No matter how you define your race, creed, color, sex, religion or national origin, you have something in common with your fellow Americans this time of year. You're sweating out your taxes.
I would love to tell you that your computer can take the pain out of filing your tax return. It won't. The sting of the bottom line will be as nasty as ever.
But today's tax preparation software can make the job much easier -- and it's so sophisticated that you won't even have to look at a tax form until yours comes out of your printer. In fact, you may not have to print more than a single page if you file electronically.
The earliest tax programs, and some of today's simpler tax offerings, were little more than a series tax forms on screen. You typed in the data and the computer made the calculations. You still had to figure out what information to put where, which is two-thirds of the battle (the other third is digging up all those old receipts, checks, payment stubs and the rest of the flotsam Uncle Sam requires).
If you know your way around a 1040, you can still do it that way, if you like.
But the latest offerings, such as Andrew Tobias' Tax Cut from MECA, Chipsoft's Turbo Tax and MacInTax, CA-Simply Tax from Computer Associates and Personal Tax Edge from Parsons Technology will walk you through the process step by step, using the same kind of interview techniques your accountant might use to collect information and make decisions.
They also have links to popular personal finance software such as Quicken and Managing Your Money and give you the opportunity to file your return electronically, albeit for an extra fee.
Some of this year's programs have even gone Hollywood, with multimedia versions on CD-ROM that feature videos of talking accountants who offer first-person advice. For example, Dan Caine, the author of Tax Cut, just popped up on my screen to offer a brief summary of how to claim dependents, including this gem: "Pets, no matter how much you love them, cannot qualify as dependents."
If you like talking to accountants, you'll love the talking heads. If not, you can always turn them off. The information you need is readily available in the help-screens and on-line manuals.
Tax programs are generally available for $35 to $50 on the street, although Computer Associates is trying to crack the market this year by offering CA-Simply Tax for only $9.95 through April 15. For the most part, the programs you'll find on store shelves include only federal tax forms. For state tax forms, you'll have call or write to the publisher and spend another $20 to $30.
Since the tax laws change every year, you'll also wind up buying annual updates at prices ranging from $15 to $40. This is one reason why tax programs are so attractive to publishers. Once you're in, you're hooked for as long as you pay taxes -- which generally means until you die.
How good are these programs? There's no question that they make it easy to organize your tax information, provide a simple way to get your data onto a tax form and make the right calculations. Tax Cut and Turbo Tax, in particular, do a wonderful job of insulating you from the hassle of translating IRS-ese into English.
The power of pencils
But there are a couple of caveats. If you have a very simple return (standard deduction, no income beyond wages, bank interest and dividends) and would normally use Form 1040A or 1040EZ (standard deduction, no income outside of wages, bank interest and dividends), a tax program may be more trouble than it's worth. A calculator and pencil may be all you need.
Likewise, if you have a particularly complex return, you may want to stick with a human accountant. There are a couple of reasons for this. While the programs will all handle many different tax forms, their ability to advise you accurately often decreases with the obscurity of the form you're filling out. A personal knowledge of your finances is frequently critical to making the right decision in these cases.
If you have income or losses from partnerships or complex stock transactions, an asset that qualifies for depreciation or investments in tax shelters, you may need an accountant's advice on how to handle them.
Sometimes the tax return information that comes in the mail from these investments is difficult to follow or just plain wrong. Also, your accountant may be aware of recent tax rulings or court decisions that could affect your return, and he can offer personalized tax planning advice. In short, accountants don't come cheaply, but they're a lot cheaper than a tax error or the hassle of an audit.
Electronic filing is another issue.
Most accountants, tax preparation firms and tax preparation programs offer electronic filing services for fees ranging from $15 to $35. These services will take your tax information on a disk or over the phone by modem and forward it to the IRS.