Tax Preparation Software: Choosing the Best Tax Software for Your Needs

Whether you plan to do your own taxes for the first time or have already used tax preparation software in the past, the number of online tax software options available can make it difficult to choose which one is best for you this tax season. Understanding your tax situation, preferences for features and cost and your level of comfort working with tax information can help you make the right choice.

What Is Tax Preparation Software?

As an alternative to filling out Internal Revenue Service Form 1040 and other tax forms and schedules yourself, you can use tax preparation software online to complete your federal and state tax forms electronically.

While some software is one-size-fits-all, more often you'll see companies offering different packages targeted at different taxpayers. For example, they might include a free or cheap option for simple returns, deluxe packages for those who take common credits and deductions, premium or premier packages for investors and self-employed packages for small business owners and contract workers.

While the ease of use and features can vary, tax software walks you through personal and financial questions and will show you calculations of your income tax to be refunded or paid. It also often provides a database of tax information so you can get explanations for various credits and deductions along the way. In some cases, you have a live tax professional standing by to answer questions via video, text or phone.

Tax preparation software usually also runs some accuracy checks and alerts you if some of your numbers or credits taken seem off. While all the popular options offer e-filing, you still get the option to print your paper return for your own reference or to mail in your return to the IRS if you'd prefer. Tax filing applications also give you a variety of options to pay any tax due to be paid or refunded.

Where Can I Find It?

A common place to find tax preparation software is on the website of a major tax preparation services company like H&R Block, Liberty Tax or Jackson Hewitt. However, there are many other online tax services options to consider. Popular ones include TurboTax, TaxSlayer, TaxAct, E-File, ezTaxReturn.com, eSmart and FreeTaxUSA. Even some websites that focus on personal finance like Credit Karma have now started offering tax filing services for members.

Should I Use Tax Software?

Using tax preparation software can be a cheap or even free option if you have a simple tax situation, like being single, having just one W-2 job and not taking credits or deductions. If you're comfortable following directions and getting help online, choosing one of the more fully featured tax packages can help you save some money versus using a tax professional while still being able to handle common forms of income, deductions and credits with relative ease.

While doing your own taxes can save you money, it might not always be the best choice, though. In cases where you have a more complex tax situation – maybe you just started your own business, you bought or sold a home or you began investing – going to an actual tax preparer can provide you with helpful advice and peace of mind.

Things can also get tricky if you're not aware of the tax rules that apply to you since inaccuracies can lead to an audit or missed credits and deductions. Finally, doing your own taxes might not be best if you need to have them done quickly, unless you're already comfortable with the process.

How Do I Choose One?

If you have a simple tax situation – meaning you aren't self-employed, you have just W-2 income and you don't rely on tax credits or deductions – many common tax software options have a free basic state and federal tax filing package you can take advantage of.

Since even well-known options like TurboTax and H&R Block offer these packages, you will be able to focus more on ease of use, support options and desired features than cost when making your decision. However, you'll want to check that your chosen software does not have an income limit for its free option and does indeed include your state return free as well.

If you have dependents, you deduct homeowners or college expenses or you take advantage of tax credits, you'll want to decide among the mid-range packages that online tax services offer. When you rent out property or have other investments, you'll likely end up paying more for one of the higher end packages specifically mentioning investment income.

You will also want to pay attention to the software's tax support options for filling out the schedules for reporting your rental income or investment gains/losses; some tools also make it easier to upload investment tax forms.

Choosing a tax software when self-employed can be tricky, and your comfort level plays an important role. If you're new to running a business or doing contract work, you may want to look into tax filing software that offers you live video guidance and has a tax professional review your return before you submit it. Otherwise, you might risk an audit or not take advantage of business deductions and credits you're eligible for.

You'll also want to consider whether your chosen software simplifies entering business income and expenses and offers tax planning advice that will help you for the next tax year.

TaxAct Online Software

TaxAct offers both online income tax preparation software options that range from a basic package for filers with simple returns to fully featured options for small business owners and investors. TatAct offers you these options with varying levels of support and features:

  • Free ($0): Made for simple returns but handles retirement income
  • Basic+ ($14.95): Handles dependents and college-related credits
  • Deluxe+ ($47.95): Suits homeowners with support for more credits
  • Premier+ ($57.95): Works for investment and rental income
  • Self-Employed+ ($77.95): Assists with business deductions and tax planning

The company makes it easy to import your previous tax return and see detailed explanations for tax credits and deductions. Depending on the package you choose, you can get email or phone support in case you have tax questions. Audit support is available as an upgrade as well.

If your return is simple and you do not have self-employment income, you can take advantage of TaxAct's free online package. Otherwise, you can pay $14.95 for the Basic+ plan that allows dependents and college expenses or $47.95 for the Deluxe+ plan that can handle itemized deductions and tax credits. Investors will need the $57.95 Premier+ plan, while the $77.95 Self-Employed+ plan offers small business owners tax filing and planning assistance. All plans require paying an extra $19.95 to $39.95 for a state return, though.

TaxAct users benefit from getting seven years of access to their returns, a maximum refund guarantee and a $100,000 accuracy guarantee, making this software a good solution if you're new to online tax filing and concerned about the software's ability to calculate your refund accurately.

In addition to the extra fee for your state return, the cost of the Self-Employed+ package might be too much for some users, especially when other online software options offer cheaper plans for this type of income. Consumer Reports also warns that some of the tax information and support provided could be improved.

Intuit TurboTax Software

As one of the most popular options, Intuit TurboTax offers an entirely free federal and state filing option along with Deluxe, Premier and Self-Employed packages. Here’s a preview of these options and features:

  • Free ($0): Covers basic state and federal returns
  • Deluxe ($59.99): Helps maximize deductions
  • Premier ($79.99): Supports rental property and investments
  • Self-Employed ($119.99): Handles both business and personal tax needs

All TurboTax options feature an easy-to-use interface that asks questions customized to your tax situation, and offer support either through an online community, TurboTax specialist or even a certified public accountant. Smartphone users can complete their entire returns using the company's app and even take pictures of tax documents like W-2 forms to speed up the process. All paid options come with audit assistance.

If you don't qualify for the free version since you have tax deductions and credits, you'll need to pay $59.99 ($119.99 with live CPA help). Tax filers with rental property or investments will need to pay $79.99 for the Premier option ($169.99 with CPA help). Self-employed users will pay the highest cost of $119.99 ($199.99 with CPA help). You'll need to add $44.99 for each state return as well.

Since you can actually work live with a CPA online during the tax preparation process, TurboTax can be a good option if you have a complicated tax situation or just prefer guided assistance doing your return. Consumer Reports mentions that this choice uses clearer language, which especially helps new tax filers through the process. However, be aware these features will come at a higher cost than other common software, especially if you choose to have a CPA assist you and review your return.

Jackson Hewitt Online

In addition to preparing taxes at its tax offices, Jackson Hewitt has three online tax filing options that come with online support along with guarantees for accuracy and a maximum refund. Your options for filing online include:

  • Free ($0): Handles dependents and W-2 income
  • Mid-Tier ($49.99): Supports most common personal deductions and credits
  • Premium ($69.99): Handles self-employment, rental property and investment income

The software compares to TurboTax in how it walks you through questions to understand your tax situation. It allows you to import W-2 forms and has a database offering help with deductions and credits.

You can file your federal and state taxes free if you made up to $100,000, take the standard deduction, file as single or married filing jointly, have no dependents, and have no self-employment, retirement or investment income. If you make under $100,000, you can use the $49.99 version to take advantage of certain credits and deductions and report your retirement income. The most expensive $69.99 option is suitable for higher earners, investors and small business owners. You'll pay an extra $39.99 for each state return you file with the paid options.

Depending on the promotions the company is running, Jackson Hewitt's online software may be a good fit for the self-employed and investors since it can be less expensive for these tax filers than other common options. However, with Jackson Hewitt's software, you don't have an option for audit support, which can be a downside if you want that peace of mind. NerdWallet also warns that online help is only available during weekday business hours, so you may get stuck if you do your taxes in the evening or on the weekend.

H&R Block Online Filing

H&R Block focuses on offering online tax filing options that integrate services like tax professional reviews, live chat and even screen sharing to make the tax filing process easy for newcomers and seasoned filers alike. Online tax filing packages include:

  • Free ($0): Suits non-homeowners with kids and W-2 income
  • Deluxe ($49.99): Supports most personal tax credits and deductions
  • Premium ($69.99): Handles freelance and investment income
  • Self-Employed ($104.99): Offers most support for small businesses

To save time, you can upload common forms like your W-2, 1099-DIV, 1099-INT and 1098-T. In addition to importing returns from other software, you can upload a return another tax preparer did for you. All tax filers receive free technical support, and all paid options include phone support and a tax savings optimization tool.

The free state and federal filing option is targeted at people with simple returns, but supports retirement income along with common deductions and credits like the Earned Income Tax Credit, child tax credit and student loan interest.

The $49.99 Deluxe version supports health savings accounts, homeowners deductions and charitable donations. Investors and freelancers can use the $69.99 Premium version, while those with more complex business returns will want the $104.99 Self-Employed version. Any tax filer can pay $144.99 for the Tax Pro Review add-on with the most guidance. You'll pay $39.99 for your state return.

If you're looking for an option that lets you file a complex small business tax return or receive live step-by-step support during the whole process, H&R Block can be a good choice if you're willing to pay the premium for working with an online tax expert. The program's import capabilities and tax refund optimization tools can be appealing if you want to save time and make sure you're getting the right tax refund. It also stands out among others for allowing common credits even for its free option.

How to Use Tax Software

Regardless of the tax software you choose, the online tax preparation process will be similar. You'll start out creating an account on the tax service's website and select the tax package you want to use. You can then expect to enter some basic personal information such as your name, address, filing status, phone number, email address and Social Security number.

Your software will likely ask you to type information from income-related documents like your W-2 forms or 1099-MISC forms or upload these for capture. After entering and confirming your income for the year, you'll usually then answer questions used to determine if you qualify for any deductions or credits.

The tax software will make recommendations along the way and may run some accuracy checks to alert you if there's any issue. You can expect to proceed to confirm the information on your state return before being presented the option to actually file the taxes.

When it's time to file, you can download and mail a paper copy of your return or follow the software's prompts to e-file. You'll also be asked how you want to receive your refund (such as a paper check, bank deposit or electronic debit card) or pay any tax due. The filing process usually also involves entering information from a driver's license or state ID to verify your identity, confirming your adjusted gross income from the last tax year and electronically signing the returns.

Depending on how you file, your tax filing provider may email you updates as your tax returns are processed, or you can check this information through the IRS refund status website.

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About the Author

Ashley Donohoe has written about business and technology topics since 2010. Having a Master of Business Administration degree and experience running a small business and doing tax returns, she is knowledgeable about the tax issues individuals and businesses face. Other places featuring her business writing include JobHero, LoveToKnow, Bizfluent, Chron and Study.com.