Doing your taxes online is an approach that’s now overshadowing the traditional method of using boxed, packaged tax preparation software. While tax prep is never fun, going online tends to be a lot more convenient, for reasons that we’ll detail below. To help you choose, here are our hands-on reviews of six top offerings in the land of online tax prep software: IRS Free File: H&R Block’s TaxCut Online; TaxACT Online; TurboTax Online; TaxSlayer.com; and FreeTax USA.
It’s that time again. Santa made his annual visit to your house quite a while ago now, and hopefully he left you some of the gifts on your wish list. Now it’s your turn to give, first to Uncle Sam, and then quitse possibly, to Uncle’s cousins: State Tax and Local Tax.
Depending on your financial circumstances this past year, you may want to take your shoebox full of receipts over to a CPA’s office — or as some others do, to one of the chain tax preparer offices.
But as tax laws have gotten more complex, preparing tax returns, at least for many of us, has gotten easier. That’s because tax preparation software has gotten better, easier to use, and more accessible.
Walk into any big box or office supply store, and you’ll see tax preparation software right there on the shelf. If you are willing to download the software, you’ll have an even larger selection of vendors.
But a growing trend is to prepare your tax return online, using the vendor’s software on the vendor’s hosted site — essentially preparing your return in the Cloud.
As nebulous as this concept might appear to some, it’s actually a pretty good idea for a number of reasons.
Your tax return is available from anywhere you have an Internet connection. You don’t need to be at home or work to access it.
Any time that you sign onto your account you are using the very latest version of the software. The vendor does all of the maintenance, and you’ll never need to download and install an update.
If it turns out that you’ve picked the wrong edition for your circumstances, you can upgrade on the spot and not lose or have to re-input any information.
Better Late than Never, Sometimes?
There are a number of online tax preparation services you may want to consider when it’s time for you to buckle down and get to work on your return. Remember that no matter how early in January you prepare your return, the IRS will not start to accept e-filed returns until January 31st, nor will it start to process any paper returns received before that date. That’s a direct result of the government shutdown and the sequester.
Before you start shooting off an email to your congressman, however, realize that last year’s tax season started on January 30th, only a day earlier. And if you intend to e-file, which does result in the fastest refund if you have one coming, getting the return finished before the official start of return processing means that the vendor you choose to use will have the return all ready to submit the moment the IRS starts accepting them.
Please also keep in mind that my tests took place before any of these sites “officially” went online. so the occasional glitch that I ran into may or may not still exist if you work through a particular vendor’s site.
One last thing that’s important: Most tax preparation sites offer a significant discount or a free return to members of the military.
The IRS wants you to file your return electronically. It saves them time and money, and in general, having you do the work also improves accuracy.
To encourage this, the IRS developed the Free File program with vendors of tax preparation software and services which form the Free File Alliance. The Free File option on the IRS website directs you to a list of participating vendors, almost all of which also provide access to the free filing option from their own web sites. (For expanded views of the screenshots at right, please click on the images.)
The Free File program can be great if you have an AGI (Adjusted Gross Income) of less than $57,000. Many taxpayers who have just wage and interest income below this level don’t itemize their deductions. Yet there are others with AGI’s under $57,000 requirement who have somewhat complex returns and won’t be able to take advantage of the free option. Again, if you start out with the free version and find you need a version of the software which is not free, you can almost always upgrade rather than starting from the beginning again.
While the Federal tax return is free to fill out and file, if you need to file a state return, you might have to pay for it. It depends on the vendors and the state where you live. Some states do not have an income tax, and others, like New York, require that individual income tax returns be filed electronically.
The IRS also offers a Free File Fillable Forms service which it actually runs. These are simply forms, which you can fill out on-line and e-file. The forms do not do more than handle very simple calculations, and the Free File Fillable Forms service does not provide forms for state income taxes, so you will have to go elsewhere for that if required. The Fillable Forms are available from the Free File Web site as of January 31.
For many taxpayers, the Free File service will be a better option, especially if you think you might have to file a state and/or local tax return in addition to your federal return.
H&R Block is probably the best known name in tax preparation. It provides tax preparation services through its many offices, software to run on your computer, and on-line tax preparation.
That background is evident the moment that you sign onto hrblock.com, since a good deal of the entry screen is devoted to directing you to an H&R Block tax office. Unlike its major competition, TurboTax and TaxACT!, most of H&R Block’s revenue comes from its company owned and franchised tax preparation office sites rather than do-it-yourself taxpayer preparation.
That’s both good and bad. It’s bad because of the emphasis on using a professional preparer. But it’s good because if you run into a problem with an area of the return that you can’t understand, and the phone support doesn’t clear it up for you, you can always travel down to an H&R Block office nearby and have one of the office’s preparers finish up the return for you. TurboTax and TaxACT! Will recommend a local preparer if you need one, but they both are in the software business, rather than in the tax preparation business as is Block.
Trying to start a return, I was directed to an interactive video with a pleasant woman who asked a series of questions about marital status, employment, investments and the like, and suggested that the $49.99 “Premium” edition is the best for my circumstances. That price is only for the Federal and includes e-filing. A state return would add another $37, except for New York, which is free. (New York REQUIRES that returns be filed electronically).
The Premium edition is the top of the line. Other editions include Deluxe ($29.99), Basic ($19.99) and Free.
I hit an immediate snag, though, in trying to start without creating an account. The entry screen gives you that choice, but simply loops if you select it. It’s a minor annoyance and maybe it will be fixed by the time most people use it.
Upon creating an account, I was offered the option of importing last year’s return information, which is always a great time-saver. H&R Block Online lets you import from last year’s edition of its own software (online or the PC version), as well as from TurboTax and TaxACT!. I had no difficulty with the import, and I was ready to start entering this year’s data in only a few minutes.
As with the other online tax prep services I tested, H&R Block Online walks you through a rather rigid path of questions. You can always skip an area and use the Back button, but navigation is not as flexible as with the packaged software versions I’ve used in previous years. Help is available, but it’s somewhat limited in scope, and selecting specific forms to work on doesn’t seem to be an option.
I’m used to switching back and forth between guided and forms modes while preparing my returns, so H&R Block probably wouldn’t be my first choice. But if you need or are comfortable with a lot of hand-holding, it might be a good choice for you. Also, as with all of the services I tested, you don’t pay unless you actually file a return.
TaxACT is not as well known as several of the other tax prep software products or services, but the company has been around for quite a while. That maturity is reflected in TaxACT Online. As with the other online services, TaxACT offers several editions of tax preparation capability. Its major difference from other vendors, at least at first glance, is price.
TaxACT offers three editions: Free, Deluxe, and Ultimate Bundle. The Free edition is actually different from that offered by the IRS Free File program. There is no limit on AGI, and almost all forms are available. Adding a state return is $14.99 for each state, making TaxACT a terrific value.
The Deluxe Edition, for $9.99, is almost identical to the Free edition, except that it offers more guidance, additional Life Changes guidance (the free version provides for only a single extended guidance), and a Donation Assistant to track non-cash donations and provide values for more than 1,300 donated products. State returns are still $14,99 each.
Finally, the Ultimate Bundle, at $17.99, gives you the Deluxe and state editions.
I chose to test the Free edition. It had all of the forms — including those for Schedule C and Home Office — which I require. TaxACT provides an import feature for data from last year’s return from itself, TurboTax, and H&R Block at Home. It’s supposed to be able to import from a PDF of the prior year’s return. It didn’t, though, and it prompted me to upgrade to the $9.99 Deluxe edition. Since you don’t pay until a return is filed or printed, I upgraded. I still had no success with the import. Again, my testing was accomplished with the Preview version of the software.
What TaxACT does have is an easy-to-follow navigation system, walking you through the tax prep process step-by-step. Help is easily accessible via expandable folder tabs in a small vertical panel on the right of the screen. TaxACT also allows you to switch to forms view if you would rather select and enter data on specific forms rather than walk through every step of the guided process.
I found TaxACT to be easy-to-use and comprehensive enough for most taxpayers. However, it continuously hounded me with reasons to upgrade from the Free edition, and this was annoying.
Intuit’s TurboTax is one of the most recognizable names in both the consumer and professional areas of tax preparation software. It has, by far, the largest proportion of the DIY tax prep market, and it is available via retail, download, online, and as an iOS app.
As with many of the online tax prep sites, TurboTax is offered in a variety of editions. These include the Free version (which can also be reached by way of the IRS site), the Basic edition, priced at $19.99, the $29.99 Deluxe edition, the $49.99 Premier, and the $74.99 Home and Business. I was directed to the most expensive version because I checked that I’m Self Employed. Yet initially, I tried to test the Deluxe edition.
Unfortunately, for me to use TurboTax, I would have needed the most expensive version, Home & Business, because only this edition contains the Schedule C and Home Office forms I require. The Deluxe edition does provide Schedule C-EZ, but most taxpayers who have self-employment income won’t find that this schedule meets their needs.
Except for New York State Tax, all state tax programs cost extra: $36.99 for each state.
Starting TurboTax was easy. It imported all of the data from last year’s return. You are also able to import data from the personal finance site Mint if you use it, and TurboTax’s ItsDeductable. The navigation works well, and while I did not find a Forms View as is available in the desktop product, you can select which areas — such as Income, Deductions, and the like — you want to work on if you want to enter data out of order.
TurboTax has the chops. It’s the most mature product on the market (at least the desktop version is). But with a price of over $100 for Federal and State. Unless you actually need ALL of the features in the higher-end editions, the price makes using one of the less expensive vendor sites a very attractive alternative.
As with the other vendor sites, TaxSlayer.com offers multiple editions, including a free version for simple returns. The free edition doesn’t include a state return, which costs $20.90. The Classic edition costs $12.95 and it includes forms which the Free edition lacks. However, it has no AGI income limit, and a fee for state returns of $9.95, so it’s not really much more expensive than the Free edition if you need a state return to be filed.
I tested the $32.95 Premium edition, which also has a $9.95 state tax cost. It offers expanded forms coverage as well as live customer support. I tested the site before this support actually went live, so I don?t know if it would have provided help with my failed attempt to pull in data from last year’s TurboTax return. (TurboTax is the only other vendor that TaxSlayer.com supports in this way.)
My attempt to pull in this data timed out, and there was no option to try again. Nor was there a Back button. So I was forced to navigate screen-by-screen. You can skip into different sections, but once you are in a section, there’s no flexibility to go backwards and forwards.
I did have a number of problems using TaxSlayer.com. The first is that the software is considerably rigid in terms of data entry. I couldn’t move off of the initial personal data entry screen because the “Mr.” suffix wasn’t selected. More importantly, when I signed off and signed back on, and selected “Continue Return,” was presented with a screen which informed me no prior data was found. I had to start at the beginning again. It’s possible that I missed a “Save” button, but I did exit under the impression that my partially completed return had been saved.
It was early yet, and none of the vendor sites werw “officially” open. But I was frustrated enough to abandon my return only halfway through. Hopefully, by the time that you decide to try TaxSlayer.com, they will have gotten their act more together.
FreeTax USA provides what its name suggests. The standard Federal return, including e-filing, is free. The Deluxe edition, at $5.95, adds priority Customer Service, Audit Assistance, and unlimited Amended Returns.
Audit Assistance isn’t the same thing as having someone go with you to an audit or represent you before the IRS. That’s asking a lot for your six bucks. But Audit Assist will answer your questions on how to respond to an IRS inquiry or audit letter.
State tax returns will cost you another $12.95 whether you select the Free or the Deluxe editions.
With FreeTax USA, you can produce a complete and accurate return, but you do need to make some compromises. There’s no prior year import, help is skimpy, and navigation is fixed. You can’t jump to a particular form or section. Instead, you need to plod through question by question.
This probably won’t bother a taxpayer who is a first time user of tax preparation software, or who has a very basic return. But for a complex return (with home office deductions, depreciation, business use of an automobile, casualty loss, or investment gains and losses), another vendor’s offerings might be more appropriate.
Still, 13 bucks for both Federal and State returns will be a really good deal for some.
In choosing an online tax prep service, you should consider your own tax circumstances, expertise, and budget.
Spend a little time up front on trying to figure out just how complicated you think your return will be. If you have modest W-2 and possibly a bit of interest income, one of the free offerings might be just what you need.
But if you need to itemize your deductions (real estate taxes, home mortgage interest, medical bills), forget about the free versions. And with complex sources of income and/or complex deductions, you’ll require one of the top-of-the line editions.
Fortunately, none of the paid online preparation sites I tested asked for money up front. So if you think that a particular site is the one that will meet your requirements, and it doesn’t, all you are out is a bit of time. You can then try another.