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NerdWallet’s Guide to Choosing Tax Software

Dec. 22, 2016
Income Taxes, Personal Taxes, Taxes
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Filing a tax return online is the norm these days, but that doesn’t make it any less intimidating. Which software should you use? Are they even that different? And how much does it all cost?

That last question is a good place to start. If you’re going to file your taxes online, you have two basic choices:

Filing taxes for free

If you meet a few criteria, you might be able to file your taxes online for little or no cost. There are two ways to do this.

1. See if you can use a software provider’s free version

Virtually all of the large commercial providers offer free versions of their software for online tax filing, but they’re usually only for people filing a Form 1040EZ or a 1040A. Plus, filing a state return sometimes isn’t free. But if you have a simple, straightforward tax situation, these free versions can still save you a bundle. Be sure to check software providers’ websites for details on what their free versions do and don’t cover.

2. See if you qualify for free filing through the IRS

Another route to no-cost tax filing is the IRS’s Free File program, which lets you prepare and electronically file your return for free using software from a consortium of about a dozen tax-prep companies. Some are brand names; others are a little more under the radar. Simply answer a few questions on the site, and the IRS will match you with the right software.

There’s a catch, of course: Your adjusted gross income can’t be more than $64,000. If your income exceeds that threshold, you can still use the Free File site, but you’ll get access only to fillable electronic versions of the IRS forms and not much guidance.

» MORE: Check your federal income tax bracket

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Buying tax software

If you make too much or your return is more complex, the free stuff might not cut it. In general, if you itemize, have a lot of investment income, are a freelancer or landlord, or have other more advanced tax situations with several deductions and credits, you’ll probably have to pay for the software you need. Luckily, there are deals to be had if you know what you’re looking for.

Deciding what to get

The big tax software providers typically offer several versions of their products. Here’s how they generally break down:

  • A basic service aimed at the simplest returns (as we mentioned, sometimes it’s free).
  • A deluxe service aimed at taxpayers with common deductions and credits.
  • A premium service, usually for filers who are self-employed, landlords, active investors or independent contractors.

Where do you want your return to live?

Tax software packages also come in cloud-based and desktop varieties. Cloud versions are more convenient because the software and your return live online, which means you can access them on any computer, tablet or phone with the same login credentials.

With a desktop version, you download the software to your computer, and it and your return reside only on that one machine. Which method is more secure? It’s hard to say. Go with what feels right to you.

How much does it cost to file with tax software?

When you’re shopping for tax software, remember that there are three main components to the price:

  • The cost to prepare and file your federal return
  • The cost to prepare and file your state return
  • The cost to electronically file those tax returns

Those all have separate price tags, and prices vary by company and version (basic versus deluxe, and cloud versus desktop, for example).

But in general, expect to spend at least $40 to $50 when it’s all said and done. If you need more sophisticated software, the tab can run over $100. Some providers will offer to take the cost of the software out of your refund check (if you’re getting one), but beware, there’s usually a high fee ($35 or $40 sometimes) to do that.

What ~else~ to look for in tax software

Here at NerdWallet, we anxiously await the release of new tax software every winter. Why? Because there are so many bells and whistles out there. Tax software is evolving all the time. Here are a few features that might give you a some extra relief, so be on the lookout when you’re shopping around.

  • A tax calculator or refund estimator that quickly determines where you stand in terms of your tax liability.
  • The ability to import data automatically or even photograph data from W-2 and 1099 forms and prior years’ returns.
  • Support options such as easily understood FAQs, email, live chat, phone, social media and video conferencing.
  • An accuracy guarantee, ensuring your return has been filled out correctly and reimbursing you if a calculation error costs you money.
  • A review of items in your return that might increase your chance of an IRS audit. Look, too, at whether there’s audit support.
  • A maximum refund guarantee. Many providers refund your fee if another service can get you a bigger refund or smaller tax bill.

If you want to know more about what we think about specific providers, check out our roundup of the best tax software, or our detailed reviews of H&R Block, TaxAct, TaxSlayer and TurboTax.

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Oh, and will I get my refund faster?

Yes! The fastest way to get your money back is to file your taxes online and have the refund deposited directly into your bank account. All online tax providers do that. But many offer other options, too, such as having the money put onto a prepaid debit card or store gift card or into U.S. Savings Bonds.

You may be offered an option to pay get your refund faster by way of a loan, but you’ll likely overpay for the privilege. We don’t recommend it.

This post was updated on Dec. 22, 2016.