Which Tax Software Is Best for You?
If your tax situation is straightforward, there’s really no reason not to do your own taxes via one of the popular versions of tax software. And you may be able to do it free. Even taxpayers with more complex tax issues, such as self-employment income, can find tax software that will keep them on the right side of the IRS.
See Also: Tax Breaks for Every Life Stage
You can download such software to your desktop or log in and use online versions. Online versions are cheaper, but downloadable versions enable you to file as many as five federal returns and can be a better value.
Here’s what you need to know about the most popular programs:
The company offers products for everyone from first-time filers (TurboTax Free for simple 1040EZ returns) to taxpayers who manage a home business (TurboTax Home and Business). Previous users will notice major changes to the program’s interface this year. We think it’s much easier to read and navigate. New time-saving features include My TurboTax Timeline, which shows your previously filed returns and, as has been the case in the past, enables you to transfer (and update as necessary) relevant information from last year’s returns to this year’s forms.
Pros: The most valuable feature TurboTax offers is the ability to electronically import information from employers and financial institutions. TurboTax says its customers can download W-2s and 1099s from more than 400,000 companies and financial institutions. This feature, which fills in the boxes on your tax return in seconds, can cut the time it takes to prepare your taxes by as much as 50%, and it reduces errors, too (although you should double-check to make sure the numbers match up).
TurboTax does an excellent job of pointing out deductions and credits you might overlook. For example, if you import the previous year’s return, TurboTax will automatically deduct state taxes paid in the previous year, something many itemizers miss (see The Most-Overlooked Tax Deductions).
Cons: TurboTax is the most expensive tax preparation program we reviewed. The list price for its online Deluxe version—probably the best choice for taxpayers who itemize—is $29.99 to prepare and file a federal return, plus an additional $36.99 for a state return, although you can find lower prices from TurboTax itself and by shopping around. The list price for Premier (which TurboTax recommends for users with investments and rental property) is close to $90 to file federal and state returns, although, again, you can find plenty of discounts.
TurboTax’s program also includes a lot of promotions for products and services offered by its parent company, Intuit, along with suggestions that you may want to upgrade to more expensive versions. This type of upselling is understandable when the program is free. But in TurboTax’s case, it’s like being peppered by commercials on a premium cable TV channel.
H&R Block is best known for its thousands of retail offices throughout the country, but it provides a serviceable tax software program, too. Like TurboTax, it guides you through your return by asking a series of questions. Block offers a “Best of Both” option that allows you to have a tax professional review your return after you’ve finished it. This could be useful for first-time DIY taxpayers and nervous Nellies who want reassurance that they haven’t overlooked anything.
Pros: At the beginning of the program, H&R Block provides a comprehensive list of all the forms you may need to file your return. Because your software program is only as good as the information you provide, this checklist will help you get organized before you start plugging numbers into your computer.
Cons: Block allows users to import information from some W-2s and financial institutions, but its list isn’t as comprehensive as the one provided by TurboTax.
This program isn’t as flashy as offerings by TurboTax and Block, but it has a devoted band of fans who appreciate its no-nonsense style and extremely reasonable price.
Pros: Anybody can prepare and e-file a federal tax return free with TaxAct. TaxAct’s Ultimate Bundle, which includes federal and state tax returns, costs only $17.99. For that price, you get all IRS forms that can be e-filed, including forms for self-employment and investment income.
Customers who use the free version can get help via email or online chat; if they want to talk to a tax expert on the phone, they must pay a one-time fee of $7.99 (this covers an unlimited number of questions). Customers who purchase the Deluxe Federal or Unlimited Bundle can ask an unlimited number of questions by phone upon payment.
Cons: TaxAct has limited import capabilities. You’ll likely have to type in information from some of your W-2s and all of your 1099s.
While TaxAct uses the same interview process as TurboTax and H&R Block to help you identify all sources of income and breaks, the guidance isn’t as comprehensive (or conversational). The program assumes an understanding of tax laws that some users may not possess.
This low-cost online program serves up helpful videos with advice on everything from charitable deductions to tax credits for the elderly and disabled.
Pros: Anybody can prepare, e-file and print a federal tax return free. Active-duty members of the military can prepare and e-file federal and state tax returns free. Customers who take advantage of the free federal version will pay $23.90 to file a state return. For the “classic” version, which supports more complicated federal tax returns, you’ll pay $25.90 to prepare and e-file one federal and one state tax return.
Cons: TaxSlayer doesn’t provide as much support as some of the other programs. If you want to talk to a tax expert, you must submit your question via e-mail; TaxSlayer says someone will usually respond within 24 hours, but you may have to wait longer. In addition, TaxSlayer can’t import most financial documents.
How to Save Money on Tax Software
The only thing taxpayers hate more than paying taxes is paying to do their taxes, which is why some people continue to fill out the paper forms and mail in their returns. But there are lots of no-cost and low-cost options for people who want to use tax software to prepare and e-file their returns.
If your 2013 adjusted gross income was $58,000 or less, you can prepare and e-file a federal tax return free via the IRS Free File program. This year, 14 private companies are participating in the program, and each has different eligibility criteria. In most cases, you’ll have to pay to prepare and e-file a state return.
Taxpayers who make too much to qualify for Free File but have simple returns may be eligible for free programs offered by the major software providers. TurboTax and H&R Block offer free federal tax preparation and e-filing for taxpayers who file simple returns. You’ll pay to file your state return. TaxAct allows anybody to prepare and e-file a federal tax return free, no matter how complex your situation. Again, you’ll have to pay to prepare and file a state tax return.
Check with your financial institutions to see if they offer deals on tax software. Vanguard, for example, offers a $20 discount on TurboTax software for most clients; Flagship Services customers can get it free.
And shop around at Amazon.com and other retailers, whose deals may beat those on the software makers’ own sites. Act fast to get the season’s best deals in March before prices rise on last-minute filers in April, says Louis Ramirez, senior features writer at dealnews.com.
Websites such as www.coupons.com, www.CouponCabin.com and www.offers.com feature codes you can use to reduce the cost of tax software even more. If you find a good deal, pay attention to the expiration date.