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All Contents © 2017The Kiplinger Washington Editors
By Sandra Block, Senior Editor
| March 2017
The tax software business is getting as crowded as the cereal aisle at your local grocery store, and that’s good news for do-it-yourself taxpayers. New entrants are offering deals, forcing veteran players to up their game or lower their prices.
The best tax software for you will depend on your sources of income, your need for help, and your budget. It’s important to review each platform’s terms before you start plugging in your numbers. Otherwise, you could discover that you can’t complete your return without upgrading to a pricier product.
For this year’s tax software review, we gave our hypothetical taxpayer a mortgage, some modest investment income, and a health savings account, an increasingly popular tool for people with high-deductible health insurance plans. (HSA account holders who withdraw money for medical expenses are required to report it on their tax return; otherwise, they could end up owing a large penalty.)
Note: Software prices are subject to change, and they generally rise as the tax-filing deadline approaches. With most software providers, you pay when you file — yet another reason to complete your return as soon as possible.
Before you get started, check out the many new ways to file your taxes free this year. Several major software providers offer free preparation and e-filing for taxpayers who are eligible to file a federal 1040EZ or 1040A, and some include a state tax return, too. And even if have a more complex return, you can use IRS Free File as long as your adjusted gross income was $64,000 or less.
All prices listed here are as of February 16.
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Pros: Superior navigation, taxpayer support
Every year, this tax prep leader looks for ways to make your civic duty less onerous, and for the most part, it succeeds. The program automatically imports data from more than 1 million employers and financial institutions. If you’ve never used this feature before, it’s thrilling to watch all of those numbers from your W-2s and 1099s magically appear in the proper boxes. This feature alone may justify TurboTax’s higher prices: Not only does it save you time, it reduces errors. Other software programs also provide automatic importing, but they aren’t as comprehensive as TurboTax.
Questions posed to TurboTax’s self-help tool generate clear responses (not IRS boilerplate). If you’re still perplexed, you can ask the online community or connect with a tax expert via one-way video.
If you discover you’ve left out something or need to make corrections, it’s easy to go back to edit your entries in TurboTax.
TurboTax Premier, which you must use if you have investment income, costs $92 to prepare and file a federal and state tax return, making it by far the most expensive program on the market.
Pros: User-friendly, lots of helpful tools
Cons: Difficult to access guidance from tax pros
Website: H&R Block
Block’s Deluxe program tries its darnedest to get you excited about your tax return. After we entered information about a mortgage and property taxes, for example, Block breathlessly informed us that we had reduced our tax bill by $1,485! We were then urged to keep going so the program could find us even more ways to save! That kind of enthusiasm may help some taxpayers maintain momentum as they fill out their returns.
Want to connect with a tax pro for help? You must go to the “help center” to search for a specific term, form or phrase, then click “get additional help” at the bottom of the search results, then choose “ask a tax question” and then follow the instructions to chat online with a tax pro. Whew.
The cost for a federal and state tax return is $71.98, which includes unlimited advice from a tax pro via live chat. The program also includes DeductionPro, which will help you estimate the value of used clothing and other items donated to charity.
If you itemize but your deductions are limited to mortgage interest, charitable contributions and/or medical expenses, you can use H&R Block More Zero, which allows you to file a federal and state tax return free.
Pros: Helpful in ensuring proper documentation before you get started; proactive guidance to help you lower your 2017 tax bill
Cons: Clunky navigation, weak help section
This program, long a favorite of frugal filers, is more expensive this year. TaxAct Plus, which you must use if you itemize, costs $60 for a federal and state tax return — up from $30 in 2016. Good news on pricing: TaxAct offers a “price lock guarantee”; unlike some of its competitors, it won’t boost its prices as the tax deadline nears. That means you can start your return now and finish it later without worrying about a price increase.
The program addresses your tax situation during 19 life events, such as owning a home, having children, and retirement. Click on an event and you’ll get a comprehensive explanation of how to take advantage of all of the tax breaks available to you.
It’s difficult to make updates and revisions in TaxAct without marching through the entire program again.
While the program offers a “help” section for questions, responses often resemble IRS boilerplate. TaxAct offers free phone support and access to your tax returns for seven years.
Pros: Easy to navigate, low cost
Cons: Insufficient taxpayer help
The best feature of this program is the price: $39 to prepare and file a federal and state tax return. You can use this version to report income from self-employment, investing and rental properties. Most other programs require users with these sources of income to upgrade to a premium product.
Users who want more hand-holding can respond to a series of questions through the “guide me” program. Those who are more familiar with the tax code can enter information directly on the tax forms.
While you can import some W-2s, the program doesn’t provide a way to import information from 1099s.
Answers to questions posed to TaxSlayer’s “Knowledge Center” are not always on point. For example, a question about how to report Health Savings Account distributions generates a lot of information about the benefits of an HSA but no specific tax reporting guidance. If you want help from a tax professional, you must upgrade to TaxSlayer Premium ($35 for a federal return, $22 for a state return, and prices could change by the time you e-file).
A Life Events tool allows you to see how changes to your personal circumstances, such having children or buying a home, will affect your tax return.
Pros: It’s free
Cons: Limited to one state tax return
Website: Credit Karma Tax
You can’t import last year’s tax return or other documents, such as your W-2. But if you’re willing to enter the information manually, the site is easy to navigate. You can enter your information through an interview process, where you’re asked about such things as your filing status and children, or enter your information manually on the tax forms. Some sections feature a question mark icon that provides more details about a particular topic, such as a specific deduction or credit. Navigation is smooth: If you log back in after taking a break, the program will pick up where you left off.
If you lived in more than one state last year, you can do your federal tax return on Credit Karma, but you’ll have to go elsewhere to file your state tax returns.
As it does with its offer of free credit scores, the company plans to market related products to taxpayers based on the personal information they provide when filling out tax forms. For example, Credit Karma could use your income to trigger an offer for a specific credit card. If you sign up for the credit card, Credit Karma receives a fee. If that makes you uncomfortable, you can opt out and still use the tax-filing product.
Pros: It’s free; good online support; no upsells to premium versions of the software
Cons: No automatic import of data from your W-2s and other documents
Website: DIY Tax
This free program, offered by tax preparation company Liberty Tax, is open to all taxpayers, even those with complex forms.
So why would Liberty Tax Service, which has more than 4,000 tax preparation offices in the U.S. and Canada, offer this giveaway? It’s counting on DIY fatigue. A “Find an office” link is always visible when you use this program. If you authorize Liberty to access your data, a tax preparer can pick up in person where you left off—for a fee, of course.
Pros: Easy-to-understand instructions
Cons: Relatively expensive, buggy
Website: Jackson Hewitt
The online offering from this tax preparation company allows you to import last year’s tax returns from TurboTax, TaxAct, H&R Block and Jackson Hewitt. Don’t expect to get a lot of help, though. A question about how to report a withdrawal from a Roth IRA generates a long list of seemingly unrelated results, including “what is a PIN number?”
Indeed, Jackson Hewitt’s product remains as buggy as it was last year. For instance, a question about distributions from a health savings account resulted in a “page not found.”
And it’s pricey compared with some of its competitors: The cost to file a federal and state return is $72.
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