Buying guide for best tax preparation software
For most people, Tax Day is one of the most dreaded days of the year. Hiring a tax professional can help bring a little peace of mind, but it can be pretty pricey – which is why tax preparation software is often the ideal alternative.
The software carefully guides you through each step of the tax prep process, so you don’t need perfect knowledge of the tax code to do your own taxes and avoid an audit. It also makes filing your taxes quicker and easier, which allows you to get your refund or make a payment as soon as possible.
But not all tax preparation software is created equal. Some options are more comprehensive and cover a wide variety of tax scenarios, while others are more user-friendly to ensure you don’t make an mistakes. It’s important to choose the right software package for your tax needs if you want the largest refund possible – or to avoid an uncomfortable meeting with the IRS.
At BestReviews, we help you narrow down the options. We never accept products from manufacturers, so our recommendations are unbiased. We consult with experts about the product categories we’re considering to identify the most important features, and then do our own research to make sure the top contenders meet the highest standards. That means you can rest assured that you’re choosing the best tax preparation software for your needs.
Ready to buy tax preparation software? Our top recommendations are in the product list above. For general tips on how to choose tax preparation software and other important information about filing your taxes, continue reading this article.
Personal tax filing 101
When do you have to file your taxes?
The deadline to file and pay taxes is April 15th after the year that you’re filing for. For example, you must file and pay your 2017 taxes on April 15, 2018. If April 15th falls on a weekend or civil holiday, taxes are due on the next working day.
If you’re unable to file your taxes by April 15th for some reason, you can get an automatic four month extension by contacting the IRS. Keep in mind that the extension is simply for filing your taxes; if you know that you’ll owe money, you still must pay by the 15th.
What constitutes taxable income?
When you file taxes, you must declare two types of taxable income: earned income and unearned income.
Earned income is what most people usually think of when it comes to filing taxes because it’s income that results from employment. It includes:
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Salary and wages
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Bonuses
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Tips
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Commissions
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Sick pay
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Unemployment benefits
For most individuals who are paid a salary or wage, the amount of money you earn before taxes are deducted is known as your gross income. When you’re paid by your employer, some percentage of your salary is automatically taken out for taxes depending on your filing status. The amount of money that you actually take home each week is known as your net income.
If you’re self-employed or work as independent contractor, taxes typically aren’t taken out of your weekly pay. As a result, you may pay estimated taxes each quarter to ensure that you won’t owe too much at the end of the year.
Unearned income is income that’s generated from sources other than employment. It includes:
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Rent
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Interest
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Dividends
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Business and farm income
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Profit from asset sale
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Royalties
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Gambling winnings
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Alimony
Taxes are usually not automatically deducted from these types of income.
"Desktop tax preparation software is often more secure than online services because your tax information is store directly on your computer."
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What are your tax filing status options?
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Single: This status is for unmarried individuals who don’t qualify for other filing statuses.
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Married filing jointly: This status is for married couples who file a single tax return, usually to receive certain tax breaks.
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Married filing separately: This status is for married couples who choose to file separate returns due to higher earnings or extensive itemized deductions.
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Head of household: This status is for unmarried people who pay half or more of the housing and support costs of other people.
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Qualifying widow or widower: This status is for individuals who’ve recently lost a spouse and have dependent children at home.
Tax deductions vs. tax credits
There are ways to reduce the amount of money that you owe in taxes, so you can lower your tax payment or increase the amount of your refund. Tax deductions and tax credits are both tools that can help keep the amount of taxes you pay down, but it’s important to understand the difference to ensure that you choose the right strategy for your taxes.
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Tax deductions are expenses that you can subtract from your gross income. You’ll still need to pay taxes on the amount after the deduction.
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Tax credits are parts of the tax code that allow you to subtract an amount from the taxes you owe once they’ve already been calculated. TurboTax outlines some of the most common tax credits that can help save you money.
In general, tax credits are typically worth more than tax deductions because they’re actually deducted from the taxes you owe. For example, if you receive a $500 tax credit, you’ll actually see a $500 reduction in the amount of taxes you owe. With a $500 deduction, you’ll likely see your taxes reduce only a quarter of that amount, depending on your tax bracket.
However, it’s important to keep in mind that there are specific requirements to receive tax credits, so you may not be eligible for any. On the other hand, virtually everyone who files taxes is eligible for some type of deduction.
"If you were a resident of multiple states that collect income tax in a single year, you’ll need to file returns for each state."
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What are the most common deductions?
When you file your taxes, you can choose between a standard deduction and itemized deductions.
As its name implies, a standard deduction is fixed amount that you’re allowed to subtract from your income based on your filing status. It’s a common option for those with simple tax situations that don’t lend themselves to itemized deductions.
Itemized deductions typically offer greater benefits, but not everyone is eligible for them. If you choose to itemize your deductions, you can’t claim the standard deduction. Some common itemized deductions are mortgage interest and insurance premiums, state and local taxes, property taxes, and charitable gifts. H&R Block provides a detailed list of common itemized deductions.
What tax forms can you file?
There are three basic forms for filing your taxes:
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1040EZ: This is the simplest tax filing form that consists of a single page. However, your taxable income can’t exceed $50,000, and your interest income can’t exceed $400. In addition, only unmarried individuals and married couples without dependents can file it, and you must claim the standard deduction.
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1040A: This is a more detailed form that permits additional income types, such as IRA dividends and pensions. Your taxable income must still be below $50,000, though, and you must claim the standard deduction.
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1040: This is known as the long form, and must be filed if you earn over $50,000. Itemized deductions are allowed.
Did you know?
Nine out of ten taxpayer refunds are usually issued in fewer than 30 days.
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Tax preparation software considerations
Compatible systems
In order to run any tax preparation software that you buy, it’s important to verify that it’s compatible with your computer. Nearly all software programs are available for both PC/Windows and Macintosh computers. However, be sure to check that the software works with the operating system that your computer is running (Chrome, Firefox, Internet Explorer, etc.). You’ll need to have the necessary hard drive and memory space, too.
Service level
Tax preparation software is typically available at several different service levels. Each level usually covers increasingly complex tax situations:
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Basic: Covers the simplest returns without much customer support.
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Deluxe: Covers slightly more complex returns, including common tax credits and deductions, and often includes a state filing option with some customer support.
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Premium: Covers more complex returns for self-employed individuals, independent contractors, investors, and landlords and offers significant customer support and a state filing option.
The more advanced service level that you choose, the higher the price you’ll pay.
"Some tax preparation software has video and internet requirements that your computer must meet in order for the program to run."
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Display and navigation
To ensure that your tax preparation software is as user-friendly as possible, choose an option with a simple, easy-to-ready display.
The software should also be easy to navigate, so you know exactly to how to move forward and go back if necessary – you don’t want to have to go all the way to the beginning to correct a mistake.
Included forms
Nearly all tax preparation software can support the three main types of tax forms: 1040EZ, 1040A, and 1040. However, not all programs allow for Schedule C, which is necessary for small business owners and some self-employed individuals.
Check any program that you’re considering to see what forms the software supports to ensure that all of your bases are covered.
Data importation and upload
You’ll have an easier time using the tax preparation software if you can import or upload data directly.
In some cases, you may be able to take a photo of your W-2 or 1099 forms to upload the information to the program. Some also allow you to import information from the previous year’s returns or your employer’s website.
"If you’re concerned about a possible audit, look for tax preparation software that offers audit support, which means a tax professional will help you deal with the IRS if an audit occurs."
STAFF
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State filing
While all tax preparation software allows for federal filing, not all programs permit state filing. In most cases, you’ll need to purchase the deluxe or premium level package to allow you to file your state return with your federal return.
Electronic filing
Nearly all tax preparation software accommodates electronic filing, which allows you to wirelessly transmit the return to the IRS and state agencies. This feature is particularly important because it allows you to get your refund more quickly than mailing a hard copy of your return(s).
Support and guarantee
Filing your taxes can be pretty stressful, so you want to be sure that your tax preparation software offers support in case you run into issues and to give you peace of mind. Look for a program that offers email, phone, live chat, and/or social media support to answer any questions or concerns you might have.
Some software programs also offer audit support, which means it reviews your return to determine if there are any circumstances that might trigger an audit.
In addition, it’s best to choose software that offers some type of guarantee. In some cases, you may get an accuracy guarantee to ensure that no errors have been made in your return and that you’ll be repaid if mistakes occur. You can also find programs that offer a guarantee to get you the largest possible refund.
Did you know?
Some tax preparation software programs offer customer support that allows you to consult with a tax professional on the phone, via email, or through instant chat.
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What are the benefits of tax preparation software?
In most cases, you’ll pay a lot less for tax preparation software than you would to hire a tax professional to handle your taxes.
If you want to do your taxes on your own but aren’t familiar with the process, the software takes you through the steps one by one to avoid serious mistakes.
With tax preparation software, you can usually do your taxes in an hour or less.
Many tax preparation software programs offer some type of customer support, so you can ask specific tax questions that concern you along the way.
Expert Tip
Using tax preparation software and e-filing your return usually means you’ll get your refund more quickly.
STAFF
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Tax preparation software prices
Tax preparation software varies in price based on the brand and service level that you choose, but you can typically expect to spend between $25 and $120.
Be aware that the price you see is often a base price, and adding state filing or other components like support often cost more, or are an additional product entirely.
For basic tax preparation software, you’ll usually pay between $25 and $50.
For deluxe tax preparation software, you’ll usually pay between $45 and $80.
For premium tax preparation software, you’ll usually pay between $75 and $120.
Did you know?
Nearly 90% of all individual tax returns are electronically filed.
STAFF
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Tax preparation software tips
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To make the filing process even easier, have all of the necessary tax forms and documents organized before you begin using the software.
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Even if you’re filing electronically, always print out a copy of your return from the software and keep it in a safe location in your home.
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Some tax preparation software charges an extra fee for state income tax filing, so check the fine print to make sure you won’t be hit with an extra charge.
FAQ
Q. What features are most important in tax preparation software?
A. It’s important to choose software for the appropriate tax year. For example, in 2018, you’ll want software that’s for the 2017 tax year. You should also look for a program that scans your return for any missing information and highlights any items that might trigger an audit.
Q. Can you use tax preparation software if you’re self-employed?
A. If you own a small business, work as independent contractor, or are otherwise self-employed, some tax preparation software is equipped to handle the tax situations associated with self-employment. However, in most cases, you’ll need to purchase the deluxe or premium edition.
Q. Can you use your tax software to amend a previous year’s return?
A. Many tax preparation software programs allow you to make changes to a return that you filed in a previous year. Once you open the software, there’s often an option for “Amended Return,” which takes you through the steps of making changes to the form you filed and then submitting the new return.
