1. This paragraph has some disclosures, feel free to skip to the second paragraph if you want to know why this is directed to H&R Block, the third paragraph if you want to know why tax software sucks, and the fourth paragraph if you insist on using tax software and want to know how to do it right. That said, I work for H&R Block during the tax season, and I love working for them. They allow me to work 4 months out of the year, and they take care of my clients the rest of the year. They have a lot of great people who do a great job with taxes. I wouldn't hesitate to recommend them to anyone looking for great tax preparation (obviously you want to do some due diligence to make sure the specific preparer you get is qualified for your situation, as well as experienced.) Also, to be clear, this article represents my personal opinion, and in no way represents the views of H&R Block and is a reflection of my experiences and may be completely skewed by them, so take it with a grain of salt (though I'm damn sure I'm right that tax software sucks).
2. So why single out H&R Block? Simply stated, many years ago H&R Block took the "if you can't beat 'em, join 'em" approach to tax preparation software, and produced their own. I use most of the major software and online products every year as part of writing this blog, and H&R Block is among the best, but, as you'll see in paragraph 3 - they all suck. The reason I single H&R Block out is because they are the only major player in the tax software business that MUST know that the software is woefully inadequate for the job of doing taxes. Hell, their Second Look product and get your billions back marketing programs are pretty much targeted at tax software users (and crappy preparers). H&R Block has the experience, research and knowledge to know that tax software isn't adequate to the task of getting people with limited tax knowledge to produce an accurate tax return. It's time for them to stand up and admit this, and get out of the software business. It hurts their credibility to claim that tax professionals are worth hundreds of dollars, but that tax software is effective.
3. Why does tax software suck? Simple: it has to be both user friendly, easy to use, and accurate. If it's not user friendly and easy to use, no one's going to pay for it. Hell, that's why it's so popular! It is simply not possible to cover all the complexities of tax law and still be easy to use. So they make it easy to use: "How much did you pay for uniforms?" Sure, there's an info button you can click that will go into all the nitty gritty of this question, but if you read them every time they come up, it's not simple and easy anymore. "How many miles did you drive for business last year?" Again, many popups will be available to help you navigate the dizzying rules that are involved in this simple question, but you're not likely to read them, and, if you do, they're only going to make you more confused. Don't even get me started on depreciation, business use of home, or investing income! And that's just the Federal return! Many states have nearly incomprehensible tax laws, and dozens of deductions and credits that you pretty much need to know exist in order to take advantage of them. Most software just drags things from the Federal to the State, with barely a peep about what deductions you might miss. I cannot even begin to describe the messes I've seen from tax software. Just this year, a client with one W-2, no wife, no kids, no house, and an amazingly simple Federal 1040EZ missed out on over $10,000 in state tax money over the last dozen years because either the software didn't ask, or he neglected to answer enough questions to establish that his military income was exempt from California taxes. Most of that money is gone forever. Tax preparation software SUCKS! You will have a better chance at an accurate return using pen and paper with the Federal and State instructions than you will using software!
4. So you still want to use software? Follow the steps below to make sure you have a better chance of not losing money...
Step 1: Download the Federal and State instruction books from the IRS and State websites and read them before you even start. Get them early and read them in your spare time. Don't worry, they're fairly short, and you can skip sections that obviously don't apply to you.
Step 2: Get a good tax reference book every couple of years and read the chapters applicable to you. The best value for your money is my book (of course I think my book's the best - I did title my blog The Super Tax Genius - I have no shortage of ego.) Seriously though, it's cheap, it's written in English, it's short, and the chapters are sorted by life events, not the IRS code, so you don't have to read too much. Here's a link: Everyday Taxes.
Step 3: Read all the popups and gobbledygook while using the software, and keep your tax reference handy.
Step 4: Pay for and print the return BEFORE e-filing. That way you can check it line by line using the instructions, or...
Step 5: Have a professional check it before filing. Many tax pros will look it over for free, hoping to find an error and charge you to get more money. H&R Block will do the entire return from scratch, for FREE and compare the results to yours, hoping to find an error and give you the option to pay to have it fixed (and find out you should have used a pro all along.) H&R Block calls this the Second Look. Even paying a nominal fee for the checkup is worth it.
Step 6: If you aren't going to do Step 5, save your tax returns and all supporting documents, and have a pro check them at least once every 4 years. This way, if there's a mistake, it's not too late to fix it and get you your money.
Step 7: For God's sake print a fricken' copy of your return! If you don't, it won't be there when you need it (and you will need it, eventually)