Whether you plan to do your own taxes for the first time or you've already used tax preparation software in the past, the number of online tax software options available can make it difficult to choose which is best for your circumstances. Considering your tax situation, your preferences for features and cost, and how comfortable you are working with tax information can guide you to making the right choice.
What Is Tax Preparation Software?
Tax preparation software is available online to help you complete your federal and state tax forms electronically as an alternative to filling out IRS Form 1040 and other tax forms and schedules yourself. Some software is one-size-fits-all, but you'll usually see companies offering different packages targeted at different taxpayers. The usually provide 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.
Ease of use and features can vary, but tax software walks you through personal and financial questions and shows you calculations of your income tax to be refunded or paid based on your answers. It also usually provides a database of tax information so you can get explanations for various credits and deductions along the way. You might even have access to a live tax professional standing by to answer questions via video, text or phone.
Tax preparation software usually also runs accuracy checks and alerts you if some of your numbers or the credits you're taking seem off. All the popular software providers offer e-filing, but you'll still have the option to print your paper return for your own reference or to mail your return to the IRS if you'd prefer. Tax filing applications also give you a variety of options to pay any tax due.
Where Can You Find It?
Tax preparation software is available on the websites of all the major preparation services, such as H&R Block, Liberty Tax and Jackson Hewitt. There are many other online tax services options to consider as well, including TurboTax, TaxSlayer, TaxAct, E-File, ezTaxReturn.com, eSmart and FreeTaxUSA. Some websites that focus on personal finance, such as Credit Karma, have started offering tax filing preparation and services for members, too.
The IRS additionally offers Free File, an alliance formed with several of these preparation services to prepare and e-file tax returns for free if your income is $72,000 or less in tax year 2020. This is the return you'll file in 2021. Some of the providers impose a few additional qualifying rules. Your tax situation must be relatively basic.
Should You Use Tax Software?
Doing your own taxes might not be the best choice for everyone. 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 – hiring a tax professional 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 because inaccuracies can lead to an audit or missed credits and deductions.
Considering your tax situation, your preferences for features and cost, and how comfortable you are working with tax information can guide you to making the right choice.
How Do I Choose One?
You'll probably want to decide among the mid-range packages if you have dependents, itemize your deductions, or want to take advantage of tax credits you might qualify for. You'll want to pay more for one of the higher-end packages that deal specifically with investment income if you rent out property or have other investments.
Choosing tax software when you're self-employed can be tricky, too. You might want to look into tax filing software that offers you live video guidance and that provides a tax professional who will review your return before you submit it if you're new to running a business or doing contract work. 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 throughout the next tax year.
Read More: Income Tax Preparation Courses
How Much Does This Cost?
Using tax preparation software can be a cheap or even free option if you have a pretty simple tax situation, such as if you're single, have just one W-2 job and you're not taking any tax credits or itemizing deductions. Choosing one of the more fully-featured tax packages can save you some money versus using a tax professional while still being able to handle common forms of income, deductions and credits with relative ease.
Here are some details regarding a few of the most popular providers. Keep in mind that these prices are in effect late in 2020 and they can and usually do ramp up in the heat of filing season. The prices cited here are what's available before the 2021 filing season officially opens.
TaxAct Online Software
TaxAct offers 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. The provider offers you these options with varying levels of support and features heading into 2021.
- Free $0: Made for simple returns but handles retirement income
- Deluxe $29.95: Suits homeowners with support for more credits
- Premier $39.95: Works for investment and rental income
- Self-Employed $74.95: Assists with business deductions and tax planning
Intuit TurboTax Software
Intuit TurboTax is one of the more popular options available. It offers a free federal filing options along with Deluxe, Premier and Self-Employed packages. Here’s a preview of their options and features:
- Free $0: Covers basic state and federal returns
- Deluxe $60: Helps maximize deductions
- Premier $90: Supports rental property and investments
- Self-Employed $120: 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 available audit assistance.
You can actually work live with a CPA online during the tax preparation process, so TurboTax might 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. These features can come at a higher cost than other common software, however, particularly if you elect to have a CPA assist you and review your return.
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 as easy as possible 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
You can upload common forms like your W-2, 1099-DIV, 1099-INT and 1098-T to save time. H&R Block will import your previous years' returns from other software providers, or 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 filing option is targeted at people with simple returns, but it does support retirement income along with common deductions and credits like the Earned Income Tax Credit, the Child Tax Credit and the student loan interest deduction.
H&R Block can be a good choice if you're willing to pay the premium for working with an online tax expert and 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. 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 claiming some common tax credits even with 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.
The software will likely ask you to type in the information from income-related documents, such as your W-2 forms or 1099-MISC forms. You can also usually upload these for capture. After entering and confirming your income for the year, you'll then answer a variety of questions to determine if you qualify for any deductions or credits.
The tax software will make recommendations along the way and run some accuracy checks to alert you if there's an issue. You can expect to proceed to confirm the information on your state return before being presented with the option to actually file it. State returns sometimes cost a bit more, depending on the package you've purchased.
You can download and mail a paper copy of your return or follow the software's prompts to e-file when it's time to file. You'll also be asked how you want to receive your refund, such as by paper check or bank deposit, or how you want to pay any tax that might be due. The filing process also typically 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 directly at the IRS refund status website.
- Investopedia: Tax Preparer vs. Software: How to Choose
- U.S. News and World Report: How to Choose the Best Tax Software for You This Year
- Intuit TurboBox: Tell Us About You – We'll Recommend the Right Tax Solution.
- H&R Block: Online Tax Filing
- TaxSlayer: Compare TaxSlayer's Tax Services
- Liberty Tax: Compare Online Tax Filing Solutions
- Consumer Reports: How to Choose the Right Online Do-It-Yourself Tax-Prep Product
- NerdWallet: Jackson Hewitt Review 2017
- IRS: Refund Status
- Credit Karma: Online Tax Filing
- IRS: File Your Federal Taxes Online for Free
- TaxAct: Your Source for Up-to-Date Tax and Stimulus Information During COVID-19.
Ashley Donohoe has written about business and technology topics since 2010. Having a Master of Business Administration degree, bookkeeping certification 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 Zacks, JobHero, LoveToKnow, Bizfluent, Chron and Study.com.