Author: Ed

After considerable bashing & crashing, both TurboTax and TaxAct produced the same bottom-line number. TA requires considerably more manual intervention in spots where TT simply does the right thing.

The NY state tax refund apportionment issue is entirely non-obvious; if we hadn’t been running TT in parallel we’d have missed that one entirely. The need to manually patch up the maximum IRA contribution limits took a while to figure out, too, as we’d based our contributions on half the total, which put one of us over the “limit” computed by TA.

TA does have linkages to (some of) the source lines used in its calculations, but doesn’t have nearly the same level of hand-holding as TT.

TaxAct is far less expensive overall: $20 with “free” Fed plus $8 for NYS e-file. TurboTax is about $45 with “free” Fed and $20 NYS e-file. Basically, you can buy TaxAct and file both returns for less than the base cost of TurboTax.

You could probably use TaxAct for most personal returns with no problems other than the state tax refund gotcha. It’s marginal for the complexity of our return.

So our bottom line is that we might just continue to run both in parallel next year:

• TurboTax wins hands-down for closely following the gruesome details of the tax code.
• TaxAct wins for cross-checking and less-expensive filing

Another issue with TaxAct, which seems to have arbitrarily divided our Earned Income amount between us for the purpose of computing the maximum IRA contributions.

My query to Tech Support:

Line 8 of the Roth IRA Contribution Worksheet produces the correct value for our return.

Line 9 divides that number into two unequal parts, placing the larger part in the first column as a calculated (blue) value and the smaller part in the second column as an editable (green) value.

The two parts in Line 9 add up to Line 8, which is correct.

However, we do not understand why the two values in Line 9 are not equal. There is no link to an explanation and the “Forms Help” does not address this issue; we cannot find any basis in IRS Pub 590 for initially dividing Line 8 into anything other than two equal parts.

We have changed the smaller part to half of Line 8, whereupon the larger part correctly adjusts itself to the same value.

What is the tax-law basis for the initial calculated values in Line 9?

Thanks…

The reply:

Dear TaxACT(R) Customer:

Initially the TaxACT program will divide the amount proportionately to income.  If you follow the questions and answers through to complete your return, you are prompted to make the needed adjustment.

Now, as it happens, there dosn’t seem to be any division of our income that produces the observed difference; it’s not obvious how TaxAct defines “income” for this purpose.

We’re running TurboTax and TaxAct in parallel this year and came across a difference in how they handle state tax refunds.

As nearly as I can express it, if you itemize deductions and made estimated tax payments for 2007 and made a payment for 2007 in January 2008 and got a state tax refund in tax year 2008 for 2007, then you must reduce the refund by the fraction of your 2007 estimated tax paid in January 2008.

The question I submitted to TaxAct was:

According to IRS Pub 525 (2008), state tax refunds must be apportioned according to the estimated tax amounts paid in each quarter for users making itemized deductions. The Pub 525 “Example” in the middle of the second column on page 22 explains our situation.

TaxAct accepts the total refund amount as an input from our 1099G and accepts the 2008 estimated tax payments, but does not (seem to) have any mechanism for allocating the refund based on 2007 (not 2008!) estimated payments.

There is no provision on the “State and Local Tax Refund” worksheet for this calculation.

We are using TurboTax to cross-check our work. It prompts for the actual 1099G amount and the 2007 estimated payments, then calculates the correct amount on a separate “Sched A Line 5 Worksheet” and feeds the result into Form 1040 Line 10.
However, TurboTax has imported our 2007 return, so it (presumably) knows about the dates for those estimated tax payments. TaxAct does not and we have not found a place to enter those dates and amounts.

We think the workaround is to input a bogus 1099G amount by subtracting the unrecoverable part of the refund ($100 in the IRS example) from the actual 1099G amount ($400 in the IRS example), then also subtracting that amount from the “Prior year state and local estimates” line in the Sched A Line 5 calculations.

Does TaxAct handle this situation in a manner we have not discovered?

If not, is our workaround the correct way to handle this situation?

We were unable to find any TaxAct documentation explaining this situation, but perhaps we were not looking in the right place. Is it documented anywhere, other than in Pub 525?

Thanks …

Which generated this reply:

Dear TaxACT(R) Customer:

The TaxACT program does not make these calculations.  The work around that you suggested is the easiest solution to this problem.  If you make this adjustment to the 1099-G, you may want to attach a note to the return showing what you did.  To do this:

Preparer Notes can be used by the paid preparer, electronic return originator or taxpayer to provide additional, voluntary information related to the tax return but NOT required to be attached to it.

To access these screens in the Online return:
1. Click on the Federal Q&A tab
2. Click on Miscellaneous Topics and then Click on Review Topic on the Quick Q&A Topics screen (you will only see the Quick Q&A Topics screen if you have been through the Federal interview questions once already)
3. Click on Additional Information for Electronic Filing (the last one in the list) and then Click on Continue
4. Click on the electronic filing information option for your situation and then Click Continue

This will electronically file with the Federal return, however, will not be transmitted to the state.

So, basically, unless you happen to be intimately familiar with this bit of tax arcana or you’re using TurboTax, you’ll get sucker punched. As nearly as we can tell, it doesn’t make much difference to the bottom line, but you don’t want to find that out the hard way.