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Income Tax Software and a few tips to help you use it.

The Big Beware

A tax return is based upon the information that you input. Tax programs do not know the difference between right and wrong. A tax program will only do what you instruct it to do. Input the right information in the wrong area and you get a wrong return. 

It's on the Internet and it's FREE 

There are many sites on the internet that offer low cost or even free tax preparation. It may seem free, but as we all know nothing is free and this tax preparation is no different. Without going into great length, here is how they make there money. Many give you the forms on line and allow you to enter your information. They will charge you for Electronic Filing if everything is correct. If it isn't and most of the time it is not correct, they charge you to either fix it or tell you how to fix it. Other companies make money by having your return reviewed by a "tax expert". For a fee, they will review your return and tell you what's wrong. For a extra slight additional fee, they will fix it for you. It is in their interest to find something wrong, that is how they make money. Some companies give you the software (free or low cost) and charge you for printing you return. I could go on and on, but you should be getting the idea by now (nothing is free). As with everything above, you still have to know what your doing, so with that in mind, off we go to buy our own tax software. 

Which Program Should I Use?

Most people ask me about TaxCut (by H&R Block) and TurboTax (by Intuit). They usually ask several questions; 

One; don't they hurt your business? 

Two; what do you think of them?   

Three; what do you use?

The first question is the easiest to answer. 

No, they don't hurt my business. Most of the people who use these programs are the same people who would do their own income taxes. The usually have a good understanding of taxes and these programs just make it easier for them to do their taxes. Then there are those who have no clue as to what they are doing. They get the IRS letters and end up getting help, so it is a win, win situation for tax professionals.

As to the second question, what do I think? 

I really believe both of these programs are excellent for what they do and offer. There are very few, if any, personal income tax returns I could not do using either program. I am not going to bash either program leaving that for the bashing experts. Remember, both have critics who will rip apart the other program, they are paid to do it, which is their job. There is the irate individual who can rip apart either of these programs but if they speak in anger, why?  I have found very few of them to possess an income tax knowledge, which makes it extremely difficult to use the programs, hence their frustration and dislike. Then there is the person who just doesn't like the other program. Unless you hear compelling reason to use one over the other, (I never have) I would buy according to cost. I do think you get more for your money with TaxCut (cheaper) but if TurboTax gives you a deal, go for it. 

Before You Buy.

Before you run out and purchase a tax program, you should ask yourself why? Originally I thought to save money was a good answer. It may be, but not necessarily. You have to weight the costs of the program, time to learn the program and time to understand what you are doing.

If your hunting for accuracy, great, these programs are accurate. Make a mistake and it will be a accurate mistake. 

Just want to learn, great answer. 

What about speed? Speed usually isn't a good answer. It may take you hours to learn how your program works and at the same time, costs you a relationship in the process. 

Regardless of your reasons, you should know something about how to prepare income taxes, unless you just want to learn. (Make sure someone who knows what they are doing, reviews what you have done.)  The most common and possibly the biggest mistake most people make, is not knowing what to do. Again, you have to know something about taxes and learn how the program works. Not knowing either will only invite disaster.

In general, and I mean in general, tax programs can be divided into two types. Menu Driven and Form Based. All programs have the Tax Forms and all have Menus and Worksheets. The difference is how you access them and what the Tax Forms look like. 

Menu Driven Programs

Menu drive programs are great for doing your own taxes. TaxCut (by H&R Block) and TurboTax (by Intuit) would be considered Menu driven. All offer excellent help features and you can easily follow the prompts to the completion of your tax return. Some of these programs (not all) are so complete that they are almost bullet proof. Meaning, it is almost impossible to make a mistake. If you’re a big tax firm and are hiring people with limited tax experience a good Menu driven program is a must. A word of caution. Until you have a good feel for what you are doing, NEVER, (Do Not) skip through a menu driven program. Skipping through a menu is where most people start their mistakes. 

Most of these Menu driven programs require information to be entered before you can open actually open up a tax Form. You simply follow a menu or a script, entering the information as prompted.  They usually start out by asking for a name, social security number, birth date, and address. If you’re married, it may ask for your spouses name, social security number, and birth date. It may ask if you have dependents, enter their names, social security numbers, and birth dates. Some may only ask if you're married filing jointly and as you go through menu answering the questions, the program will determine your filing status. You have to pay attention to detail and answer the entire question.

An example of this might be birth dates. Perhaps you’re in a hurry and you don't think the birth dates are important. Let us look at just what happens when you enter the dates. Most tax programs can determine what forms are date data sensitive. Even though you may not know the tax laws or rules, because you paid attention to the details and entered the birth dates, the tax program will automatically seek out and open the forms. If you’re a senior, maybe a Schedule R will generate, or if you have a child, possible EIC and Child credit. The dates also open up additional menu questions to help you complete a tax return.  If you have a child between 18-24 years of age, the program may open up an EIC screen to help you qualify the child for EIC. 

Another example might be the W2 information screen. Here is where almost all major tax return mistakes are made. If you look at a W2, you may not understand the importance of entering all of the information shown in each box. The programs do. For example, if there were amounts in boxes 8, 9, or 10 and you omitted them; expect a letter from the IRS correcting your mistake. 

Another example on a W2 might be if there a box is checked that says Pension Plan. If it is checked and you put it in, the program will do several things behind the scenes. It will determine if an IRA contribution is allowed and if it is, whether or not it is limited. 

1099R's are no exception to the rules. Leave out a code and you may find yourself owing a lot of money several months later, after the IRS catches the mistake, which they will catch. 

The point being here, pay attention to detail. Never skip about and enter all of the information you are asked for. If you follow the prompts or menu and do not skip all about, you should do just fine.  One more time, least we forget. Never, (Do Not) skip through a menu driven program as this is where the mistakes begin. 

Menu driven programs do have some minor limitations. Usually this happens on more complex type tax return. Some program may determine an amount and ask you if you want to override that amount, or it may put nothing in expecting you to do it. This is where knowing how to prepare taxes comes into play. Funny about this type situation, if you make a mistake here, usually you will pay more in taxes and the IRS will not complain. Remember, I said usually, not always, so be careful and understand what you are being asked to override.

Form Based (Driven) Programs

The other type of tax program is known as a Forms Based programs. Forms Based tax programs are designed for the tax professionals. You really should know what you are doing. They require not only income tax knowledge, but you also have to understand the forms. They do have one distinct advantage, and that is speed. A good tax preparer can do a tax return much quicker than having to follow a script. Other differences are the ability to navigate through the return much quicker and adjustments are easier to make. The down side is unless your experienced, it is easy to miss or leave out information that a menu based program would have picked up. Fortunately the forms base programs have some fantastic diagnostics, which will catch many mistakes and omissions. Another great feature most of them have is the ability to generate a menu or menu driven prompt on either a line, Schedule or Form. Double click a line and a menu will pop up and guide you through whatever information is necessary to complete that line.

Not to add to any confusion, but in either type program you usually have the choice to go to either go directly to a Form or use a Menu. For example, in the Form based program I use, if I double click an entry line, I will get a menu, which will allow me to enter information and then carry it whatever forms need or use it. 

In most menu driven programs you usually will find a box or prompt which will say 'go to Form'. Click it, and it will take you to the Form or Schedule you want or need. I could be in a menu driven program and only want to make a single entry on the tax form. I could choose to go directly to the form and place the information there. I might get a message telling me to place it else where and let the program decide but then will leave me with the option to override the line amount. With few exceptions, most have override features.


When you tell the program to check, finish, or review what you have done, most will use an extensive set of diagnostics. Usually there are lots of warnings and alerts so if you make a mistake, many of the errors will be caught. This where you may experience a small problem or two. A severe error message is just that, a severe error. This means that there is a major problem with the return and it has to be fixed. Send in a tax return with a severe error and you are almost certain to get a letter from the IRS, and it won't be kind or gentle letter either.

A caution or warning is again just that, a warning. It means to check or recheck an area of concern. Many times a caution maybe asking for an adjustment or telling you it has made an adjustment and is waiting for you to respond. Maybe a dependent has a different last name and the warning is asking you to double-check the name. Point being, with a warning or a caution, check and recheck just to make sure everything is all right. You want to eliminate as many of them as possible before sending in your tax return.

Electronic Filing 

Electronic filing or E-file as many in our business calls it, is a fast and accurate way of filing your income tax return. In simplistic terms, you're inputting your tax information into the IRS computer, saving them the time and effort. Your reward for doing this, is a faster refund (2-3) weeks, less chance of it being looked at, and knowing that it was indeed filed and accepted by the IRS. 

The filing requirement are different from that of a regular return. Much more stringent and unforgiving. Most e-file diagnostics will pick up your errors but not always. Should an error escape you, the IRS will simply reject it and tell you why. Fix the mistake then re send it, 'no worries mate'.

So which is best? Depends. If you’re a tax professional and learned to do taxes the old fashion way, by hand, you might like the form-based programs. If you’re new at doing taxes or just want to do your own, you may want the menu driven program.  

I almost forgot. Question three; what do you use? I use ATX's MAX, a Form Based Program, but it is not my favorite. My favorite is the ones on the internet that are free. These are the ones that provide me with my summer income as I get to fix and amend all of the mistakes the person made, trying to save a buck.