Software: Programs Get A Bit Brainier

If doing the 1040 tango each year leaves you with mid-April angst, the antidote might be a tax software program. Using tax software won't make preparing your return fun, but it can make it less tedious. By automating every calculation, leading programs such as TurboTax, Kiplinger TaxCut, and Personal Tax Edge can shave hours off the task, eliminate pesky math errors--and with luck, help you spot a deduction that otherwise would have gone unused. And with more software retailers using tax programs as traffic builders, it's possible to pick up TurboTax or TaxCut on sale for as little as $10, half to a third of their normal prices.

If you've used these programs before, this year's versions will look familiar. After adding multimedia bells and whistles for years, the companies have introduced more subtle improvements with this year's crop. For example, some programs have streamlined the standard "interview" process with a brief "pre-interview" that then spares you from answering questions about subjects that don't apply to you.

CAVEAT. Despite the refinements, there's only so much software makers can do to make complex tax questions simple enough to answer with a click of the mouse. "Tax software oversimplifies some complex issues with `yes-or-no' questions that are inadequate," says Alfred C. Giovetti, a Catonsville (Md.) accountant. Indeed, for high-income households with extensive deductions, exemptions, and other shelters, tax software is no substitute for a good accountant. But even these high rollers can use tax software to help figure estimated payments and do quarterly tax planning.

One noticeable difference this year is tax software developers' efforts to embrace the Internet. Personal Tax Edge allows you to download obscure forms and schedules not included in the software. All the sites let you check for tax law changes and software bug fixes, plus you can buy basic versions of TaxCut and Tax Edge online. Supply your credit-card number, which is encrypted, to download the programs. TurboTax and Tax Edge also allow 1040EZ filers to prepare their returns and file them electronically for a $10 to $15 fee.

The best option this year may be TurboTax, which did more than the others to simplify its interview process. TurboTax streamlined its confusing navigation system that has made it difficult to jump between sections. The new progress list helps to keep your place and alerts you to what's ahead. TurboTax also customizes the Q&A process by incorporating previously entered data into later questions. It can determine based on your answers whether you are subject to the alternative-minimum tax.

Like TurboTax, TaxCut simplifies the interview process with a "pre-interview" that helps the software avoid unnecessary questions later. And TaxCut's move to bundle the programs for the 23 state returns it offers onto one CD-ROM will appeal to households filing multistate returns. (TurboTax and Tax Edge only sell each state program separately.) But TaxCut's state CD-ROM won't be ready until mid-February, although its individual state disks are available now.

TaxCut suffered a setback this season when TurboTax was revised to save its data in a proprietary format instead of as plain text. That move effectively prevents TaxCut and Tax Edge from reading data from last year's versions of TurboTax--and may make it tougher for them to steal any of TurboTax's 85% market share. TurboTax denies any malice, saying the switch makes the program run faster and saves disk space. TaxCut's search feature also flunked a BUSINESS WEEK test after its search engine failed to locate the help screens for passive investment loss limitations.

That's still better than Personal Tax Edge, which doesn't even offer a stand-alone search feature. You can only access its help screens as you work through each relevant part of the program. And Tax Edge's interface is clunkier than those of its rivals. To its credit, Tax Edge has some new features such as melding the state module into the federal program. Now, the two returns are done almost simultaneously, giving you a running tally of your combined total. PTE also offers some nice links from its Web site, including one to a database that, for a $15 fee, gives the fair value of thousands of items commonly donated to charity. Perhaps you've been underestimating the worth of these items--and cheating yourself out of deductions. And if there's a point to using tax software, it's to make sure that Uncle Sam gets what's due him--and not a nickel more.

TAX TIP: Doing your return on the PC can save time, avoid errors, and even spot a possible deduction

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