Why desktop tax prep beats online tax prep

February 14, 2009

taxcut-software-free-efile-federal-tax-returns-with-taxcut-software-hr-block_1234717878987Preparing your taxes online offers some advantages over doing them on the desktop–you don’t have to wait around for installations and updates, for one–but for taxpayers like me, there are certain rewards to desktop tax apps like TaxCut (review) and TurboTax (review). As part of Compuer 2000 coverage this year, we wanted to compare not just TaxCut and TurboTax, but also the benefits of filing taxes online versus filing turbotax-premier-2008-mac-pc-cd-rom-english_1234718232326with desktop software.

The benefit of desktop tax software boils down to two points: the number of e-files you get for your money and where the software stores your return. Desktop tax software offers the greatest flexibility on both accounts.

Storage

Storing your tax return on your computer means that your paperwork is always accessible, no Internet connection required. Saving the return locally also makes it easier to import the previous year’s information into a competing tax-prep app, which can cut back on retyping the same information year after year.

TurboTax Online does let you save your tax return to your computer’s hard drive, a perk that makes it easy to import a TurboTax return of any sort to competing software the next year. TaxCut Online, however, saves your return only on its secure servers (or as a nonimportable PDF document). To switch tax brands, you would need to start a return from scratch.

TaxCut Online offers options for importing last year’s return. Most rivals’ online returns can’t be included.

How e-filing affects price

At first glance, desktop tax apps appear to cost more than the online versions, but the list price typically only includes the federal return. Once you add the price of a state return and the value of multiple e-files, you may find the boxed software to be a better deal. Both TurboTax Deluxe and its online counterpart cost $60 for the federal and state returns combined. The difference between the two? You get five free federal e-files with the desktop version, and one federal e-file plus one state e-file with the online software.

Similarly, TaxCut Premium + State + E-file costs $50 for the federal and state return on the desktop and $70 for the online version. If you were to pay to file your state return electronically with the desktop software, the price would even out. TaxCut mirrors TurboTax’s e-file allotments.

With either tax brand, households can get greater value from desktop software when you account for those five free federal e-files included in both TurboTax and TaxCut’s desktop software. If you prepare taxes online, you must pay for each federal and state return before you can file. On the desktop, you can prepare multiple federal and state returns with the same software, saving money if you split the cost among a few people. (The majority of users filing in multiple states will need to buy an additional state return.)

For example, Grandma needs to claim her Social Security income, Mom and Dad need to file their joint return, and Jr. has to report earnings from his after-school job. With one desktop app, the family can file its respective federal returns electronically and can share the state return software. They can save themselves an additional $20 per head if they snail mail the copies of their state return instead of paying an e-filing charge. (Note: The family in question would have to create and file their returns on the same computer to share the state return.)

The reusable nature of the desktop tax apps make splitting the cost a better deal for a household filing two or more federal returns. However, single or married taxpayers who only need to file a single federal and single state return can benefit from online tax-prep, especially since the included e-filing will save them from having to print, compile, and sign a small pile of paperwork.

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