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How to Choose the Right Tax Software

It’s Tax Time!

It’s well past time to get started on your taxes. That said, we should note right at the outset that the deadline to file your federal taxes has been extended to July 15, due to the ongoing COVID-19 pandemic. Note, however, that not every state has done the same. As of April 15, 40 states had extended their deadline to match the federal one, but the others (and Puerto Rico) had all chosen a variety of other dates, some earlier, some later. Be sure to check your state’s filing deadline.

Personal tax preparation websites have long been up and running now for the 2019 tax year, and the IRS began accepting tax returns on January 27, 2020. It’s time to think about gathering up all your tax documents and plugging your numbers into a tax site, which 37 percent of you do for yourselves, according to a recent PCMag survey.

If you’re still doing your taxes manually—using paper forms, calculator, and pencil—you should consider moving the process online. Our survey showed that (at least among people with enough computer savvy to take an online survey) only 10 percent of you were doing your taxes manually, and only half of those people were sending their taxes in via snail mail (the rest were e-filing with the IRS directly).

For those holdouts among you, new laws and new forms are complicating what was already a complex activity. Preparing and filing online might even get you a bigger refund, since these sites are trained to dig deep for deductions.

Changes to the Tax Code

The tax world is quieter this year, but there have still been modifications that may affect you. For one thing, the IRS introduced two new forms. The new Form 1040 is organized slightly differently, and some of the wording has changed. You can now include the signature of a third-party designee who is authorized to discuss your return with the IRS. There’s also now a question about virtual currency on the form, too, since there are tax consequences for cyrptocurrency transactions.

The new 1040-SR was designed for seniors; it features a larger font and no shaded areas, which allows easier reading. Content is very similar to that of the main 1040.

The Best Tax Software Deals This Week*

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What does this mean for you? Nothing, really—if you prepare and file your 2019 return using a dedicated website. You won’t even see the new forms unless you print out your completed return.

What may affect you, though, are changes to the tax code that took effect for the 2019 tax year. For example, the maximum contribution to a traditional IRA has gone up by $500, to $6,000 (taxpayers who are age 50 or older can tack on an additional $1,000). If you have a 401(k), you can now contribute up to $19,000 (50 and up can add $6,000 to that maximum).

The rules for alimony changed in 2019, too. The payer no longer gets a deduction and the recipient doesn’t have to report it as income. If you were divorced before January 1, 2019, and spousal support was involved (or will be at a future date), you should consult with a tax professional to learn about your options.

Thanks to inflation, the standard deduction increased by $200 to $12,200 for single filers and by $400 for joint filers ($24,400). Other, smaller changes instituted because of inflation have been built into the tax code for the 2019 tax year.

If you expect to itemize deductions when you prepare your 2019 taxes, it may be because you had significant medical expenses. For the 2018 tax year, those expenses had to total at least 7.5 percent of your adjusted gross income (AGI). The bar was raised for 2019; the minimum is now 10 percent of AGI.

A Smooth Transition

Considering the changes that have occurred, what will you find when you log into H&R Block, TurboTax, TaxAct, or any of the other websites whose developers have been planning for the end of January 2020 for many months?

If you’ve used a personal tax preparation website or desktop software before and you go back to that same product this year, you’re not going to notice much of a difference (except for TaxSlayer, whose user interface has been completely redesigned). Every site we reviewed this year has made improvements, some more than others. But they’re the usual modifications—user interface tweaks and enhancements to support resources and changes to prices and product lineups.

For the most part, this year’s crop of contenders looks and works much as it did for the 2018 tax year. What’s going on in the background as your tax data is calculated and rerouted to accommodate the new laws and forms, though, is different. The companies that make today’s leading tax sites worked hard in 2019—so that you don’t have to in 2020.

How Online Tax Software Works

When you prepare your income taxes using paper forms, you spend a lot of time shuttling back and forth between them. You come to a line on the 1040 that requires a supporting form or schedule, so you go there and complete it, and then transfer the number back to the 1040. Sometimes you need to fill out a worksheet or chase down a document you got in the mail or double-check your calculations because things just don’t look right. You may have to do this many times if your return has any complexity.

Tax websites work much differently. Once you create an account and comply with the site’s security requirements, you can stop worrying about which forms you need and whether your calculations are correct. You also won’t need to worry about how any tax code changes are going to affect your return. That’s all taken care of for you in the background.

When you use a digital tax preparation solution, you’re really just filling out a giant questionnaire. These sites work like giant wizards: They ask questions on every page, and you respond by providing answers. You enter information in blank fields, select the correct option from a list, or click a button. When you’ve satisfied all the requirements of a screen, you move on to the next and complete that. You never have to see an actual IRS form or schedule (though in some cases, you can if you want to).

You’ll probably recognize the path you’re taking. It’s patterned after the order of the IRS Form 1040. You provide contact information first, including Social Security number(s) and birthdate(s), and then move on to your income, deductions, credits, health insurance status, and taxes paid. After you’ve exhausted all the topics that apply to you, these sites review your return and highlight errors or omissions you might have made.

After you’ve cleaned them all up, the software transfers your tax data to any state returns you must file. Once you’ve answered miscellaneous questions there and checked your entire return, you’re asked to pay the service’s fees (if there are any). Finally, you can file your return electronically and print it out.

The Tax Software Interface and Process

Along the way, personal tax preparation websites provide a lot of support for you. After all, how helpful would they be if they just displayed replicas of the actual IRS forms and schedules on the screen and asked you to fill them in using the IRS instructions?

Instead, some of these solutions, such as H&R Block and TurboTax, provide state-of-the-art user experiences. They’re designed to make what is an unpleasant task more palatable. They use color, graphics, design, and layout to present screens that are lively and attractive, rather than dull and lifeless like the actual forms.

The step-by-step data entry path that they provide generally works quite well—as long as you work your way through your whole return without a lot of backing up or lurching forward. Jackson Hewitt, for example, asks whether you’d like to complete your 1040 by using its comprehensive interview; this option takes you through the entire process in one long Q&A session. It asks you about every tax topic that might possibly apply to you.

The other alternative, one that every online service offers, involves selecting the topics that apply to you. You choose these from the lists they provide for income, deductions, credits, and taxes. When you select one, these sites walk you through mini-interviews to get the information they need. Then they return you to the main list to choose another topic, and so on, until you’re finished.

Most of the sites we reviewed are a hybrid of these two approaches. The point is, all you have to do is read what’s on the screen and follow its instructions. You spend most of your time responding to questions and clicking links to advance to the next screen or using the site-wide navigation tool. These sites are good guides, most of the time.

Speaking Your Language

If you’ve ever filed a tax return, you know it can be a challenge to understand the IRS language on its forms and schedules. Turning to the written instructions sometimes doesn’t help much. They’re quite comprehensive—so comprehensive, in fact, that it’s often hard to find the answer to your exact question. When you do find it, the language, again, can be difficult to decipher.

From their earliest days, personal tax software developers have sought to interpret IRS-ese and make it more understandable to the non-accountant. They’ve written and rewritten their content so that the average taxpayer can understand what’s being requested. Further, sites like TaxAct do more. For example, they provide hyperlinks to small help windows that further explain a term or phrase. They anticipate questions you might ask and post Q&As on especially complex topics. They try to ensure that you understand the question being asked so that you’ll provide the correct answer.

More Tax Help Needed?

Sometimes, though, a friendly, understandable user experience and clarification of the content displayed on screens isn’t enough. So tax websites provide online assistance. Some, including H&R Block, provide context-sensitive explanations in panes attached to the main working area.

In some cases, this guidance isn’t available until you click a Help link. And sometimes when you do that, you have access to a giant database of questions and answers. You may be directed to IRS instructions and publications on a few sites, but usually, the technical content has been rewritten to make it understandable.

What do you do if your efforts to find help on the site itself fail? You might have one of several types of questions: The first goes something like, “Where do I enter the information that’s on this paper form I got?” Or, “The site won’t let me advance to the next page. What did I do wrong?” Or, simply, “I’m stuck. I can’t find my way back to the screen where I enter mortgage interest information.”

All sites offer at least one of three ways to contact the company’s technical support representatives: by email, phone, and or chat. TaxSlayer, for example, offers all three. Some, like H&R Block, offer online communities where you can see if your problem has already been addressed by someone else.

These technical support representatives cannot advise you on points of tax law, though. So some offer to hook you up with an accounting professional. Though you’ll pay extra fees, you’ll get the most innovative, most comprehensive guidance if you use TurboTax Live. This service connects you with a CPA or EA (Enrolled Analyst) via live video chat, not just during tax season but year-round. H&R Block has added a similar service this year called Online Assist. Customers of TaxAct Deluxe and above receive unlimited phone support from tax specialists.

Are There Any Free Tax Services?

Prices for this year’s tax websites range from free to over $100. It turns out that you can get a lot for free. According to our tax survey, 17 percent of you use free services, in fact. 20 percent of you use paid software. Every company whose website we reviewed offers a version that costs nothing to prepare and file your taxes. All support the new Form 1040 and assume you’ll be taking the standard deduction. You can record—or import, in some cases—your W-2 data in all of them.

Each goes even further than that in some ways. H&R Block is very generous in its free offerings among the normally paid services. Block supports W-2, retirement plan, and Social Security income; child care expenses and child tax credit; the Earned Income Credit (EIC); and student loan interest. TaxAct, too, allows retirement income and support for the EIC, in addition to the W-2, child tax credits, and college expenses. TurboTax lets you report W-2 income, the EIC, and child tax credits. Using TaxSlayer, you can enter your student loan interest and education expenses, in addition to the W-2. And Jackson Hewitt’s free edition will prepare and file the EIC (no children), unemployment and W-2 income, and up to $100,000 taxable income.

Two of the online tax services we reviewed are free (or nearly free): Credit Karma Tax and FreeTaxUSA. Both support all major IRS forms and schedules. FreeTaxUSA charges nothing unless you need to file a state return; that costs $12.95. You can also buy enhanced support for $6.99. Credit Karma Tax is the only personal tax preparation website that is totally free, for both federal and state.

Finally, note that you might even qualify to use paid software for free, if your income is below a certain threshold, or if you’re in the military. The IRS Free File program allows you to submit your federal (and maybe your state) taxes for free, even if you’re using an app like TurboTax. To find out if you qualify read our article E-Filing Your Taxes for Free: Are You Eligible?

Not for Everyone

The personal tax preparation services we review here are capable of producing very complex tax returns. You’ll pay more if you need more forms and schedules to complete (we reviewed the most popular versions, which in some cases were not the most robust), but the tools are there for advanced topics like self-employment, depreciation, rental income, and capital gains.

If you’re not comfortable with your own ability to complete a complicated tax return but still want to give it a shot, you can go with a site like H&R Block. The company offers DIY preparation and filing, of course. But if you get partway through and realize you’re not sure of some tax issues, you can have an H&R Block tax professional review your return, complete it, and sign it. You can even just upload your documents and the pro will take over.

If you’re so uncomfortable with taxes that you’ve procrastinated a bit too much, we have some suggestions for you. Our article, Tax Tips for Last-Minute E-Filers, is for the one in seven of you who wait till the tax deadline has nearly arrived.

Stay Safe, Protect Your Privacy

Whenever you’re going to be sending sensitive information over a network you don’t control, you should be concerned. Since taxes are nothing but sensitive data, you ought to be doubly concerned if you’re filing from a coffee shop, say, or the airport. About half of you get this, it seems, as our tax survey shows that 47 percent of those who use online tax software are concerned about their data being compromised.

Fortunately, protecting your traffic is as simple as using a VPN. A VPN can create a secure tunnel that encrypts your data, ensuring that anyone who manages to intercept it sees only gibberish.

No amount of security software can keep you safe if you fall for a telephone, email, or in-person tax scam, however. Scammers often rely on you to simply tell them what they want to know, instead of by getting it out of your computer with malware. Instead, they simply pretend to be someone, say the IRS, who you’d likely believe might have a reason to be inquiring, and ask you for your secret information or for payments on imaginary fees you supposedly owe. Read our piece on how to protect yourself from tax-season scams and save yourself money and heartache.

What Is the Easiest Tax Software to Use?

If this is the first time you’ve ever considered tackling this project yourself, we recommend TurboTax Deluxe, our Editor’s Choice, this year. It offers an outstanding user experience, with exceptionally accessible, understandable guidance. That support and guidance makes a complex process easy—or at least easier. It’s built on decades of tax and software expertise, and it’s the best for the 2019 tax year.

If you’re going to fill out your taxes on your mobile device—yes, that’s right, you can do your taxes on your phone—you’ll want to try out Intuit’s TurboTax Return App, which is our number one choice for mobile tax filing thanks to its excellent interface and supportive assistance.

While you’re thinking about your financial situation and you have all your documents about you, we suggest that you also take a look at our roundup of the best personal finance services. The best day to start a budget is yesterday, but today isn’t bad, either. If you’re a business owner, it’s also a good time to make sure your books are in order. Our overview of small business accounting software is an excellent place to get started.

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