It’s great in these times that we get help in preparing our annual income tax returns. There are a number of choices for tax software to accomplish this – the two main types are online tax software or installing software on your computer hard drive to run on your desktop.
This guide will look at the advantages and disadvantages of both types of tax software, to help you make the best choice for your individual needs.
Installing Tax Software
Desktop tax software needs to be installed from a software CD or a tax software download from a website. This means it carries the risk of the installation not working because of incompatibilities with software you already have installed on your computer or with your hardware (especially if you own an old PC). Even though the chances of this happening are relatively small, it can be a real pain to troubleshoot the problem if this occurs because everyone’s operating system is different.
In contrast, online tax software presents far less complexity – there is no software installation to worry about and since you access it through your Internet browser, it won’t change or conflict with anything on your computer.
Tax Preparation Convenience
If you use tax software installed on your hard drive and you don’t have a laptop, you can only work on your taxes at home.
With online tax software, you can work on your income tax return from anywhere that has an Internet connection, so for people on the move, this will be an important benefit. It’s important to know however that you should avoid public computers, such as those found in the library. If you must use these places, be sure to you log off and close the browser window before you leave the computer, since when you don’t, any stranger could access your personal tax return information.
Tax Software Updates
It’s also crucial to understand that your tax software needs to be updated regularly to comply with current IRS income tax laws and codes.
Reliable desktop tax software will either automatically check for updates or prompt you to check for them. While these updates usually go smoothly, there is a chance that an update could conflict with something else you’ve installed on your computer, meaning you’ll have to take the trouble to contact tech support.
With online tax software, your updates are installed automatically on the file server that hosts the software, so you can always be sure that you’re up to date.
Tax Data Security
Desktop tax software gives you total control over your income tax information by keeping it stored locally on your personal computer, but if you don’t use current and effective firewall plus anti-virus software, you run the risk of having your PC and all your sensitive financial data hacked by cyber criminals.
The latest and most popular online tax software takes away this risk because it uses the same robust security that financial institutions have to protect and encrypt your tax data files. When choosing this type of tax software, always check the privacy and security policies to be sure that it provides this excellent level of data security.
Tax Data Storage
With desktop tax software, your tax data files will be stored until you delete them, but that information is only readable in the same tax software from the year you created your tax return. This means that over the years, you’ll need to keep outdated versions of software to read your files.
Online tax software in comparison will typically save your tax return for three years, no matter what software you’re currently using. It will also save your returns as a PDF (which can’t be tampered with) and the raw data is not usually stored. In addition, if you want to keep copies of your returns for more than three years, you can save the PDF on your computer or in a removable thumb drive.
Backing Up Tax Return Information
It’s important to regularly back up all important information and files on your computer to a separate location than your hard drive (such as a USB thumb drive, re-writable CD, network attached server (NAS) or to an online backup service), or it will be lost if your computer gets damaged or stolen. This activity will be vital if you have desktop tax software, since you can’t take the chance of losing your income tax details.
Online tax software in contrast will back up your data often and automatically while you work with the software, as well as when you log out. It will save secure, encrypted copies of your tax information in at least two separate physical locations, giving you full peace of mind that your data is safe.
Whichever type of tax software you use, it’s also advisable to always keep a printed copy of your tax return in a safe place.
While both desktop and online tax software are a great help in preparing your returns, including excellent features such as updates on IRS law changes and convenient tax calculators, when it comes to mobility, security, storage and ease of use, it has to be said that online tax software is the best solution.
About the Author: Bob Goren is an independent advisor on tax calculators and tax software in the US.