What tax software automatically determines the best filing status, etc?

Question

I've used H&R Block Premium & Business to do my taxes for the past several years and have found it incredibly frustrating because the software is nothing more than a glorified version of the paper form. I always end up having to refer to the IRS forms anyway to fill in a lot of the fields. I remember having to do the same thing with TurboTax (for personal taxes only) before my wife and I started an LLC. It's like the software was designed specifically for tax professionals who already have enough background to fill out the forms, then dumped on the consumers as an effort to make a quick buck off everyone who was filling out the free paper forms.

What I want is tax software that lets me enter my information, then tells me whether I'm better off filing one way or another, instead of asking me for my own, completely uninformed decision up front (before any information is even entered). The software I've used almost always recommends one option up front but won't actually tell me in the end whether I would have been better off choosing the other option. For example, I can't stand having to prepare the return, save a copy, then go back through the entire interview again just because I want to see how changing something like my filing status affects my return.

I guess what I'm really looking for is a piece of software that was designed from the ground up with a non-tax-professional in mind. It should be able to do things like the following:

• Decide at the end whether I'm better off with "Married filing separately" or "Married filing jointly"
• Work backwards from a goal--for example, tell me how much more I would need in itemized deductions to decrease my tax liability by a given amount (to avoid wasting time on a bunch of data entry if it isn't really going to help)
• Compare my completed return with various hypothetical variations of the same year's return in a side-by-side view, with at most 3 mouse clicks and a few keystrokes (for example, changing my filing status or switching between itemized & standard deductions)

For example, I might be able to dig up another $500 in itemized deductions, but it could take me 3 hours to enter them. If it's only going to decrease my tax liability by $20, then it's probably not worth my time.

I can't tell whether tax professionals have better software which does all this, or if they just have enough experience to know intuitively how each thing will affect the tax return. Is there any software that does this?

Semi-related question: Has anyone compared an in-person Tax Advisor to software like Turbo Tax?

Answer 1

Rob - I'm sorry your first visit here has been unpleasant.

What you are asking for is beyond the capability of most software. If you look at Fairmark.com, you find the standard deduction for married filing joint is $12,200 in 2012, and $12,400 in 2013. I offer this anecdote to share a 'deduction' story -

The first year I did my MIL's taxes, I had to explain that she didn't have enough deductions to itemize. Every year since, she hands me a file full of paper substantiating medical deductions that don't exceed 7.5% of her income. In turn, I give her two folders back, one with the 5 or so documents I needed, and the rest labeled "trash".

Fewer than 30% of filers itemize. And a good portion of those that do, have no question that's the right thing to do. e.g. my property tax is more than the $12K, so anything else I have that's a deduction adds right to the number.

It's really just those people who are at the edge that are likely frustrated. I wrote an article regarding Standard Deduction vs Itemizing, in which I describe a method of pulling in one's deductible expenses into Odd years, reducing the number in Even years, to allow a bi-annual itemization. If this is your situation, you'll find the concept interesting.

You also ask about filing status. Think on this for a minute. After pulling in our W2s (TurboTax imports the data right from ADP), I do the same for our stock info. The stock info, and all Schedule A deductions aren't assigned a name. So any effort to split them in search of savings by using Married Filing Separate, would first require splitting these up. TurboTax has a 'what-if' worksheet for this function, but when the 'marriage penalty' was lifted years ago, the change in status had no value. Items that phaseout over certain income levels are often lost to the separate filer anyway. When I got married, I found my real estate losses each year could not be taken, they accumulated until I either sold, or until our income dropped when the Mrs retired.

So, while is respect your desire for these magic dials within the software, I think it's fair to say they would provide little value to most people.

If this thread stays open, I'd be curious if anyone can cite an example where filing separately actually benefits the couple.