This article is part of a 5-part series on tax preparation methods. To learn more about your tax filing options, check out Why You’re Filing Your Taxes Wrong.
If your tax situation is simple (check out our guide to assessing your tax complexity to learn more), then tax software is probably your best bet for filing taxes this year. It’s fast, easy and most importantly, surprisingly thorough. No wonder almost a third of people who filed last year chose software, according to Experian. Even so, there are a couple of limitations you should be aware as you consider different options.
First and foremost, software is cheap, with many companies offering free federal filing if you qualify for a 1040EZ (the simplest form for filing federal income tax). Since everything is done digitally, it’s a cinch to check for mathematical errors and internal inconsistencies that can slip by unnoticed when filing on paper. If you filed with software last year, you can usually import most of your basic information with a single click, and some programs let you automatically pull bank and investment statements from your online accounts, saving you the hassle of tracking down paperwork and manually entering info.
The best part is you never have to look at an actual tax form. Just answer a few simple and clear questions and the software will auto-populate the correct IRS form for you to print out or e-file. If you run into trouble, features like online forums and the ability to talk to a real person can help keep you on track.
Pro-Tip: Cloud-based tax software and submission portals can get bogged down around April 15 and October 15 due to the massive amount of people accessing and completing their tax returns. To avoid a potential problem, be sure to file at least a week or two in advance.
While there are plenty of benefits, there are also some downsides to using tax software. The biggest disadvantage of using tax software is that it may miss certain deductions or savings for which you might be eligible. In many cases, you have to buy the “upgraded” version of the software if you want to be prompted about all possible savings (and even if you don’t want to upgrade, you’ll often be prompted to anyway, which can be annoying).
Even with the most expensive version, a program can miss some subtle or less common savings that a good professional can help you find, especially if your tax situation is more complex. Because you’re not filling out the tax form directly, it can also be hard to troubleshoot if an error pops up, or your estimated return is way off base from what you were expecting.
For individuals with simple financial situations, tax software often makes the most sense, providing a nice balance between affordability and advanced functionality. If the thought of paper cuts make you cringe, but you’re not quite ready to make the jump to an independent tax professional, software is the way to go.
Which tax software should I use?
If you’re particularly budget conscious, check out TaxAct. It’s the cheapest of the big software players, offering free federal returns (including 1040EZ, 1040A and full 1040 filing) and topping out at $22 to file both federal and state returns with phone support and some additional calculators and reports. In spite of its low price, TaxAct earns high praise from reviews, often beating out more expensive competitors like H&R Block at Home.
For those interested in top-of-the-line tax software, TurboTax is the clear front-runner, and it’s easy to see why. Questions are clear and use understandable, simple language to guide you through the filing process. Customer support is great, including user forums, online chat, and phone support. Integration with online accounts is top-notch, allowing you to quickly important forms and data from virtually any bank or brokerage. TurboTax also does well in terms of thoroughness, often leading the pack in size of refund calculated.
To learn more about your tax filing options, check out the other guides in this series:
Photo courtesy of Shutterstock.