The Term "Tax Year" Explained and How to Best Prepare

April 5th Tax Accounting Year End
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With frequent changes to exemptions and deductions by the Internal Revenue Service (IRS), taxes can seem like they would be challenging to prepare. Knowing what tax year it is can help you gather the receipts, income statements, and other documents you need to prepare your income taxes. Software can simplify the process, and there are plenty of free and paid-for options to meet your individual financial needs when tax season rolls around.

What Is a Tax Year?

The term "tax year," when used in reference to personal income taxes, means the calendar year for which income taxes were withheld for earnings or the year for which an income tax return is being filed.

For personal income taxes, a tax year begins on January 1 and goes through December 31, which makes sense because the government needs to know what you earned between those dates for your tax return. Typically, the tax year you are filing for is the year prior to the year taxes are actually filed. For example, taxes prepared in March of 2019 would be for the tax year 2018.

Tax software comes with options tailored to specific IRS rules according to the year you're filing. Pay close attention to the complete title and description when you buy it either online or in the store to be sure the software is for the right tax year. If you need to, you can also purchase tax software for past tax years.

Choosing the Best Tax Software

Tax software is available in two varieties: software that you install on your computer and online software that you access through an internet browser. Different companies offer several versions to fit a range of tax needs, and both online and desktop tax software has advantages and possible disadvantages.

It can be confusing to decide which version of software will work for your situation and tax preparation needs. One company's basic or deluxe version does not necessarily have the same features as another company's product. Premium versions may share the same base features, but some have additional perks that you won't find in another software package.

Although it's rare, some tax software comes in a single version with all the features needed for just about any situation. But most are available in more than one version, and you can get help with choosing which software is right for your tax return.

Free tax software is typically offered only as an option for new customers. If you used free tax software last year and you want to use the same software this year, you may have to pay for it. Otherwise, you'll have to choose another free tax software to use this year to avoid charges.

TurboTax Free Edition

TurboTax Online Free Edition allows you to file federal and state income taxes without paying a fee if you have a simple return. The free edition doesn't include itemized deductions, business income, or other complicated tax situations. But for most people, the Free Edition from TurboTax is enough. They have decent tax help features, including online answers from TurboTax specialists. Here's what you get:

  • Snap and upload a photo of your W-2 to have the data automatically filled in
  • Personalized questions to find life changes in the past year that may impact taxes
  • Over 400 tax deductions searched to make sure you get the biggest refund possible

TaxACT Free Edition

If you're filing a 1040 and want to submit your return to federal and state income taxes, TaxACT Free Edition can help. The free version includes unlimited help when accessing your account by chat, email, and telephone. Here's what you get:

  • Alerts for errors and omissions to reduce your risk of an audit
  • BluPrint financial report gives personalized tax saving opportunities
  • Free Federal Student Aid Tax Worksheet makes completing the FAFSA easier

H&R Block Online Free Edition

H&R Block Online Free Edition covers many common tax deductions, such as if you have child and dependent care expenses or education costs. The Free Edition also includes audit support to help you understand and respond to notices from the IRS. Here's what you get:

  • Refund Reveal with real-time updates to your tax refund amount
  • Step-by-step guidance for completing your taxes
  • Covers common situations for families, students, and the uninsured

No matter which tax year you're in, there's likely a free tax software option to help you prepare your return. All software comes with accuracy guarantees, though you must compare the products to find out what else it includes to make sure it has what you need to file your taxes accurately and completely.

Most software features a tax refund guarantee to ensure you get the highest refund possible as well as giving you the option to file a state tax return, but that can come at an additional cost. If you or someone in your family is a U.S. service member, look for free tax software that some companies provide for military members.