Software can save when filing your taxes

Unless you've always dreamed of quitting your day job and becoming a CPA, there's only one reason for you to do your own taxes: to save money.

The average tax-preparation fee for a federal return with itemized deductions and a state return is $205, the National Society of Accountants says. If you don't itemize, the average fee is $115.

But with tax software, you can prepare your own return for less than half that amount. Taxpayers with adjusted gross income of $54,000 or less can prepare and electronically file their federal returns for free via the IRS Free File program.

Desktop programs cost more than online programs, but they let you keep your financial information on your computer until you e-file your returns (or print them out and mail them in). If you're uncomfortable typing sensitive financial information into an online program, you may prefer a desktop program. The most popular desktop programs also let you prepare more than one return — a handy feature if you need to file returns for several family members.

For our annual tax software review, we tested desktop products from TurboTax intu and H&R Block hrb, the leading makers of tax software. In past years, we've found pros and cons with both programs. But this year, there's a clear winner, despite its higher price. Here's what we found:

TurboTax Deluxe

TurboTax introduced a "Life Change" feature this year, designed to help users identify events in 2007 that could affect their tax bills. In addition to the obvious life-changing experiences, such as marriage, divorce or buying a home, the list includes tax-sensitive financial changes you might overlook, such as supporting a relative or sending a child to college. By clicking on the relevant changes, TurboTax spokeswoman Julie Miller says, you can tailor the interview process to match your tax situation.

At the start of the program, TurboTax provides a short primer on the economic stimulus package, which will provide a rebate of $600 ($1,200 for married couples) to most taxpayers. Though most taxpayers who file a 2007 return won't have to do anything to receive the rebate, many people have questions about it, and the program includes a handy Q&A.

Repeat users who import their 2006 return will appreciate a year-over-year comparison feature that TurboTax launched last year. If you paid taxes on interest, dividends or capital gains in 2006, the program shows the names of financial institutions and amounts reported on last year's return. This is a useful way to compare your taxable investment returns, deductions, real estate taxes and other items from year to year.

TurboTax also fared pretty well on the "oops" test, as in, "Oops, I forgot to add the $5.99 in interest I received from my credit union!" (Weary taxpayers may utter something saltier than "oops," but this is a family publication.) We were able to find the appropriate section from the interview, make the change and see how it affected our refund, in just a few minutes.

New this year:

•Audit Risk Meter. This feature gauges your risk of an IRS audit and flags entries that might draw extra scrutiny from the IRS. Once you finish your return, the color-coded audit meter will tell you whether you're at high or low risk of an audit. If the meter shows you're a high risk, that doesn't mean you need to eliminate legitimate deductions, TurboTax spokesman Scott Gulbransen says.

But you should make sure you have the supporting documents, he says, in case the IRS questions your return.

•Split refund option. TurboTax now lets taxpayers electronically deposit their refunds in up to three accounts, including an individual retirement account. The IRS approved this split-refund option last year in an effort to encourage people to save at least part of their refunds.

Price:The desktop version of TurboTax Deluxe Federal and State costs $44.95 for one federal and one state tax return. But if you want to e-file your returns, you'll pay an additional $17.95 for each return. The total cost, then, of preparing a federal and a state tax return and e-filing both returns is $80.85.

Taxpayers who are comfortable doing their taxes online can save money by using the online version of TurboTax Deluxe. The cost of preparing and e-filing a federal return is $29.95. A state return costs an additional $29.95 and includes e-filing, for a total cost of $59.90.

TurboTax also offers a free version of its online federal tax return for taxpayers who use 1040EZ or other simple returns. The program includes e-filing. You can find it at www.turbotax.com.

H&R Block TaxCut Premium

TaxCut Premium is a competent software program, and it costs less than TurboTax. But this year, TurboTax's version was decidedly easier to use.

For the second year, TaxCut is offering everyone who buys TaxCut the "premium" version. This means you no longer have to decide whether to buy the "basic" or the more expensive "deluxe."

But it also forces you to spend a lot of time answering questions about obscure tax issues. TurboTax does a better job of targeting the interview to your specific situation.

Like TurboTax, TaxCut provides a year-over-year comparison for users who import information from the previous year's return. But while TaxCut shows the names of financial institutions, charities and other organizations, it doesn't display the amounts. To get that information, you need to take the extra step of going to the toolbar at the top, clicking on "Reports," then clicking on "Compare to Last Year's Data."

TaxCut doesn't display the amounts on its year-to-year comparison because users might inadvertently report last year's information on this year's return, says Derek Swords, director of product management.

But our biggest quibble with TaxCut was its performance in the "oops" test. We found the process of changing an entry cumbersome. In one instance, we couldn't change it at all. Swords says TaxCut is designed to allow users to edit their entries and that customers can always use its search button to locate a particular section.

New this year:

•Split refund option. Like TurboTax, TaxCut now lets users electronically deposit their refunds in up to three accounts.

•Professional help. Block launched Tango, a program geared to people who want to do their taxes but need some hand-holding. For $70, users get one federal and state tax-preparation program, e-filing and access to professional help, 24/7, at no additional cost.

Price:The desktop version of TaxCut Premium costs $69.99, including a state return and e-filing for federal and state returns. The price also includes one "Ask a Tax Advisor" session, which ordinarily costs $19.95.

The online version of TaxCut Premium, including a state return and e-filing, is $44.95 and also includes one "Ask a Tax Advisor" session with a tax professional, either on the phone or by e-mail.

TELL US:Do you do your own taxes? What do you like or dislike about the process? If you use software, which program do you use?