TurboTax Review for the DIY Crowd

As I slug through the preparation of our 2008 income taxes using TurboTax, I thought a review of the software was in order. With our tax returns, we really put TurboTax through its paces. In addition to itemizing deductions, we have real estate investments (including depreciation) to deal with and self-employed income. We've used TurboTax to prepare and file our taxes online for several years now, and I believe it's the best tax software available. But let's walk through the different flavors of TurboTax available, and then we'll look at some of its key features.

Four Editions of TurboTax

TurboTax Free Edition

TurboTax offers a free version of its software for those filing form 1040EZ or a very simple 1040. Online tax filing with e-file is included in the free package, although the state software and filing costs $25.95. The free edition is for those who have to prepare a basic return. If you itemize your deductions, for example, the free edition won't get the job done. If you start with the free edition, and then realize you need to upgrade, TurboTax makes the upgrade very easy, including importing all the data into the new version that you already entered into the free one.

TurboTax Free Edition includes the following IRS Forms (along with some others less commonly used):

• Form 1040--Individual Income Tax Return
• Schedule A--Itemized Deductions
• Form 1040A--Individual Income Tax Return
• Schedule B--Interest & Dividend Income
• Form 1040EZ--Income Tax Return for Single and Joint Filers With No Dependents
• Schedule EIC--Earned Income Credit

TurboTax also offers what they call a Basic edition, which is very similar to the Free version. The big difference is that with the Basic edition, you can import last year's tax return information if you used TurboTax. So if you have used TurboTax in the past and still have the data, the Basic edition may be the better choice. You can check out more information about the free version on TurboTax's website by clicking here.

TurboTax Deluxe Edition

TurboTax Deluxe was designed for those who itemize their deductions. TurboTax has extensive screens to walk you through every conceivable itemization, which makes completely the return much easier and reduces the risk you'll miss a deduction. So according to TurboTax, if any of the following apply to you, TurboTax Deluxe edition is probably the best version:

• You own your home
• You donated to charity
• You have significant education or medical expenses
• You have childcare expenses
• You have lots of deductions

TurboTax Deluxe federal is $29.95 and includes e-file. The state version, which is optional, costs $34.95. You can check out more information about the Deluxe version on TurboTax's website by clicking here.

TurboTax Premier Edition

TurboTax Premier is designed for those who own rental properties or bought and sold stocks, bonds, ETFs or mutual funds during the year. For example, the Premier edition will, according to TurboTax, "walk you through reporting sales of stocks, bonds, and mutual funds. Automatically calculates capital gains/losses and tells you how to deduct losses and associated expenses to help you get a bigger refund. Plus it keeps track of capital gains/losses that carry over to future tax returns." Having used the software for several years now, I found it pretty easy to figure out gains and losses on mutual fund sales.

The Premier version costs $49.95 and includes e-file. The state version is optional and costs $34.95. You can find more information on the Premier version at TurboTax by clicking here.

TurboTax Home & Business

Now we get to the Cadillac of TurboTax, the Home & Business edition. This is what I use because of my self-employed income (running a blog and other websites has become a real business!). The Home & Business edition is designed for those that are self-employed, have 1099 income, or run a small business. It costs $74.95, and like the other versions, comes with e-file. The state version is optional and costs $34.95.

You can get more information on the Home & Business edition from TurboTax by clicking here.

Compare TurboTax Versions

If you are still undecided on the right edition of TurboTax for you, here is a quick comparison chart of each version (click image to enlarge):

TurboTax Features

Ease of Use

Perhaps the most important criteria in choosing tax preparation software is how easy it is to use. As tax software has improved each year, they have all gotten easier to use than they were just a few years ago. But I've found TurboTax to be really straightforward. It is easy to navigate to any part of the return. And TurboTax offers a guide that will walk you through each part of the return with a series of questions. Sometimes I use the guide when I'm not as familiar with a certain part of the return. In other areas you can go right to the return itself to enter data.

There are two other features that can make TurboTax much easier to use. First, if you've used TurboTax in the past, importing last year's data is easy. I wasn't able to do that this year because I switched from a Mac to a PC and didn't want to fuss with the conversion. But next year the import feature will come in handy. Second, you can import W-2 and 1099 information if you work at a participating company.

Deduction Finder

This is where tax preparation software can really pay off. TurboTax Deluxe version and higher will walk you through all the possible deductions for your return. Even though I've done our taxes for years, I'm always concerned that I've missed something. With TurboTax, it covers every available deduction, so it acts as a great reminder so you don't miss anything.

Just to give you an idea, here is a screen shot from my Home & Business version of TurboTax that shows the various categories of possible deductions:

You can either click on each item to get more information and enter your information, or you can let TurboTax walk you through every deduction.

Audit Risk Meter

Starting with the Deluxe version, TurboTax offers an Audit Risk Meter. The ARM tells you whether you are at high risk of an audit, and suggests changes you can make to reduce your risk. I wouldn't buy the software for this feature, but it does come in handy. Almost every year TurboTax spots some error I've made in the return that gives me a chance to fix it before filing.

Free E-File

Finally, TurboTax has included free federal e-filing with the cost of its software. Remember that e-File not only makes filing your return a snap, but more importantly, it speeds up your refund. You can get your refund in as few as 8 days.

TurboTax Premier Edition

The first question to ask here is whether you need to pay the extra money for the Premier edition of TurboTax. For most I believe the answer is no. The Premier Edition adds features helpful for those that buy and sell investments. If you have bought and sold a lot of investments in 2008, by all means consider the Premier Edition. For most of us, however, it's just not necessary, UNLESS you own rental properties.

First let's talk about stocks and mutual funds. For most people, they own stocks and mutual funds in 401k, IRA and other retirement accounts. If that's the case, buying and selling investments in retirement accounts does not trigger any tax consequences, so the Premier Edition would be unnecessary. For many others, they invest in mutual funds and trade very little during the year. That describes me, and I wouldn't upgrade to the Premier version just for the few trades that I make. If you have a lot of trades, however, the Premier version can help you wade through all the tax implications.

If you own rental property, however, the Premier version is a must. I own 5 rental units along with a partner (we blog about it our real estate investments at Two Wise Acres), and tax time is always lots of fun. I would not do our taxes without the Premier version. One thing that I've found helpful is the depreciation calculations. We do this by hand, but I always check the results with TurboTax.

Home & Business Edition

This is my first year using the Home & Business Edition of TurboTax. I suspect that I could have gotten away without it, but it has come in handy. Like all other aspects of TurboTax, the Home & Business Edition will walk you through every step, so it helps to know you haven't missed anything. Still, most of the effort comes in gathering all of the information necessary to complete the return. That's when you swear to yourself that next year you'll be more organized.

Regardless of which you chose, I've found TurboTax to make tax preparation as painless as possible. If you'd like more information on TurboTax, you can check out there site: www.turbotax.com.

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