April 14, 2006 at 7:57 PM ET
If you are a procrastinator, electronic tax filing sure sounds like a good idea. And with online versions of TurboTax and running for around $20 a pop, it's a pretty good value, too.
But beware, procrastinators. Online programs like Intuit’s TurboTax and H&R Block’s TaxCut may sound cheap, but prices can rise steeply if you aren't careful. There are tack-on fees that sneak up on you right at the end, right when you're just about to file the return and celebrate your newfound riches in the form of a tax refund. That’s just when you are most likely to miss a sneaky fee.
At TurboTax.com, for example, the wrong clicks sent a come-on price of $15.95 soaring all the way to $90. At H&R Block's site, TaxCut.com, the standard $30 premium package jumps quickly to $50 if you don't carefully watch your mouse. And that’s without opting for extra services like professional tax reviews, which can add another $50-$100 to the price.
Here's what to watch for:
Both TurboTax and TaxCut are cleverly designed to let consumers fill out most of the paperwork before paying anything, a “try it for free” model. That's good, because you can see if the interview-style tax preparation system works for you ("OK -- now tell us about any investment income you have."). Payment is only required when it's time to print or e-file the forms you've been working on.
On the other hand, once you've done all the work clicking around in one of these sites, of course you are likely to whip out your credit card and pay. And I hope you do.
Because each of these programs offers a silly benefit that lets you pay for their software through a deduction in your refund. That would keep you from having to pay with a credit card, but it's a costly error. TurboTax charges $29.95 for this service; H&R Block charges $19.95.
At Block, the "Simple Pay" service fee is checked by default, making it easy to accidentally fork over the extra $20 right as you are about to file. That's a 66 percent increase in the cost of the software, for nothing.
At TurboTax the fee is even higher -- $29.95. The good news is, it's not selected by default. The bad news is filers are presented with two buttons, and "Deduct From My Refund" is about twice the size of the alternative. To its credit, Turbo Tax puts the word "additional $29.95" in bold in the explanation on top of the page. Still, I suspect some people don’t quite realize what they're doing and how much they are paying when they selected the refund deduction.
After spending all this time fighting for every deduction you can find, what a waste of money! It may be simple, but it's foolish. So be careful what you are clicking right through the very end.
'Please do not worry'
But refund-based payment is not the only way the price of cheap online tax prep software can sneak up on you. When I used TurboTax, I landed there through an ad from my online brokerage company, which promised 20 percent off the regular $20 price. For $15.95, how could I lose? So I began the interview process, answered all the questions, took some of the advice and right as I was about to file, I was told the charge would be $31.95.
I was tempted to just pay it, but I resisted, and instead sent an e-mail to the TurboTax help center asking for an explanation. I did get a quick response, but it wasn't reassuring.
"We understand your issue. Please do not worry , we request you to go ahead and e-file your returns and contact us later. We will help you in refunding the discounted charges back. Respectfully, Samuel."
I'm sure Samuel is a nice man, but I have my questions about how much help he'd really provide when it came time to get a refund. So I sent him a follow-up note, asking for something in writing. I never heard from him again. But in the interim, something happen to the price of filing my return. When I logged onto TurboTax a few days later, having decided to pay the higher fee -- it had jumped even more. This time to $60.
It was only then I noticed this small note on the front of the TurboTax download page that’s quite worth noticing. It’s right under the advertisements with the great prices.
"Prices determined at time of print or e-file and are subject to change without notice.'"
I tried to get answers out of TurboTax about why my purchase price rose so sharply, but I never did get a reply to my e-mail to customer service. I have a suspicion that accepting offers of extra help along the way kicked me up a notch from their regular product to their "premier" product. Perhaps I was warned somewhere along the way that doing so would incur an extra cost. If there was a warning, I missed it.
Can still be a good deal
Despite these foibles, tax preparation software still works remarkably well, and should take the fear out of filing for most folks. Not long ago, the prospect of digging around IRS boxes for a Schedule C form at a library or post office on April 14 could send any procrastinator into convulsions. Today, all those forms are readily available online, and interview-style software makes it possible to file taxes without ever touching a tax form. Web filing is a good alternative for procrastinators.
I should mention that I did not examine the third major online preparation software, TaxAct. The most rigorous product test I found online was conducted by About.com’s William Perez. General consensus on TaxAct is it really is the cheapest alternative, but doesn’t provide quite as much handholding as Intuit’s TurboTax and H&R’s TaxCut.
But whatever your do, even if it’s Monday evening at 11:59 p.m., keep your wits about you, and watch carefully when it comes time to make payment. A good deal can go bad very quickly when working with online tax preparation software. Also, be sure to avoid checking any boxes that give your tax software provider the right to share your personal information with its affiliates -- or with anyone. Even when you are tired and anxious to finish, be sure to click carefully.