Free tax return software reviewed: TurboTax vs. TaxCut vs. TaxAct

February 2, 1:25 PMGadgets ExaminerDan Appleman

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TurboTax, TaxCut and TaxAct have free editions

It's been a competitive season for the leading tax preparation software vendors, starting with Intuit’s abortive price increase for printing more than one return and following with a series of competitive moves by each. But how do they really compare?

All three vendors offer both online and standalone editions of their software. The online editions have the advantage of never needing to be updated, and you don’t have to worry about backing up your returns, they are stored on the vendor’s secure servers. They do require you trust the vendor with your personal information – and given the frequency of data losses by banks and other businesses, one can only hope these companies do a better job.

If you have a simple return, TurboTax, TaxCut and TaxAct all include free online editions that include free federal E-filing. Those will be the topic of today’s evaluation (you can also read a review of the standalone software). Here is a quick run-down of each one. Be sure to check whether an edition meets your situation before you begin to enter your data – otherwise you might find yourself paying for an unexpected upgrade in order to file.

TurboTax online free edition

TurboTax online has a clean user interface with ample help

Their online edition is an easy to follow step-by-step interview based application. If you select a feature that is not supported in the free edition, you’ll get an invitation to upgrade. TurboTax offers easy navigation from section to section, so though it does guide you through a step-by-step interview, you have the freedom to enter data in any order.

You can file and prepare your state return online. Federal e-file is free. State return preparation and filing is $25.95.

Intended for simple returns, here are some features you won’t find in the free edition:

• Investment income (schedule D)
• Business income (schedule C)
• First time homebuyer credit
• Low income housing credit

 TaxCut Free Edition

Though more restrictive in navigation, TaxCut can handle investment income (and losses)

TaxCut by HR Block is similar to TurboTax. It also has a step-by-step interview scheme, with help available for each topic. TaxCut is more restrictive in its navigation, requiring you to enter some data in each section (personal information, income, deductions, etc.) before allowing you to move on to the next section. However, once you have passed a section, it is easy to navigate to previous sections.

You can file and prepare your state return online. Federal e-file is free. State return preparation and filing is $29.95.

Unlike TurboTax, TaxCut does handle investment income (Schedule D), and the first time homebuyer credit.

TaxAct online standard 

TaxAct online can handle almost any scenario

TaxAct by 2^nd Story software is the least known of the three major tax preparation vendors. This may be because their low prices don’t leave them much cash for expensive advertising campaigns.  Their free edition is actually called the “standard” edition.

In terms of navigation flexibility, it is almost as flexible as TurboTax, allowing you to quickly navigate to any form or life event (TaxAct allows you to view your return either as a series of life events or through the more traditional navigation, but to use more than one life event you must upgrade for $9.95). It is the only one of the products that allows you to navigate to a specific form rather than to a topic. Once you have navigated to a topic or form, you must edit it by going through the interview for that item.

TaxAct is also the only software to allow you to add details to individual entries – this is great for record keeping in that you can record individual checks or payments and have the total entered automatically in a field. This feature is common in standalone software.

Individual pages in the interview have richer descriptions than common on either TurboTax or TaxAct, but there are fewer help items available for individual fields.

You can file and prepare your state return online. Federal e-file is free. State return preparation and filing is $13.95 – substantially less than the other programs.

TaxAct supports considerably more forms than the other programs, and is a viable option for small businesses. It includes schedule C (and numerous other forms that support business use) and E (for royalty income).

Conclusion

Those preparing simple returns should be happy with any of these products. From a functionality standpoint, if your return is truly simple (1040EZ) I would tend to steer you towards TurboTax or TaxCut (depending on whether you have any investment income – a feature only supported by TaxCut) because they are somewhat simpler than TaxAct (whose additional features can be a distraction on the simplest returns). However, you’ll be paying a premium for both due to their higher state filing cost.

For anything beyond the most basic return (W2 only and 1040EZ), or for those for whom every dollar matters, TaxAct is the clear winner. Aside from the lowest state filing cost, it is extremely unlikely that you’ll run into any situation where feature limitations will force you to pay for an upgrade. For anyone running a small business on the side, this is the way to go.

Though TaxAct standard can handle very complex returns, most people who need those features will likely be more comfortable with a standalone software package that allows viewing and entering data on a form basis and not just through interviews.