Tax Software for Serious Investors

FREQUENT TRADERS WHO DO THEIR OWN taxes are either control freaks (my category) or very comfortable with the ins and outs of tax accounting. Crazy is another possibility. In any case, do-it-yourselfers of all types need tax software—either packaged or online.

Any tax program should be able to deal with income and deductions, but the serious investor needs to compile an accurate Schedule D, covering all transactions. There’s no shortage of software alternatives. Sorting through them—particularly the jumble you see in stores—is the problem.

The two big players are TurboTax, from Intuit, and TaxCut, from H&R Block. Both offer long lists of software, plus a menu of online tax-prep choices, which you access via your Web browser.

We looked at TurboTax’s Premier Investments ($74.95) and TaxCut’s Premium Federal+State+e-file ($59.95). We also evaluated online site CompleteTax (http://www.completetax.com), published by CCH, a tax-preparation outfit.

One big benefit of TurboTax is its link to financial-service providers, letting you import your investment data—if your broker is on its list. Fidelity, Schwab and E*Trade transactions can be accessed this way, but customers of brokerages devoted to active traders, such as Schwab’s CyberTrader, TradeStation and Interactive Brokers, will have to enter data manually or find some other way to fetch it. TurboTax’s import list hasn’t caught up with rapid industry consolidation, either—TD Ameritrade, for instance, isn’t listed, though its component parts, Ameritrade and TD Waterhouse, are.

TurboTax also let me import a W-2 from a large employer; this one was prepared by the employer-sponsored payroll site of Fidelity (a separate unit of the mutual-fund giant). If your employer’s payroll software cooperates with TurboTax, the form can be pulled in easily if you have a user-ID and password. Be sure to check the imported figures against the W-2 mailed to you. TaxCut users have to enter their W-2s manually.

BasisPro is a new twist in TurboTax this year. It allows you to figure out the historical cost basis of an investment, which is especially helpful if you’ve sold a long-time stock or mutual-fund holding. For example, if you sold 600 shares of Hewlett-Packard (ticker: HPQ) stock last year that you purchased in 1996, your cost could be attributed to some old HP (HWP) shares that have split twice, or legacy stock from HP acquisitions like Compaq. BasisPro looks all that up for you and figures out your cost basis.

The BasisPro feature requires a connection to the Web, and unfortunately makes you re-enter the information you just typed into TurboTax. Perhaps a future version will eliminate the extra keystrokes. Even so, it’s a welcome feature.

TaxCut has vastly improved its interview process, now focusing on data flow rather than the income tax form itself, making it much easier to use. Still, it lacks the huge number of automatic imports that TurboTax has. However, if you use Microsoft Money or Intuit’s Quicken, or any other program that can create Tax Exchange Format (.txf) files, you can still grab the appropriate transactions.

TaxCut includes one federal and state e-file per package; if you file multiple returns from one copy you will pay another $15.95 for additional e-files. We like TaxCut’s advice on the tax ramifications of life changes like marriage or retirement.

CompleteTax has a simple, clean interface, and the price ($25.95 for a federal return, $12.95 for each state return) includes e-filing. Users of GainsKeeper, to which many online brokers link customers for gain/loss reporting, are the most likely to benefit from this program. CompleteTax can only import data from Gains-Keeper files; everything else has to be entered manually.

One solution for traders with reams of taxable transactions is TradeLog (http://www.armencomp.com/tradelog/), published by Armen Computing. We like TradeLog for active stock and options traders. It does a much better job of tracking options transactions than Quicken or Money, and it’s a good tool for short-sellers. TradeLog can also help you track futures transactions, which aren’t specifically addressed in other programs.

TradeLog offers five versions, keyed to transaction volume. TradeLog 200, which covers up to 200 trades, is $69. The top-of-the-line GTT TradeLog, which handles unlimited transactions and is aimed at those needing mark-to-market accounting, is $349. GTT TradeLog is also supported by Green Trader Tax (http://www.greentradertax.com), which provides tax advice for frequent traders.

Posted by on 02/17 at 02:53 PM

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