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All Contents © 2018The Kiplinger Washington Editors
By Sandra Block, Senior Editor
Rivan V. Stinson, Reporter
| March 7, 2018
Late last year, Congress passed legislation that will cut tax rates, limit or eliminate some popular deductions, and double the standard deduction. As a result of the changes, the percentage of taxpayers who itemize deductions is expected to drop from about 33% this year to less than 10% next spring, when returns for 2018 are due.
But none of those changes will affect your 2017 tax return, for which the old rules still apply. If you’ve always itemized and your tax situation hasn’t changed, you’ll still want to itemize this year.
Fortunately, tax software can help you identify all the tax breaks you’re eligible to claim in a fraction of the time it takes to fill out a paper return. And if your tax situation is uncomplicated, you may be able to file your return electronically at no charge.
For this year’s tax-program review, we used a hypothetical taxpayer who is single, has no dependents, claims the standard deduction, and had $1,200 in self-employment income in addition to income from a job reported on a Form W-2.
Most tax-filing programs require those who have self-employment income to upgrade to a more expensive version, even if you don’t itemize. It’s important to review each program’s terms before you start plugging in your numbers.
Keep in mind, too, that as the April 17, 2018, tax-filing deadline approaches, some software providers will increase their prices—either for their software or to file a return. That’s a good reason to file as early as possible.
All prices as of March 7.
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Pros: Easy to navigate, excellent user support
TurboTax is the Mercedes of tax software, with lots of extras designed to make your ride smooth and enjoyable. It electronically imports W-2 forms and documents from financial services firms, saving you the time and trouble. If you’ve used TurboTax in the past, it will remind you about sources of income and deductions from prior years, which reduces the chance that you’ll overlook a charitable contribution or a capital-gains distribution from one of your mutual funds.
When our hypothetical taxpayer reported self-employment income, TurboTax helped to navigate the intricacies of Schedule C.
Assistance is always nearby, whether through the help text that’s accessible at each step along the way, the TurboTax user community, or a tax expert available via live chat.
Like a luxury car, TurboTax carries a hefty price tag. The Premier online version, which you must use if you have investment income, costs nearly $120, as of March 7, for a federal and state return. If you have self-employment income, the price is even steeper: $160 for a federal and state tax return. And TurboTax is one of the software providers that uses surge pricing, so you can expect those prices to rise before April 17.
Pros: Free federal and state return for basic returns, no surge pricing, easy to navigate
Cons: Limited user support
For many years, TaxAct was the darling of budget-minded, do-it-yourself taxpayers, thanks to its low-cost, no-frills software. Although TaxAct is still a relative bargain, it’s not as cheap as it used to be. TaxAct offers a free federal and state return for taxpayers who file Form 1040EZ or Form 1040A, but itemizers must upgrade to TaxAct Plus, which costs $30 for a federal tax return and $37 for a state tax return. If you have self-employment income, you must use TaxAct’s new product, TaxAct Freelancer ($45 federal/$37 state), which is filled with helpful calculators and videos. However, TaxAct guarantees that the price in effect when you start your return won’t change, no matter when you pay to file.
TaxAct announced last year that it had expanded its electronic import capabilities, including the ability to import W-2 forms from many employers. However, in our test drive, which used a W-2 from a major payroll provider, TaxAct still required us to enter the information manually.
TaxAct’s program is organized by life events—whether you own a home, for example, or got divorced in 2017. You can skip right over entire categories of questions that are irrelevant to your financial life.
Alas, if you have questions, answers aren’t easy to find with TaxAct. You must seek out the Help section in the program’s menu, then scroll through a list of topics. Other programs do a much better job of anticipating questions and providing clear answers.
Pros: Free federal and state return, even for complex returns
Cons: Can’t handle multistate returns
Credit Karma Tax has made some significant improvements for tax year 2017 without sacrificing its most appealing feature: You can prepare and file a federal and state tax return free, even if your return is complex.
You can import information from prior years’ tax returns from TurboTax, H&R Block and TaxAct, as well as W-2 forms from major payroll providers. If your payroll provider isn’t supported, you can take a photo of your W-2 with your smartphone to import your data.
The program marches you through the standard tax interview efficiently, with help text available for users who need more information about a particular topic. Credit Karma Tax also provides individual support via live chat. However, when we attempted to use it, we received a message stating that the desk was experiencing an unusually high volume of requests and that our response would be delayed.
If you need to file a return for more than one state, you can still prepare and file your federal tax return on Credit Karma, but you’ll have to use another program for your state returns.
Pros: Easy to navigate
Cons: Tedious, costly for freelancers
H&R Block’s Deluxe program is engaging—and a breeze to use. After entering some basic information to determine your filing status, you start uploading your W-2 forms and—boom!—Block immediately gets you excited about a potential refund based on your initial information. However, Block’s ongoing quest for additional savings can become tedious. We knew our hypothetical taxpayer didn’t qualify for any other credits or deductions, but Block forced us to click through question after question anyway.
Taxpayers with freelance income must upgrade to Premium, which costs $85 for a federal and state tax return.
Pros: Free federal and state return for those using Form 1040EZ
Freelancers beware: Don’t be tricked into wasting time with Efile’s free version. During our test, Efile allowed us to input a 1099-Misc form without any hint that we would need an upgrade. The program even asked twice if our taxpayer worked as an independent contractor. Efile didn’t alert us until it was time to file that freelancers must upgrade to the premium version ($34.95 federal/$24.95 state).
Efile allows you to bypass sections of questions that don’t apply, such as deductions and credits for dependents. But Efile comes up short in the help section. It has no live chat. You can send queries via e-mail, but that means you’ll have to wait for a response (a real problem if you’re filing at the last minute). If you want a lot of hand-holding—and if you’re a freelancer or independent contractor, you’ll probably need it—you may want to look elsewhere.
Pros: Free federal return, even for complex returns
Cons: Clunky navigation
Free Tax USA shares some of the good and the bad from other online tax-filing software. The good: You can import information from prior years’ tax returns if you filed with TurboTax, TaxAct or H&R Block. The bad: As is the case with some other programs, Free Tax USA forces you to navigate several series of questions that don’t reflect your circumstances. For example, even though our hypothetical taxpayer is single with no dependents, the program still asked questions about child-care expenses.
The federal program is free; if you want live support chat and audit-assist protection, you must pay $6.99 to upgrade to the deluxe version. Even freelancers with self-employment income can file and prepare their federal return free, and Free Tax USA supported other 1099 forms, such as a 1099-INT (interest income) and 1099-R (distributions from annuities and retirement plans). A state return costs $12.95.
Free Tax USA provides better help tools than some of the other free programs we tested, but if you want to ask a question, you’ll have to send an e-mail and wait for an agent to respond.
Pros: Good user support
Cons: State return is pricey; freelancers must upgrade
If you have a straightforward tax return with income reported on a Form W-2, Liberty Tax’s EZ software ($14.95 federal/$29.99 state) provides good support, including free live chat and links to answers to common questions.
If you had a health savings account in 2017, you’ll have to pay an extra $20.
Freelancers with self-employment income must upgrade to Liberty’s deluxe version ($43.95 federal/$35.95 state).
Pros: Value price, no upgrade needed for complex returns
The most attractive feature of this program is the price: $39, as of March 7, to prepare and e-file a federal and state tax return. Unlike most other programs, TaxSlayer Classic supports all major tax forms, so you don’t need to upgrade if you have investment income or a side gig. (TaxSlayer’s prices are determined when you file and are subject to change.)
If you want live-chat support from a tax pro, you’ll need to upgrade to TaxSlayer Premium, which costs $57 for a federal and state tax return.
If you have freelance income, TaxSlayer Self-Employed ($55 for a federal and state return) is worth a look. It also offers live-chat support, along with help identifying deductions for your business.
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