Tax preparation methods used in test (2004 tax year)


This method definitely had the most headaches. Wanting to give the professionals a run for their money, I researched everything and double checked all numbers. Most things were relatively straight-forward with the main exception being the infernal student-tuition deduction. Actually the biggest problem was the 1098-T form given by the university for this purpose. It took numerous e-mails to the university in order to understand what is actually indicated in those little boxes on the form. Although I am not a professional, I would advise anybody else who is trying to claim this deduction to ignore the 1098-T form, get a copy of the year's billing statement from the university, and read the relevant IRS publications very carefully. After two hours of my first-run through the taxes, I stopped counting the time. While this may have been more a problem with the university than the IRS, I would bet this type of situation occurs pretty regularly with people doing their own taxes.

TaxCut (purchased)

Upon the advice of my father (who has used/loved this program for many years), I purchased a copy of TaxCut Deluxe from the TaxCut website and downloaded the updates. The program was relatively straight-forward to use. Answer a series of plain-english questions and your taxes are filled in. It automatically takes you through all the possible scenarios to determine which will maximize your return, and even gives helpful hints along the way on how to change your spending habits to increase your return for the next year.

Sounds good, right? For the most part, it is. Then came that infernal tuition deduction again and the horrible 1098-T form. Even knowing how things were supposed to come out, I had trouble deciphering the TaxCut program to figure out how the numbers should be entered. How do I enter the adjustment for a previous year? Is this cost tax-exempt, or not? In the end, I did my best, and the result came out wrong. The help files didn't do their job well enough for me to figure out the correct answer.

After completing the federal form, I went on to the state section which got totally butchered. The help files were non-existent here and because all the numbers were pulled from the federal return, there was not much that could be done.

In the end, however, the errors in the federal and state portions tend to cancel, and I get the same basic result I would otherwise. One might be tempted to do the state return by hand and go with the larger federal return, but remember that no matter how you do your taxes, if an audit happens, you are ultimately the one paying fees because you entered incorrect numbers in the wrong places.

tax accountant

Coming out of that last trial scratching my head in confusion, I was glad to get a chance to go to a real tax accountant. The nice thing about a tax accountant is that it is quick (in and out in less than a half hour for me), and you can get all your tax questions answered from a real talking person. By this point I definitely had a need for answers about the tuition thing. To make it a fair test however, I did not ask my questions, and instead I merely pointed out I was confused with the issue, handed over my papers, and let him figure it out. In the end, his number agreed with my numbers to within a $10 that I'll never figure out. Maybe it's that "new math" thing people sometimes talk about. Anyhow, in the big scheme of things, I figure that within $10 is close enough for me. More importantly, it reassured my ego that it was the TaxCut result that had the problem and not my own calculations (although I did double-check those as well).

My biggest complaint about the tax accountant was that after nailing that tuition deduction on the federal form, he missed a simple deduction on the state form which cost me a couple of dollars. It was nothing that would break the bank, but a bit disappointing seeing how I already spent good money for his services.

Then of course there is the envelope mistake. Although he offered to e-file my taxes for me (which would have been a lot quicker), I opted instead for mailing it in so that I could study the results a bit more in depth before they were sent out. He had me sign the forms, he folded them up, stuck them in envelopes, and sealed them shut so that all I had to do was stamp it and drop it in the mail. It was nice service to do all that, but when I later opened the sealed envelopes, I discovered they were in the wrong envelopes. My state returns were about to be shipped to the feds and vice-versa! I guess all this just serves as a lesson that the rumor is true ... tax accountants are human ... and they make mistakes sometimes.

TurboTax (online)

My final test was using the free e-filing method through TurboTax. From my understanding, this method only became available to everyone this year. Basically if you go to the IRS website at, you can follow the link that says "Free File" and the IRS will provide a list of organizations that will fill out your federal taxes for free. I know what you're thinking, and I have to agree ... it sounds too good to be true, especially from the IRS. I was looking carefully for that hidden "gotcha", but did not manage to find it ... although I let you know if I get audited this year (coincidentally of course). Anyhow, I chose to go through the TurboTax site, and followed their instructions. Overall it is very similar to TaxCut in the way it guides you through an interview. My general impression was that the questions were easier to understand, and surprisingly I made it though the tuition deduction with hardly a pause. Perhaps it was because I've been through this so many times before, but I really think the questions themselves were easier to understand.

In the end, the results that came out were essentially identical to the ones I produced (phew!), which in turn were nearly identical to the ones produced by the tax accountant. I suppose there is one caveat to the online method which is that the state taxes will cost you! The TurboTax site offers to do the federal taxes for free, but if you want the state taxes as well, it will cost you $24.95. Other companies may have different charges/policies.

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