Choosing Tax Software: Online vs. Desktop

Should you purchase and install tax software or use software online?

When choosing tax software, you'll come across desktop versions that you can install and use on your computer and online versions that only require an internet connection and a browser. If you can't decide which type of tax software would be best for you to use, then consider what you want and need. Factors to look at when making a choice between desktop and online tax software include what it takes to get started, ease of use, updates, data security, and storage.

Whether you use desktop or online tax software, always keep a copy of your tax return in a safe place.

Getting Started

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When it comes to getting started, online tax software is generally faster than a desktop installation. You only need to take a couple of minutes to sign up for an account, and then you can start using it on an internet browser like TaxCut

Many online tax software options also allow you to start your taxes for free, while the desktop versions usually require you to make an upfront purchase. TurboTax, for example, allows you to start using it right away and only charges you when you're ready to submit your completed tax return.

Before you get started using desktop software, you must install it first, usually from a downloaded file or CD. The installation can take anywhere from five to 20 minutes or more, depending on your computer and system. 

The tax software must be compatible with your computer's operating system. For example, you don't want to purchase the Mac version of the tax software if your computer is a Windows system.

There is also a chance the version of your operating system is incompatible with the tax software. Though the possibility is slim, troubleshooting tax software installation problems can be a challenge.

Ease of Use

Online tax software is convenient if you need the ability to work on your tax return from different locations, or start it on one device and finish on another. You can work on your income tax return on any computer wherever there is an internet connection. Many companies also offer mobile apps as well, so you can use your phone or other mobile device to do your tax return. 

If you use the desktop version of the software, then you can only work on your taxes when using the computer on which the software is installed. This isn't an issue if you plan to only work on your taxes on one computer.

The Update Process

Desktop tax software either automatically checks for updates or prompts you to check regularly—often doing so every time you open the application—especially if tax laws are being negotiated late in the year. Updates are necessary as the laws change and the IRS rolls out new income tax codes.

While tax software updates generally go smoothly, there is a chance that an update will conflict with something installed on your computer, prompting a call to tech support.

Online tax software, on the other hand, is updated automatically on the software maker's servers, so when you open the software in your browser, updates are already available, and no extra effort is necessary on your part.

Data Security

Desktop tax software stores your data locally on your personal computer. If you don't use high-quality antivirus and firewall software and keep it updated, there is still a risk that your computer, along with your tax data, can be hacked.

Online tax software is very secure, with the trusted popular titles having the same security used by financial institutions to protect and encrypt tax data files. If you're concerned, check the privacy and security policies of online tax software to be sure it provides the best online data security.

Online tax software does pose a security risk if you use it on public computers, such as those found in libraries, coffee shops, or office and printing stores. If you must use a public computer to complete your tax return, be sure to log out of your account, close the browser window, and delete the history before leaving the computer so that people who use it after you won't have access to your financial data.

Backups and Storage

Online tax software saves data while you work in the software and when you log out. It maintains secure, encrypted copies in at least two separate physical locations to ensure that your data is not destroyed due to a disaster.

If you use tax software on your computer, you are responsible for protecting your data from disasters. You can set the software to back up data automatically and frequently while it is in use, as well as when it closes. Beyond this, you will need to backup tax software data to a location other than your computer hard drive. Do not use your hard drive as the only place tax data files are backed up. If the drive fails, you'll have to start your return from scratch. 

Alternative locations for saving your tax software data file include a USB drive, a network attached server (NAS), or an online backup service. Cloud storage services such as Google Drive, Apple's iCloud, or Microsoft's OneDrive offer enough free space to save these files outside of your physical location.