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Which Tax Prep Program Is Right for You?

Doing your own taxes can be simple—with the right software. Check out our comparison of 12 popular programs.

Nothing about taxes seems simple, but do-it-yourself tax preparation software can help speed up and simplify this dreaded annual task.

Each year, tax prep software allows millions of U.S. taxpayers to file accurate tax returns at their convenience and for a low cost. But before you download anything, first you must decide whether self-preparation is appropriate for your own situation.

Allison Boisson, an independent tax preparer in Washington, D.C., suggests the following rule of thumb to determine when you require assistance from a real, live tax professional: “Whenever you have decisions to make that the machine can’t make for you.”

Generally speaking, if you’re divorced, own a primary/side business or have significant investment assets, you most likely should employ a professional firm or Certified Public Accountant to prepare your taxes for you.

If your situation is relatively simple—meaning you have a salaried job that reports withholding in a standard W-2, and perhaps you have some interest and dividend income, a mortgage deduction and other standard tax relief deductions, such as the classroom supplies deduction for educators—then doing your own taxes can be the easiest, most economical choice. Your Form 1040 ideally shouldn’t go beyond Schedule A (for itemized deductions) and Schedule B (for investment income).

But with so many tax prep software and online programs out there, figuring out which one to use can seem almost as complicated as deciphering the tax law.

Software that’s installed on a desktop computer has its advantages, namely in data security and storage. Online programs can be accessed anywhere there’s an Internet connection, and updates are performed automatically.

Most tax-prep programs will import data from previous returns, and some will import data from other software programs. As far as user interface goes, some offer a very basic setup, meaning you’ll fill in the numbers in empty fields. Others programs (usually the more expensive ones) will lead you through the task by asking you questions to help you complete your return.

Most programs allow you to e-file a simple (e.g., 1040EZ) federal tax return for free. Some include both the federal return and state return for the same price, while others charge extra for a state return.

We’ve compared the basics of 12 online- and software-based tax preparation programs (listed alphabetically) to help you decide which one best suits your individual tax-filing needs and your budget:

TechMedia Network, a technology and science media company, evaluated all of the tax preparation programs in this chart and rated TurboTax a 9.78 out of 10 for value, ease of use and support help. H&R Block received a total score of 9.45 and next in line was TaxAct, with a total score of 9.08.

The IRS has partnered with several companies to provide free Web-based tax preparation services, but only if the taxpayer’s adjusted gross income is less than $62,000 (individual or joint filings).

However, if you use the free online service, be aware that your tax return data can be accessed without logging in—a security flaw that can expose you to identity theft. Also, be sure to apply to these free services only through the IRS website as scammers pretending to be members of the Free File Alliance may offer their “services” directly. Visit the IRS website for more information.

Given the upsurge in ID theft on tax returns, the IRS has launched a pilot program making a special identity protection (IP) PIN number available on a voluntary basis. For now, the pilot is only available for taxpayers filing from Florida, Georgia and the District of Columbia—the locations with the highest per capita percentage of tax-related ID theft. Please be aware, however, that once you apply for an IP PIN, you must use it on all IRS transactions.

 

 

This article was published in NEAchieve!, our monthly e-newsletter. Sign up to receive helpful tips and information delivered to your email inbox.

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