Off-the-shelf tax software safe for most

NEW YORK -- With the Internal Revenue Service pushing electronic filing and promising faster refunds for those who use it, more than 62 percent of all federal returns are now completed using tax preparation software.

While the IRS says more than half of all returns are prepared by professionals, that still leaves more than 50 million people each year handling their own 1040s. And after Treasury Secretary-designate Timothy Geithner said he was using Intuit's TurboTax software when he mistakenly failed to pay $34,000 in taxes, some of those 50 million may be wondering if tax-prep software could put them in a similar jam.

While the U.S. tax code is notoriously complicated, most people actually have fairly simple returns, and experts say such software will handle all but the most complex ones with ease.

The National Association of Tax Preparers naturally suggests it's always better to have a professional handle your return. But even that group's research coordinator, Cindy Hockenberry, said the software will probably do the trick for most people.

Here are some questions and answers about using tax-preparation software.

How do I know if a company's software follows all the IRS rules?

The IRS requires all tax preparation software to meet specific standards before it is approved for e-filing. Tax laws change each year, and each program must be updated with the latest details, so it's important to make sure the program in use is for the current tax year. (And remember: The current tax year is 2008, not 2009.)

Does that mean the software can guarantee a user doesn't make a mistake?

Most people have just one or two W2 forms they use to report income, said Scott Gulbransen, a spokesman for Intuit. TurboTax -- and other programs like H&R Block's TaxCut -- asks a series of questions that are designed to help users enter that W2 information and other income details in the right way.

But John Hewitt, founder and chief executive of Liberty Tax Service, warns that you can enter certain types of income in the wrong spot -- which would result in the wrong tax being calculated.

So it is important to pay close attention to the questions as they are asked.

How can you know if your return is too complicated to use this software?

The thing to remember is that the person signing the return is responsible for its contents, said Hockenberry, whether they use off-the-shelf software, an online version or a professional tax preparer.

Simple returns without a lot of extra forms are the best candidates for do-it-yourself types. For small business owners or individuals with multiple sources of income, home foreclosures, debt cancellations, investment sales that involved losses or other matters that complicate their returns, the chance of making a mistake increases, and it might make more sense to pay a professional.

Hewitt notes that "most errors are errors of omission rather than commission," and those handling their own returns might miss opportunities to increase their refund.

What if a problem comes up while a return is being prepared?

All of the fee-based programs offer some kind of online help, and some have live support for more complicated questions, either from other users, tax-prep professionals or both. General preparation help is available as part of the fee for using most programs.

In the case of the free e-file programs accessed through the IRS Web site, all will answer questions via e-mail, but there may be a fee for getting more direct help.

What happens if the IRS has a problem with my electronically prepared return?

The level of support varies between the different software providers.

For most IRS inquiries, the taxpayer can respond with a letter.

TurboTax has samples of the types of letters the agency typically sends out, and offers sample response letters for users to follow.

For more personalized help, TurboTax requires users to pay a $39.95 fee before completing their return.

Users of H&R Block's TaxCut can get free in-person help at any office, and the company will send a representative to deal with the IRS if a meeting or audit is necessary, spokeswoman Denise Sposato said. Hewitt said Liberty's fee also includes audit assistance.

Taxpayers should check the program before they file to find out what sort of support is available if there is an IRS inquiry or audit.

What if there's a problem with my state return?

Hewitt notes that state audits are "far less frequent than federal audits," but said the same guarantee applies to all returns filed using Liberty's online software. The same is generally true for other companies, but users should check the fine print to make sure.