Not everyone should use electronic tax software to prepare their taxes. If your taxes are simple, you don't need to bother. On the other hand, if you're not confident in your ability to make sense of the tax code or had an eventful year for tax purposes, you might consider hiring a tax professional. But if you know your way around a tax return, you might look into the major tax preparation programs.
There is, however, an upfront investment of time before you can start: both the major programs, Intuit's TurboTax and H&R Block's TaxCut, begin with an information-gathering interview. Once you make that commitment, you can count on the program to prepare a return without typos or arithmetic mistakes, a real plus that reduces your chance of being audited. Another benefit: you won't have to spend any time tracking down the tax forms you need, as these programs generate them as necessary. In addition, most software packages also give you the option of printing out the return and mailing it to the IRS or filing it electronically for an additional fee.
Here are some tips that can help you select the software package that works best for you:
- When buying a program, make sure you are getting the final release that includes the most current rulings and regulations from the IRS.
- Find out if the program generates state tax returns or if you have to pay extra for state income tax software.
- Most tax software programs come in a variety of editions, from simplified editions for those filing a basic return to comprehensive versions for sole proprietors and consultants. Review the offerings carefully and choose the edition that best reflects your circumstances.
Traditionally, electronic tax preparation has meant installing software on your computer. In the last few years, the major tax preparation companies have introduced another electronic option—completing the return and filing online using software hosted on the Web. Doing your taxes online can be quite inexpensive and convenient. You can, for instance, often arrange for any tax refund you are due to be deposited directly to your bank account.
If you have an adjusted gross income of $56,000 or less, you can take advantage of Free File, a service that the IRS has developed with the leading retail tax software companies. But even if you don't qualify for Free File and have to pay for online access or a software package, you may be in luck. One of the benefits of using tax preparation software is that it will determine whether you can deduct its cost from your federal income taxes.