There is a prompt for California tax credits, but you have to know what they are in order to use them, with the exception of the rental tax credit.
I have absolutely no confidence in the California AMT calculation. California form 540 schedule P actually wasn't required, but only because of a California AMT adjustment which TaxACT didn't ask me about. (If you're curious, it was the small business AMT exemption -- any business producing an (unadjusted) gross income of less than $100,000 is disregarded for California AMT purposes.)
TaxACT rounds all figures to the nearest dollar. While the IRS recommends doing this, it isn't required, either on paper returns, or on E-file returns. However, it prints the dollar amounts as (say) "4,325." rather than just "4,325", which is not considered an acceptable format according to the IRS instructions. Furthermore, it prints negative entries as (say) "-8,325." rather than the preferred "(8,325)".
Finally, on the California return I printed, TaxACT supplied summary information, as if the return were in the discontinued 1040PC format. I have no idea if California would have accepted the return, even if the depreciation adjustment were calculated correctly.
Pricing
Federal Income Tax return printed: Free
Federal Income Tax return E-file: $7.95
(each) State Income Tax return (printed or E-file): $7.95
Deluxe Service: $19.95 (includes depreciation summary sheets, married filing joint vs. Married filing separate calculations, copying information from previous returns, amended returns, links to the full text version of Your Income Tax, etc.)
Final recommendation:
Just say no, unless you know what you're doing. It's possible TaxACT may handle simple returns correctly, but....
Recommended:
No
Amount Paid (US$): 7.95
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Epinions.com ID:
Arthur.Rubin
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Member: Arthur Rubin
Location: Brea, CA, USA
Reviews written: 97
Trusted by: 109 members
About Me:
Expert in mathematics, computers, income tax, with a wide variety of interests.
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