Online tax preparation is easy and efficient, even the IRS backs it. These days, there are many tax software programs to choose from, which can be confusing for first timers.
This guide will give you some help in deciding which personal tax preparation software will be best for your needs.
Online Tax Software versus Desktop Tax Software
The basic difference between online tax software and desktop is that the desktop version needs to be installed via a CD or a download, so it can be more complex, especially if it conflicts with other software on your computer. An online tax program can be accessed from your browser, wherever you happen to be, so this is generally the easiest to work with.
Basic, Deluxe or Premium Packages
Many tax software suppliers will offer a range of versions, so it can be hard to know which one to go for. The general rule of thumb is if you know what you’re doing, a basic version will be suitable, but if you’re in doubt you should choose the highest version – it might cost more, but at least you’ll have peace of mind that you’re fully covered.
Free Tax Software
Many leading suppliers these days offer free tax software, which will be especially sufficient if you have a simple, basic tax return. You might also qualify for the IRS FreeFile program – check with them to find out.
Make sure you read the computer requirements that the tax software you’re interested in needs to run correctly before you buy it, especially if you have an old computer and are choosing a desktop product. The software needs to tell you whether it runs on a PC, Mac, or other operating systems, list its Internet-related specifics and how much hard drive space plus RAM is needed.
State Tax Returns
If you need to prepare a state tax return, it will impact on which tax software you need. Some products come complete with the ability to handle state returns, while others charge separately for this service.
You’ll definitely need to do a state tax return if you were a resident of more than one state during a tax year because you moved. This will mean that both states will want to collect your income tax, so you’ll need two separate state tax returns. Some states provide free online income tax filing, so check with the Department of Revenue web site.
Documentation for Your Income Tax Deductions
Preparing your income taxes will be a lot less stressful if your tax software includes explanations of current tax laws, quick links to IRS publications, and (even better) how to complete a tax return using a step-by-step interview.
Another life saver if you itemize your deductions is to have a tax deduction finder feature in your software that asks you questions to dig up any deductions you might forget. You’ll also want to be able to import your tax deduction data if you make many non-cash donations, this will definitely make your life easier.
If you’re self-employed, make sure your tax software includes Schedule C. If you’re an active investor, a feature for calculating capital gains will save you a lot of time.
Know that the fees charged for e-filing rather than mailing your tax return may be included with the cost of the tax software you choose, or there may be a separate charge for it. There might also be a separate charge for filing your state federal returns electronically.
Tax Software Help and Support
Especially if you’re new to tax software, the level of help and support the company provides will be important. Ideally, if you have a question about their product you should be able to call a toll-free number to contact their support center, but alternatively they should provide an email address or chat facility to have someone answer your question in good time.
Some tax software products provide limited access to a tax professional for questions about your income tax itself, but generally you’ll have to visit the IRS website or rely on online forums for more complicated questions.
Tax Software Guarantee
It’s really important to ensure that the tax software provider you choose can stand behind the accuracy of their product, and that they have a good service if you get audited. Ideally, you’ll want the software manufacturer to provide a tax professional to assist you and represent you in tax court if an audit takes place.
Online tax preparation is the most effective way of preparing your annual taxes. Even if you decide to go with desktop tax software, it’s important to understand that you’ll need to update the software every year to match the current tax laws.
About the Author: Bob Goren is an independent advisor for online tax preparation in the US.