Like Watson, the IBM computer that stumped the champions on Jeopardy, tax-preparation software uses sophisticated technology to perform a task previously done by a human — in this case, your neighborhood tax preparer.
For taxpayers with straightforward returns, tax software gets the job done, at a fraction of the cost of a tax preparer. If you file a 1040-EZ, there's simply no reason to pay someone to do your taxes for you when you can do it online for less than $20 (or free if you qualify for the IRS Free File). Most tax software programs are also adept at handling returns that claim common tax breaks, such as the deduction for mortgage interest and charitable contributions.
But this year's tax software review also revealed the limitations of these programs. Taxes have grown so complex that even those of us who don't invest in individual stocks, own rental property or run a small business could find ourselves in need of advice from a flesh-and-blood tax preparer. Here's where we ran into trouble in our annual test drive:
Retirement savings
Most taxpayers with lengthy investment portfolios hire a professional to prepare their returns, with good reason. Even Watson would have a hard time figuring out the cost basis for a stock you bought in the 1980s and sold last year.
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