Over the weekend I spent some time trying out TaxACT, an online tax preparation solution. And I have to confess that my expectations were pretty low. Having used TurboTax for years, I assumed there was a good reason why TaxACT wasn’t the leading tax software. While TaxACT isn’t perfect, I was pleasantly surprised.
Here are the pros and cons based on my use of the online version of TaxACT:
- Very easy to use
- Federal returns are free, and no payment is required for state returns until you are ready to file
- E-file is free
- Robust Q&A walks you through difficult tax topics like self-employment income, itemized deductions, and real estate investments
- Cheaper than both TurboTax and H&R Block At Home
- The Deluxe Federal Edition, once selected, could not be undone (more about this below)
- No live chat
- No forums
TaxACT was developed by a company called 2nd Story Software®, a privately held development and marketing company that was founded in 1998. TaxACT comes in three flavors–online, CD or via download. I used the online version, but if you are uncomfortable with providing your social security number and other confidential information online, the CD or download versions have you covered.
Here’s a short video describing these versions:
Like other online tax filing products, TaxACT has a variety of versions, each of which has its own features. Even the free version is quite full-featured. Let’s talk about some of the features supported by various versions of TaxACT.
Importing last year’s tax data: TaxACT offers several ways to import your information from last year’s tax return. Of course, if you used TaxACT last year, importing the data is a snap. But you can also import last year’s tax information from other tax preparation software. To do this, simple export your return from last year into a PDF document, and then TaxACT can import the return directly from the PDF.
Q&A Entry: Following a question and answer format, TaxACT will walk you through your tax return step by step. In this regard, TaxACT isn’t much different than TurboTax. The Q&A approach is typically how I prepare my taxes (when I don’t use a tax accountant), and I found TaxACT pretty easy to use.
Life Events: As a spin on the Q&A approach, TaxACT offers step by step guidance based on some fairly common life events. The idea here is to provide you with detailed guidance and tips based on your specific circumstances. For example, through TaxACT’s life events, you can walk through tax guidance on everything from purchasing a vehicle (there are some tax credits available for certain purchases) to being self-employed.
As you can see from the fine print, with the free version, you can choose “Financial Hard Times” and one other event. With the Deluxe version, though, you can upgrade to other events, so that TaxACT will walk you through them.
These “events” effectively cover all the possible tax forms. And, indeed, TaxACT offers access to all e-fileable tax forms (which is the vast majority of them by now!). So with the basic version you could, for instance, do your own business taxes with the guide, but that would be all.
This is why if you want a guide to other complicated tax topics – like childcare deductions and homeownership deductions – you may want to upgrade to the Deluxe version.
Tax Forms: Sometimes it’s necessary to dive into a tax form to enter data, rather than using a tax software’s Q&A. TaxACT makes this easy by including a link to the relevant form throughout the Q&A process. If you click the link, you can review and revise the tax form directly. If you’re comfortable filling out some of your information on your own – without the step-by-step guide – this can be a good way to save by using TaxACT’s Basic version.
Free E-File: Electronic filing of tax returns is now the norm with Tax preparation software. TaxACT offers free e-file of federal returns. E-filing your return has several advantages. It will give you the fastest tax refund possible (as few as 8 days with direct deposit), reduces the possibility of errors, and gives you official acknowledgement that the IRS has received your return.
Unlimited Support: All versions of TaxACT offer unlimited support through the Answer Center. With the Basic version, you can pay a one-time fee of $7.99 for live help via chat or phone. The fee gets you this help for the whole year. With the other versions, such help is included. TaxACT also has a large Help Topics section, featuring helpful videos for visual learners.
TaxACT® Maximum Refund Pledge
TaxACT comes with a rather interesting maximum refund guarantee. Basically, if you can a larger refund or less tax due using another tax preparation method (using the same data, of course), TaxACT will refund the price you paid. While this may sound great, it’s frankly not much of a guarantee. Of course, if you overpay your taxes, you can always file an amended return.
Here are the details from TaxACT:
If you get a larger refund or smaller tax due from another tax preparation method with the same data, we will refund the applicable product price you paid for your TaxACT Deluxe federal return. TaxACT Free Edition and TaxACT Express customers are entitled to a payment of $4.99. Refund claims must be made in writing within sixty (60) days of your TaxACT filing date. To qualify for guarantee, the larger refund or smaller tax due cannot be attributed to variations in data you provided TaxACT for tax preparation (including but not limited to non-cash contributions) or for positions taken by you or your preparer that are contrary to the law. This only applies to accepted federal e-filed returns.
Written notice must be sent to TaxACT, Inc., 1425 60th Street NE, Cedar Rapids, IA 52402. The Consumer must include a paper copy of the TaxACT return, a data file copy of the TaxACT return, and a paper copy of the return from another tax preparation method. Note: If you used TaxACT Online, the data file is not required.
The cost is one of TaxACT’s best features. For federal returns, you can prepare and e-file your return for free. If you want some additional help, you can select TaxACT Deluxe for $12.99. Deluxe is best if you want to import last year’s return or get help with multiple tax situations. As I mentioned above, once you select Deluxe, there’s no easy way to unselect the feature, at least that I could find. So choose carefully. And if you want Deluxe federal & state, it’s just $19.99.
In large part due to its low cost and ease of use, TaxACT is one of the better tax prep software packages available.
For more details, visit TaxAct’s official website.