THE MAJOR PUBLISHERS OF TAX preparation software spiffed up their wares in a big way this year, but—alas—very little of the sheen extends to the frequent trader. TurboTax and TaxCut have improved front-ends and smooth interview processes to guide you. They just don’t improve your Schedule D experience.
This is a problem primarily for those who trade options, futures and commodities. Though TurboTax does a better job, both programs struggle with multiple strike prices and expiration dates for the same underlying issue. TurboTax and TaxCut officials told The Electronic Investor upgrading the functions for Schedule D preparation wasn’t a priority this year.
If your Schedule D is less complicated, however, the programs do a good job of making the process relatively painless. We examined H&R Block’s TaxCut Premium Federal + State + E-file ($69.95) and Intuit’s TurboTax Premier ($74.95), and also took a look at 2nd Story Software’s TaxACT Ultimate Bundle ($19.95).
Part of our review is an attempt to import a large file of transactions from an online broker. This test account has about 300 options transactions, so it’s a good way to stress-test a tax-prep program.
TaxACT (http://www.taxact.com) doesn’t import data automatically from online brokerage accounts, which means you must do it manually. It can download them via Gains-Keeper, which is an add-on capital-gains program provided by some online brokers; it can also import W-2 data directly from a small set of employers.
We found TaxACT very simple and a definite bargain, but with few of the creature comforts found in its beefier cousins. The interview is conducted in the top portion of the screen, while the bottom part displays the form you’re filling in. It gave me a 1990s flashback. It is inexpensive, however, so people with more time than money should consider this program.
Even cheaper is TaxACT’s online bundle, a mere $16.95. The price for both CD-based and online Ultimate bundles includes one e-filing for both federal and state, which is quite a bargain.
TaxCut (http://www.taxcut.com) and TurboTax (http://www.turbotax.com) remain the heavyweights. As in years past, TurboTax did a better job parsing the large transaction file. Another nice feature: TurboTax is able to find the purchase price of a stock you bought long ago, which helps if your record-keeping is spotty. Provide the date you purchased a stock or mutual fund, and TurboTax fills in the closing price for that date as your cost basis.
TurboTax also allows you to import data from a huge range of banks, online brokers and other financial institutions.
A feature enhanced in this year’s TurboTax is Live Community, which lets you get feedback on tax-prep questions from TurboTax support staff and other users. That could come in handy in those last few April days before returns are due.
E-filing costs an additional $17.95 per return (federal and state), which makes TurboTax software the most expensive of the lot. TurboTax Online’s Premier version, however, is $49.95 and includes a free federal e-file. There isn’t a huge gap between online capabilities and the CD-based program any more, so using the online version will save you some money.
TaxCut has a feature called “Worry-free Audit Support” for returns filed electronically that were prepared with its software. The support aids with IRS communications, helps prepare for an audit and sends an H&R Block agent with you should that unhappy circumstance occur. Also included: free tax advice from a professional.
TaxCut simplified its user interface, and the program is easy to navigate. You can find your way around the interview quickly, using a multi-level tab-menu system. TaxCut also has a Macintosh version, and its Online service, which includes an e-file, is $44.95. The online Signature offering, which is $79.95, lets you use the Premium version to enter your tax info, then send it to an H&R Block tax pro who will review, edit, sign and e-file your return.
H&R Block just released an online tax- preparation program called Tango ($70, http://www.hrblock.com/tango), which promises a cool and fun (yes, fun) tax-prep experience, but its investment tracking isn’t enough for the typical Barron’s reader.
We like TurboTax for the investing do-it-yourselfer, and the peace of mind offered by TaxCut for those less confident about their accounting mojo.
If you choose to prepare your taxes online, do it early. Though all the tax software publishers say they’ve beefed up their systems so that last-minute filers won’t face slowdowns, I’d rather not be beta-testing that promise at midnight on April 15.
My daughter Kate, now a freshman at the University of Washington, organized a group of fellow singers to perform at the University Chorale’s fund-raiser last night. Here’s a video taken by my older daughter, Colleen. I was unable to attend. Kate is the soloist.
The song is called, “On The Radio,” and it was originally performed by Regina Spektor. Members of the ensemble are Chris Raastad, Thomas Godshalk, Levi Lindsey, Kyle Ross, Christine Brauer, and Sandra Chiang. This fantastic a cappella piece was arranged by Alicia Jolley, who was supposed to perform also, but was sick last night. Great job, Alicia!
I received the following email this morning from Josephine Wang, the General Counsel for SIPC (Securities Investor Protection Corp.), a nonprofit group funded by the financial-services industry, in response to my column “If Your Broker Goes Belly Up: Part II,” that ran at the end of December. Barron’s readers have been asking some questions as a result of my work.
Here is her email, which I publish here in an attempt to get the word out, as Ms. Wang requests.
Dear Ms. Carey: SIPC has received some inquiries relating to the article “If Your Broker Goes Belly Up: Part II.” From the questions received, there seems to be some confusion over how assets are distributed in a liquidation proceeding under the Securities Investor Protection Act ("SIPA"). Certain investors apparently believe that if their brokerage fails, their only recourse is against the funds advanced by SIPC. Because this is incorrect, we would appreciate if you would share the following with your readers:
“In a SIPA proceeding, there are two kinds of property as to which customers have preferred treatment: “customer name securities” and the fund of “customer property.” Customer name securities are identifiable to particular customers because they are registered in the customer’s name and can be negotiated only by the customer. If in the possession or under the control of the failed broker when the broker is placed in liquidation, customer name securities are returned outright to their owners irrespective of value. All other property (cash and street name securities) held by the broker for its customers becomes part of a “fund of customer property.” Customer property is distributed pro rata among customers. To the extent of any shortfall in customer property, SIPC makes up the difference, within certain limits.
To illustrate:
Q.: Assume that a customer is owed $1 million in customer name securities, and $1 million in securities held by the broker in street name. Assume also that 10% of customer property is missing. What does the customer get?
A: The customer receives:
(i) $1 million in customer name securities.
(ii) $1 million in securities of which $900,000 will come from customer property and $100,000 from SIPC.”
If you have any questions, I will be happy to try to answer them. If there is another method for passing this information on to your readers (e.g., a letter to the Editor), please let me know.
THE CROCUSES HAVEN’T BLOOMED YET, BUT IT’S SPRINGTIME for online brokers. We’ve seen and heard that many updates and improvements are popping up on their Websites, a phenomenon we’ve noted before in the weeks before Barron’s does its annual review of the electronic dealers in March. Here’s a quick look at some of the newly sprouted tools.
Fidelity (http://www.fidelity.com) took a serious look at WealthLab Pro, its tool for extremely active traders, and made many of the features easier to use and more efficient. The core of the WealthLab package is backtesting, which allows investors to test their theoretical strategies using historical data, thereby increasing their chances of future success.
In addition, Fidelity makes some of these same backtesting tools available on Fidelity.com free of charge to site visitors. The site tells you in some detail what backtesting is and offers a lot of specifics on what it can do for the trader. Among the queries it answers: What kind of information will you get when you run a backtest? What is a trading signal, and how does it work? You’ll also find a description of the advantages and disadvantages of this approach.
Jim Burton, Fidelity’s senior vice president in charge of retail brokerages, says “We want people to understand backtesting concepts going in. We don’t want to just hang a tool out there and invite people to have at it without giving them an idea of whether they should use it.”
The tools are categorized by strategy into six generic technical buckets; Fidelity plans to add more over the next year. Within each category, you’ll find educational content that provides sample charts and explanations and discusses related benefits and risks. Burton says, “We want people to be prepared going in for possibilities of winners and losers.”
FOLLOWING THE FINAL INTEGRATION of the TD Waterhouse site into Ameritrade’s suite of tools, the recently relaunched TD Ameritrade Website (http://www.tdameritrade.com) features numerous new bells and redesigned whistles. The firm acquired options trade-analysis toolmaker Market Gear last year, and has launched Options 360, a tool designed to help traders and investors locate added market opportunities and better manage risk.
Options 360 is a graphically intense tool that lets the user see the impact of a variety of factors—time decay and stock- price volatility among them—on the performance of a particular option. It also allows the investor to perform a range of “what-if” analyses on a portfolio, assessing hypothetical changes.
You can also use this feature to look for trends and seek out trading opportunities by analyzing the volatility history of stocks and options. Options 360 lets you save and test trading strategies, and provides a probability-based evaluation of outcomes.
FOR LONG-TERM INVESTORS, TD Ameritrade has launched Wealth Ruler, which is designed to let customers create an investing plan. Developed in-house, Wealth Ruler gives the user a disciplined planning process. The tool currently lets you include stock and bond holdings, but will expand over the next few months to bring in mutual funds and options.
The tool evaluates your portfolio and then, based on your stated goal, walks you through the steps to arrive at a new target allocation. Toward the end, you can hit a button and it will create a series of orders that will rebalance your portfolio.
Another useful new tool for TD Ameritrade customers is Bond Wizard, which was designed to demystify fixed-income investing. Through a partnership with one of the larger bond clearinghouses, ValueBond, the program helps clients create an online bond ladder. The ladder tool lets you see potential bond cash flows and maturities, picking and choosing from the available inventory to suit your needs.
Interactive Brokers (http://www.interactivebrokers.com) has made serious strides in filling some of the gaps in its offering this year. One cool new tool, the Risk Navigator, lets customers slice and dice their portfolios to determine value at risk, profit-and-loss potential, and the various Greek calculations. The Risk Navigator lets you view your portfolio by industry, and combines a profit-and-loss graph with a table showing how changes in the market affect your individual positions as well as your overall portfolio. It’s an intriguing innovation, and implemented in a way we’ve not seen in a free tool before.
IB HAS ALSO RESPONDED TO CUSTOMER complaints about ease of use by redesigning its Traders Workstation (TWS) with an easier look and feel. The redesign includes an Order Wizard that categorizes order types and shows you why you’d use them. TWS now allows you to place over 40 order types, such as basket trades (a group of individual orders that are saved in a single file and submitted as a package), icebergs (which allow you to submit an order, generally a big one, while publicly disclosing only a portion of it), or market-if-touched. (This last is an order to buy or sell an asset below or above the market; this order is held in the system until the trigger price is touched, then submitted as a market order).
The account window within TWS also has been redone and can be customized.
A new Contract and Securities Search feature, available from IB’s Website (rather than from within TWS), is a streamlined display of all available futures and options contracts and securities, making these asset classes easier to find. All these additions make the whole site much easier to navigate. Barron’s gives its awards to promote just such changes.
Theresa W. Carey, author of "The Electronic Investor" column in Barron's, has been reviewing sites of interest to online investors since 1991. Welcome to InvestorBrain.com, which brings you news and reviews of tools for investing online.