Blurb: Today's tax preparation programs are more sophisticated and easier to use than ever before. But they are not for everyone.

Tax preparation pitfalls in an electronic age
By Peter Diekmeyer o

Almost three-quarters of the 23 million federal returns filed by Canadians for the 2003 taxation year involved the use of tax preparation software or electronic filing, and that number is sure to rise again this year. But are these technologies worth the money and time investment needed in order to use them?

To find out, this year I completed my returns and those of my wife using one of the most widely popular preparation packages available, Intuit's QuickTax. I purposely avoided asking the company's public relations department for help, so I would be forced to deal with the same challenges that affect the average user. To be fair, I have a bit of an advantage, because I worked many years as an accountant and I write regularly about tax issues. My verdict: using tax preparation software will cost most Canadians more time and money than completing them manually.

It usually takes me about a day to complete my wife's and my returns manually, but it took almost twice that using QuickTax. So why is tax preparation software so popular? I believe that it's because most people don't count a lot of incidental costs and time expenses involved in buying and using the software. To help you decide whether tax preparation software is right for you, I've listed about a half dozen pitfalls and hidden costs that I ran into.

Software cost
I paid about $40 plus tax for 2004 version software, which sounds like a real bargain. But there are some important restrictions. For one, you can only use the software to complete six returns. (Not including returns for those earning less than $25,000 a year). Worse, the 2004 package is only good for one year.

Since the tax code changes all the time, you have to buy a new version each year. A better way of thinking about the dollar cost of using tax preparation software, is to calculate the expense over a period of five years. And forty dollars a year for five years works out to $200.

Time to buy the software
A lot of people love shopping. They don't count the wonderful hours they spend in malls. I hate shopping and I counted every minute that I spent, looking for tax software package. Unfortunately I couldn't find the software in any of the stores at the local mall, so I had to make a destination trip to Office Depot the next day. The two trips cost me two hours. In years when I completed my returns by hand, the federal and Quebec governments mailed me the blank returns to fill out, and "shopping time," was not an issue.

Installation time
The QuickTax installation was a breeze, but there were some confusing aspects. For example to activate the software you have to call a computerized telephone system and punch in a bunch of digits. I had to keep track of a 14-digit installation code, a 13-digit "computer key," an 11 digit activation code and a 10 digit customer number. Worse, it was not altogether clear to me which code I should punch in, and when. I activated the program after going through the message system a couple of times. Other users might not be so lucky.

Learning time. One of the most important rules about computerizing an operation, is to never do so, unless the operation is understandable and easy to document. Canada's tax code is neither, worse, the regulations change each year.

That means tax preparation software users need to relearn both the tax code changes and the changes in the software every year. And since most users only fill out one or two returns each year, the learning does amortize well.

No manual
Few software programs today come with printed manuals, so QuickTax, --which archives help information on its Web-site,-- shouldn't be faulted on this front. But studies have shown that because of eye fatigue and slow screen navigation, reading information online is about half as efficient as reading on paper. In a complicated field such as income tax preparation, the wasted time flipping through a Web-site becomes a real problem.

The help desk call center
Since the tax code is so complex and the laws and software change every year, coupled with the fact that they don't supply a manual, you stand a good chance of ending up at your tax preparation supplier's help desk. In theory QuickTax's help service is free, with the important exception that you have to pay the long distance fees.

The problem is that those long distance fees add up. You spend time on hold before you get an operator. Then the operator asks you a series of questions about seemingly secondary information such as your name, address and so on so they can "open a file."

But that first operator won't answer your questions. In fact you have to queue up again for a second employee, who ask the same information all over again before dealing with your problem. If the problem is not easily solved, you'll likely be put on hold to talk to still another employees.

The other problem is that the help line phone number is well hidden. When I began to run into trouble, I called the only number that I could find on my software box. After going through a voice mail relay, I finally talked to an operator who told me that I'd called the wrong number and that I'd have to start all over again.

Error Code QT 600
Almost every software I've ever bought, comes with some sort of bug or glitch. Usually the problem is minor, and once solved, you get a couple of good years of use from the product. But for products that are only designed to be used for one or two days those glitches become a much bigger deal.

With QuickTax, the problem was "Error Code QT 600," which was the message that flashed on my screen when I tried to file my returns electronically. Even after all the bouncing around QuickTax's Web-site and their help desk, I was unable to resolve the problem.

Finally one employee helpfully E-mailed me instructions regarding a diagnostic software program that she said would help QuickTax's experts figure out what the problem was. The E-mail included six-step instruction sheet on how to download and run the software. She also told me, that they would get back to me without fail within 72 hours.

But I'd had enough. After spending two days, doing a job that last year only took me one day, I wasn't going to wait another three days, to find out if maybe they could get the software to work. So I printed out the returns and mailed them in the old fashion way.

Good for accountants
So if the benefits of using tax preparation software are so questionable, why are so many people using them? The answer becomes clear when you look at the numbers. Of those who filed their returns online, almost three-quarters were prepared by accountants or other tax professionals. Of those tax returns prepared by individuals, most did them by hand.

Tax pros have the time and energy to learn all the bugs of tax preparation software. They also have co-workers who can answer their questions, and they don't have to deal with the software companies' help desks. They also complete a lot of returns, so the amount of time they spend compiling them diminishes with each return. The average taxpayer reaps none of those benefits. As a result, the value of tax preparation software is far less clear.


Peter Diekmeyer ( is a Montreal based business writer.



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