Buying guide for Best business tax preparation software
As tax filing season gears up, business owners inevitably wonder which business tax preparation software will help them file the most accurate information with federal, state and local revenue agencies, save them the most in taxes, and take up the least amount of precious time in completing their filing.
At BestReviews, we want to help you find the business tax preparation software that’s right for your situation, as well as the most accurate and easy to use. We don’t take free products or other incentives from manufacturers. Instead, we buy them right off the shelves (or online), making sure they provide everything they claim. Usability, accuracy and quality are all critical factors that we scrutinized when evaluating various tax prep software programs.
Grab your pencil, sort your receipts, and get ready to file those business taxes as we lay out the most important features and information you’ll need to choose the best business tax preparation software.
The basics of filing business taxes
Whether you’re an S corporation, a C corporation, a partnership, or a sole proprietor, picking the right tax preparation software is important. If you're starting a new business or going into a new career, like real estate, where you'll need to file business taxes, starting off with a good system will help set you up for success.
For example, companies with multiple owners or that have shareholders have several forms to complete that aren’t typically included with tax preparation software designed for individual filers.
However, sole proprietors, freelancers, and self-employed filers may not need the most robust tax preparation software in order to file. By looking carefully at the specifications of tax preparation software, they can save a significant amount of time and money on their purchase, and even on filing fees.
"Self-employed filers may not need to buy business-specific tax preparation software, depending on their situation. For many self-employed filers like freelancers, Schedule C is the main business tax form they’ll need to file (alongside their individual 1040 form). While the least expensive tax preparation software does not typically include Schedule C, most mid-range software has this form."
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Tax filing deadlines
Partnerships and S corporations
Both partnerships and S corporations have to file their tax returns – or request an extension – a full month earlier than the individual filing deadline. These types of businesses, which must file a Form 1065 and Form 1120S, respectively, have until March 15th to file.
Individuals
Like those who are self-employed or who have a freelancing business on the side, individuals must file their tax returns or request an extension by April 15th. The same is true for C corporations.
Exempt organizations
The organization with the longest amount of time to file are exempt organizations, like nonprofits. These organizations have until May 15th to either file their taxes or request an extension.
Extensions
Likewise, the deadline to file by the end of an extension varies by type of business. Exempt organizations must file with the earliest time frame, by Aug. 15th. Partnerships and S corporations have a Sept. 15th deadline to file; individuals and C corporations have until Oct. 15th.
"This year’s deadline to file individual and C corporation returns is April 17, 2018. Normally, the deadline is on April 15; however, that date falls on a Sunday this year, and a federal holiday, Emancipation Day, will be recognized on Monday. The April 15 deadline will return in 2019."
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Penalties for filing late
Missing the deadline to file a tax return can result in a steep penalty. The IRS normally imposes a penalty of 5 percent of a business’ unpaid taxes “for each month or part of a month that a tax return is late.” That can add up very quickly.
The penalty for failing to pay taxes on time is much less. If a business files on time but doesn’t pay the taxes owed by the filing deadline of March 15 (for partnerships and S corporations) or April 15 (for individuals and C corporations), the IRS imposes a failure-to-pay penalty of one half to 1 percent of the unpaid taxes. That applies each month or part of a month that the taxes go unpaid.
So, it’s far better to file a tax return – or request an extension if you need more time to prepare your taxes – than to ignore or miss the deadline, even if you owe taxes to the IRS and can not pay them in full at the same time you file.
Pay as much of the taxes you owe as you can when you file your taxes. That will reduce the failure-to-pay penalty. If you can pay 90 percent of what you owe, the IRS may choose not to impose the penalty.
Also, if a business can show reasonable cause for not filing or paying on time, the IRS may choose not to impose a penalty. Sometimes unavoidable circumstances do come up – 2017’s savage hurricane season comes to mind – and businesses that communicate their circumstances to the IRS ahead of time may be accommodated. If you or your business has been affected by a natural disaster, visit the IRS.gov website to learn whether tax relief is available.
Common mistakes business owners make when filing taxes
Getting the math wrong
Math errors are the single most common mistake business owners make when filing their tax returns. Miscalculating last year’s return or making a computation mistake on taxable income or withholding, for example, can happen even to seasoned professionals. Tax preparation software can help reduce these mistakes significantly, of course, but they’re not foolproof. Business owners should still review their returns carefully before filing and take a second look at any calculations that don’t seem correct.
Incorrect bank account numbers
Getting a single number wrong on the bank routing and account information can result in any returned taxes going to the wrong location. It may also hold up any payments you need to make to the IRS, and you could incur penalties and fees. So double check those numbers, then check again.
"E-filing through a tax preparation software program is never free — the “free” component that most software providers tout is actually advertising the fact that the IRS does not charge individuals to file a return. Tax prep providers charge a fee ranging from $19 upward to file a return electronically with the IRS. Filing a state return will cost an additional fee."
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Incorrect identity information
Misspelling your name can slow down processing of your return or even cause it to be rejected. Likewise, an incorrect EIN (a business’ identification number) can cause big problems.
Missed deadlines
Missing a deadline for filing your return can result in a big penalty – and it’s a common mistake many smaller companies and sole proprietors make.
Forgetting to sign a return
Believe it or not, after all that hard work of preparing a return, many filers completely forget to sign and date the return before submitting it to the IRS. Electronic filing, or e-file, helps to reduce this error because the IRS requires an electronic signature (typically the PIN you used last year, or last year’s adjusted gross income amount), and most tax prep software won’t send a return until you digitally sign it.
Caution
Triple-check those returns! Inputting incorrect figures is one of the most common mistakes that filers make – whether it’s a calculation error, or a simple slip of the fingers on the keyboard.
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The most common deductions
Small business owners have a range of deductions to watch for, so consider if you’re eligible for the following:
These are just a few items on the list of deductions most small businesses qualify for. Of course, travel expenses related to your business, as well as meals and entertainment during business travel, are deductible. Self-employed and small business owners can deduct their home office, as well.
If you’re self-employed and put some of your money into a retirement account, you can deduct contributions to qualified retirement plans. And don’t forget professional fees that you paid in 2017 – including the cost incurred to prepare your taxes.
Recent tax code changes and 2017 tax rules
This one may be a surprise for many business owners. The newly adopted tax code passed in late 2017 didn’t take effect until Jan. 1, 2018, and mostly will have no effect on 2017 taxes. Mostly.
A few provisions, however, are retroactive to 2017 and even as far back as 2016. This includes:
Medical expenses, which are retroactive to 2017.
Personal casualty losses, retroactive to 2016, which has been expanded to include losses in any federal declared disaster area.
Business property, retroactive to Sept. 27, 2017.
State and local taxes – while not retroactive, you can’t deduct any prepaid 2018 state and local taxes in the hopes of getting this deduction for just one more year.
Did you know?
The U.S. income tax code changes every year, usually quite significantly. This means tax preparation software providers must scramble to have the most accurate tax rules included in their programs when they’re released – and they usually have to update the software numerous times.
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Types of business tax preparation software
Business owners have a range of tax preparation software to choose from, although the field narrows – and prices increase significantly – for larger businesses such as S corporations.
TurboTax Business, for example, retails for $130 to $150, twice what individuals and sole proprietors usually pay for its related products. However, the higher price ensures that businesses will have every form they possibly need to correctly file their returns.
Liberty Tax Premium, which is targeted at small businesses as well as investors, retails for $70.
Keep in mind that each company offers different products that do not have the same options available at different tiers. It’s important to scan the list of available services and check a brand’s comparison charts to make sure you’re getting the right tax prep software for your situation.
You can consult the product list at the top of this page for our product-specific breakdowns of the top five.
Business tax preparation software features
Business tax preparation software, at a minimum, should be able to:
Import the previous year’s tax information, even from different tax prep software or accounting software.
Import 1099s or W-2s.
Have the correct forms for your situation, such as Schedule C for sole proprietors or Schedule D for S corporations.
Ask intuitive interview questions and walk through each tax situation step by step.
Have understandable explanations of tax law and links to IRS publications for further reading.
Allow software users to return to other sections of the form to check figures or correct information, without glitching or crashing.
Smoothly and accurately transmit a tax return to the IRS and quickly communicate the status of the return to the business owner.
"Having trouble installing tax preparation software? Temporarily disable your virus protection program so that the tax software can install and update correctly."
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No matter how reliable or established a tax prep brand is, don’t rely 100 percent on the software to provide correct and accurate information to the IRS. Check every form once you’ve completed the initial interview, and check them again even after the software declares your return “error-free” or “ready to file.”
If you’re not sure about a figure, re-input the information or even calculate it yourself, outside the program, using the corresponding form available for download at IRS.gov.
The tax preparation software providers we reviewed have phone and chat resources available for business owners to call if they have questions about their return. Two of them – H&R Block and Liberty Tax – have brick-and-mortar locations for business owners who need in-person help filing their taxes (usually for a significant additional fee).
Take advantage of the free resources anytime the explainers within a tax prep program don’t help you understand a tax issue clearly.
