TurboTax takes a wrong turn – will TaxCut become the #1 tax software?

December 3, 9:18 AMGadgets ExaminerDan Appleman

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Will the champion TurboTax lose it's title over
a new licensing policy? Only time will tell.

TurboTax by Intuit and TaxCut by H&R Block are consistently the most popular tax programs, but this year a change in the pricing and licensing strategy for TurboTax might cause a major shift of customers to TaxCut.

Both programs are intended for personal use only, but until this year personal use meant that you could prepare more than one return as long as you didn’t charge people for them. This is actually quite common, as many families file more than one tax return. Children with assets, working teens, and senior parents often have their own returns to file.

This year, TurboTax significantly revised their pricing so that each additional return you prepare costs $9.95 regardless of whether you file electronically or print the return. With TaxCut you can prepare and print an unlimited number of returns, and file up to five of them electronically at $9.95 per additional return.

How does this break down?

TurboTax deluxe is $59.95. The Home & Business version is $99.95.
TaxCut Premium is $49.99. The Home & Business version is $79.99.

So TurboTax is more expensive to start with. But if you prepare multiple returns (I do three each year), the difference is even greater.

How do customers feel about this? One way to see is to look at the Amazon rankings and comments on the products. TurboTax has dropped already from a 3 ½ to 4 star reviewed product in 2007 to an average 1 ½ stars largely on the basis of pricing (a whopping 63 one star reviews). TaxCut 2008 just came out, so there are no reviews available yet, but in 2007 it ran about 3 1/2 stars.

TurboTax does claim that including electronic filing this year will save most customers money over last year, which is correct for those who file a single return. But it doesn’t change the fact that TaxCut this year has a significant price advantage.

What about quality? Both programs have their fans and critics – and which one is best for you would depend greatly on your own situation and familiarity with tax preparation in general. In terms of general features they are comparable.

But where the new licensing model really has an impact is that it has potential consequences far beyond pricing.

• What happens when you’ve prepared several returns and it comes time to file them on April 15th? With TaxCut, if for some reason you can’t file electronically, you can always print and mail the return. With TurboTax if you can’t connect to their servers to purchase the added returns you won’t be able to file at all. Intuit promises to make good on any penalties if a delay is caused by their own infrastructure, but what if your own Internet connection went down? You’d be out of luck.
• Some people (like myself) create extra returns to try out different scenarios. With TaxCut I can print out these different scenarios for review. With TurboTax this is no longer possible (update: TurboTax has clarified that it is possible to print out watermarked "For Review" drafts of tax returns without paying the $9.95 fee)..
• What happens 5 or 6 years from now when you try to run the program on a new computer because your current one has died? Will their servers still support activation? Will they be able to transfer those extra returns to the new machine or will you have to pay again? (Update: According to Intuit, there is an "entitlement" flag in the .tax file that indicates it can be printed that stays with the file once it has been authorized - so the file will continue to print on any machine at any time in the future).

If you’re familiar with TurboTax and are filing just one return, then there’s little reason to switch. But for those who do file more than one return, want print test returns without watermarks, or are just nervous about this new licensing scheme over the long run, this might be the year to try something new. TaxCut does import previous years TurboTax files, so at least you won’t have to reenter all of your information. This Examiner has the newly released TaxCut on order – I’ll report back in a few weeks once I’ve had a chance to try it out.

Update: Later articles in this series include: TurboTax vs TaxCut vs TaxAct software reviewed and Free tax return software reviewed: TurboTax vs. TaxCut vs. TaxAct