April 15 is quickly approaching, which means we all need to buckle down and spend a Saturday preparing our taxes. I prepare my own taxes, and I know all too well how hard it can be to find the right program to help out. Let's look at four online tax preparation software packages that are good places to start.
H&R Block TaxCut Online: Powerful, but not ideal
H&R Block may offer its tax services in franchised locations across the U.S., but it also provides its software online. And although those who are less knowledgeable about tax law shouldn't have too much trouble preparing their taxes with the company's TaxCut Online software, there aren't enough options to justify using it if you file a complex return.
TaxCut Online is free when you e-file your federal taxes, but just like every other service in this roundup, it charges you to e-file your state taxes. With TaxCut Online, that will run you $29.95. Aside from the free edition, TaxCut Online is also available in Basic for simple returns for $14.95 or Premium for those who have more complicated returns for $39.95. Neither of those fees include the state e-file charge.
I created a fake return (without filing) to evaluate each service and found that TaxCut Online works beautifully for those who have simple returns. In a matter of seconds, I was able to work my way through wage income, interest, and basic deductions to create a return. It was quick and easy.
But when I tried to create a complicated return that featured the sale of a home, self-employment income, and investment income, TaxCut Online proved to be a relatively useless tool, at least compared to TurboTax Online. It didn't maximize my tax credits, it failed to provide me with enough control to pinpoint specific deductions like self-employment insurance, and it delivered a tax liability that was almost $1,000 higher than the figure TurboTax Online calculated. That said, its "Worry-free Audit Support" tool came in handy and its error correction feature fixed mistakes it found along the way, which certainly helps put the mind at ease.
But I can't even recommend using TaxCut Online if you file a basic return. It's too expensive. Nor do I recommend using TaxCut Online if you file more complex returns. TurboTax Online is a much better alternative.
TaxAct Online: Simplicity is king
When I first started using TaxAct, I was impressed by its simplicity. It doesn't feature all the extras you'll find in more capable products and it's obviously designed for someone who wants to get their taxes filed as quickly and efficiently as possible. If you want to find obscure tax code topics, you won't find it in TaxAct. It's simply not that kind of preparation tool.
TaxAct comes in three versions: Free, Deluxe, and Ultimate. After you e-file your state taxes (for free), it will cost you $13.95 to file federal. The Deluxe and Ultimate versions will both run you $16.95. That's a fair price for what you're getting with the software.
When I prepared my basic return on TaxAct Free edition, it couldn't have been easier. I input the wages, interest, and other data and within 30 minutes, TaxAct had my return ready to be e-filed with the government. The refund it calculated was exactly the same as the refund the other tax preparation solutions determined.
But as good as TaxAct was on my basic return, it was equally poor on my complicated return. Inputting self-employment income and expenses was too difficult, and the software's import feature, which attempts to find tax data from your banks and employers, was useless; it found nothing. Once I finally completed the return, it calculated a tax liability that was more than $2,500 higher than what I calculated with TurboTax Online. Suffice it to say that TaxAct Ultimate is best-suited for someone who has wage income, owns a home, and hasn't sold any investments over the past year. Anything more than that and the software becomes difficult to use.
Is TaxAct worth the $13.95 it charges for the basic edition with state e-file? You bet. It's simple, it's quick, and most importantly, you can't screw anything up. But if you have a complicated return, don't waste your time trying to save a few bucks on TaxAct. You'll lose more when you file your taxes.
TaxSlayer: Best for your simple return
Like the others, TaxSlayer is one of the chosen tax preparation software solutions advertised by the IRS for those who want to e-file their federal taxes for free. And much like TaxAct, it does the easy stuff really well.
TaxSlayer, much like TaxAct, is affordable. The company's classic version only costs $9.95, including your state return. The premium version is $14.95, which includes more menus and a deduction walk-through.
When I started creating my basic return, I was quite pleased with the software's ability to cut down on preparation time by asking for basic information like name, address, and social security number first, and maintaining that information throughout the process. Whenever I wanted to fill in W-2 information, most of the data was already available, making it as simple as inputting figures and moving along. Because of that, TaxSlayer had my taxes ready to be e-filed within 20 minutes. It calculated the same refund as every other tool in this roundup.
But when I started using the premium version, all that usability was eliminated and I was lost in a tool that simply couldn't handle all the complexity I was giving it. Its deduction walk-through was nice and that helped somewhat, but when it came time to input investment and business data, TaxSlayer didn't provide quite enough guidance or tax help to ensure I was saving every penny I could. In fact, the payment it calculated was almost $2,000 higher than the payment calculated by TurboTax Online. Much like TaxAct, it's not really meant for power users.
For just $14.95 for the premium version and $9.95 for the classic version, TaxSlayer is an easily affordable service. And although it may not be able to provide the same level of guidance as powerhouse software from H&R Block and Intuit, it's an ideal solution for anyone who wants to get their simple tax return filed as quickly as possible.
TurboTax Online: Your go-to tool for complex returns
If you don't want to pay for the best tax preparation software, you might as well forget about TurboTax Online. The software's basic version is free to e-file your federal taxes, but you'll be forced to pay $25.95 to e-file your state taxes. Worse, it adds $34.95 to the price of its paid versions to e-file your state returns. And depending on your needs, those other versions cost between $29.95 and $109.95.
To calculate my basic return, I used TurboTax Online's free version. It's bare-bones and doesn't feature all the extras you'll find in more capable versions of the software, but it got the job done. Unfortunately, because TurboTax Online is more powerful than competing products, it takes more time to prepare your taxes. In fact, it took me over an hour to file my basic return with W-2 wage income, interest, and basic deductions. After all that work, it returned the same refund as the other tax preparation tools.
Although TurboTax Online's most expensive offering is $109.95, it's not necessarily the most useful, since it's specifically designed for corporations, partnerships, or Limited Liability Companies. Because of that, I opted to use Intuit's Home and Business software to prepare the complicated return. That package costs $79.95 before the state e-file charge of $34.95 is factored in.
As soon as I started using TurboTax Online Home and Business, I quickly realized that the software was nothing like the other tax preparation tools I had used earlier. It offered more menus, much better tax guidance, and a slew of options that allowed me to work through each phase of my taxes independently or let TurboTax guide me. I chose the latter to find every deduction I could.
Inputting information in TurboTax Online Home and Business was simple, but because the software contains so many more deductions and tax considerations, it did take much longer to prepare those taxes than on other services. In fact, it took me more than three hours to finish preparing the complicated return.
But it paid off. As I worked my way through preparation, TurboTax highlighted possible areas where I could deduct cash that the other services didn't and when it was finally complete, the TurboTax error check found issues that the other tax preparation software packages missed. Most importantly, TurboTax performed a sweeping audit risk check and returned a tax liability that was a whopping $1,000 lower than its closest competitor, TaxCut Online.
If you're looking to prepare a basic return, don't waste your time with TurboTax Online. It's too expensive and it takes too long to calculate the same refund you'll find with basic services like TaxSlayer or TaxAct. But if you're preparing a complicated return, TurboTax Online is the best service on the market. Sure, it might cost a little more, but if you can save as much as I did by using the package, the extra cost is a pittance compared to what you could lose in tax payments if you use another product.