Which Tax-Prepping Software Is Your Best Bet This Tax Season?

An in-depth look at which tax-prepping software taxpayers prefer, the advantages and disadvantages of the three biggest tax-prep tools, and the one thing you absolutely must avoid doing this tax season.

Feb 16, 2014 at 12:01PM

In case you weren't aware, tax season has officially begun, and the Internal Revenue Service has opened its doors to what will likely amount to the processing of 235 million to 240 million total returns this year. Even if you've managed to escape the ad blitz thus far, have no fear, because tax-preparation companies, be they bricks-and-mortar or do-it-yourself tax software providers, are going to hit consumers hard, since this amounts to their bread-and-butter quarter.

But, with so many choices on the table with regard to preparing your taxes, many taxpayers are simply left scratching their head and wondering which one offers the best advantages. Luckily, two polls and a deeper dive into the advantages and disadvantages of each tool should help you make an educated decision that's right for you.

Tax Forms

Source: Philip Taylor, Flickr.

America's favorite tax software solution
I wish I could say there was one meta-poll we could look at that broke down America's clear choice for tax preparation software, but there's not. Instead, two polls from early 2012 -- one from Lifehacker, which collected close to 2,400 votes, and the other from My Money Blog that had around 2,000 total respondents -- are the closest thing we have to consumer sentiment about available tax-prep options.

Despite the informality of these two polls, there was a discernable line drawn in the sand: Intuit's (NASDAQ:INTU) TurboTax was the clear top choice of respondents, with 57% of the Lifehacker respondents and 52% of My Money Blog voters choosing the tax-prep software. By comparison, Blucora's (NASDAQ:BCOR) TaxACT and H&R Block's (NYSE:HRB) tax-prep software, H&R Block At Home, garnered votes in the 12% to 18% range. Perhaps a bit shocking to me, between 10% and 14% of respondents still hired an accountant or CPA and 4% of respondents in the My Money Blog poll admit to filing their taxes by paper.

Now that we know how this select group is leaning, let's have a closer look at some of the advantages and disadvantages of each tax-prepping tool.

What are the real advantages and disadvantages of these big three tax-prep tools?
First, I'll start off by noting that tax professionals lent a hand in the development of TurboTax, TaxACT, H&R Block At Home, and a number of other tax preparation software programs, so there's not a huge advantage from one company to the next in that respect. In other words, the software itself encompasses and properly covers the tax code, so you'll see practically no differences between these three in that regard.

Turbotax

Source: Charles Barilleaux, Flickr.

TurboTax
So, "Why TurboTax?" you might be wondering? TurboTax is the longest-running tax prep software, having made its debut back in late 1999. Intuit's software can be significantly cheaper than a tax professional and can walk taxpayers through complicated situations on their taxes, as well as address a vast majority of their concerns ahead of time. I'm not afraid to admit that I've been a TurboTax user for going on my seventh year and have run into no issues with it in that timespan.

The downside of TurboTax, if I had to nitpick, would be in the aspects of getting one-on-one assistance. You can certainly get a TurboTax representative to answer your questions if need be, but given that Intuit has no bricks-and-mortar locations for tax purposes, you're essentially on your own to figure out complicated situations such as living in multiple states in the prior year or becoming a sole proprietor or contractor.

H&R Block At Home
The biggest advantage for H&R Block is that it can utilize the fact that it runs both bricks-and-mortar and at-home tax-prep solutions. This means that if you have an issue, there's always a living, breathing person you can fall back on and go to visit who is associated with the same company as your tax preparation software. Furthermore, H&R Block has been a tax industry stalwart for decades and has an extensive client base. Providing the At Home software option incentivizes a younger generation of taxpayers to stick with the company thanks to its cheaper price point relative to using a tax professional.

The disadvantages for H&R Block At Home are twofold. First, it simply hasn't been on the market for as long as TurboTax, so it isn't viewed as favorably by the tech-savvy younger generation. More importantly, in my opinion, is that H&R Block's At Home gaffe from last year is still fresh in the minds of many taxpayers. Last March we discovered that H&R Block At Home was submitting tax forms without completely filling out Form 8863 for education credits, thus denying tens of thousands of filers' deductions they deserved and pushing the processing of these applications back a few weeks. PR nightmares like this have a way of sticking with a company for quite some time.

TaxACT
Finally, we have Blucora's TaxACT, which launched in 2000 and was the first tax-prep software to offer free federal tax and e-filing services to taxpayers in 2005. Blucora, which was previously known as Infospace, acquired TaxACT in 2012. The biggest advantage for TaxACT is its price. Relative to TurboTax and H&R Block At Home, it is markedly cheaper for the more complicated business tax software solutions. Being the go-to source for free federal filings has also given it a steady following of users, which it has the potential to transition to paying customers if or when their financial situations get more complicated.

The disadvantages of TaxACT relate solely to the support services that come along with your purchase. TaxACT is cheaper than its peers, and there's a reason for it -- you'll get no mobile access to your tax information via TaxACT, and there's no telephone customer support if you have a question. You can certainly ask a question online or via email, or pay an additional fee to talk to a live tax professional, but its customer-service aspects appear to be lacking a bit relative to its peers. In other words, if your taxes are generally straightforward, TaxACT could be a solid choice for you. 

The one thing you mustn't do!
Based on the advantages and disadvantages above, there really isn't a wrong choice, but you certainly need to figure out what would work best for your particular situation.

There is one thing, however, that you absolutely shouldn't do this tax season, and that's file your own taxes on paper forms. According to data from TurboTax, e-filing error rates totaled just 0.5% last year compared with paper form error rates which were a staggering 21%! That's a 41 times greater chance of an error if you write out your taxes by hand. Think about it: Your writing may be illegible, you may leave a critical box empty, or you may add or subtract incorrectly, and there's no software available to check your calculations. Do yourself a favor and choose to either use tax preparation software this tax season or consult a tax professional.

Is Uncle Sam about to claim 40% of your hard-earned assets?
Thanks to a 2013 law called the American Taxpayer Relief Act, or ATRA, he can, and will, if you aren't properly prepared.

Fortunately, The Motley Fool recently uncovered an arsenal of little-known loopholes to protect yourself from ATRA and help keep the taxman at bay when he inevitably comes calling. We reveal them all in a brand-new special report. Simply click the link below for instant, 100% free access.

Protect my hard-earned wealth from Uncle Sam

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of, and recommends Intuit. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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