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 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.