10 Tips for Choosing Tax Software

Buying Advice for Income Tax Preparation Software

While tax software is easy to use, it isn't always easy to choose between all the software that's available these days. Use these tips to help you sift through your options for buying tax software.

Do You Want Online Tax Software or Desktop Tax Software?

A woman sits at her dining room table with laptop and financial reports doing her monthly budget. She is smiling at the ease of use as she works on her smart phone banking app to do monthly finances, pay taxes and save money for the future.

RichVintage / Getty Images

There's a good selection available for dependable tax software that you install on your computer, as well as online tax software that is accessed through an internet browser. Both online and desktop tax software come with their own unique advantages and disadvantages. For example, online software is convenient for those who like to hop between devices—they can start their returns on their desktop computer at home, do a little more work on their laptop, and then finish them on their smartphones. The downside is that they'll have to remember login credentials and adapt to slight layout differences as they switch between devices.

Remember to always keep a printed copy of your tax return in a safe place, regardless of whether you use online or desktop tax software.

Basic, Deluxe or Premium: What Tax Software Version Do You Need?

It can be confusing to decide which version of tax software will work for your tax preparation needs because one company's basic or deluxe version does not necessarily have the same features as another company's product. Premium versions share many of the same base features, but some have additional perks that others don't.

When in doubt, buying the highest version costs more but ensures that you have all the features you will need to prepare your tax return. Or, better yet, use online tax software—you can start your return with the most basic version, and if the software realizes your tax situation is more complicated, it will suggest that you switch to a higher-tier version.

Does the Price Include State Tax Returns?

The price of some tax software includes a state return, while other tax software charges separately for a state return. If you need to pay for a state return, be sure you know what it will cost you.

If you were a resident of more than one state because you moved part-way through the year and both states collect income tax, you will need two separate state tax returns. Even if your tax software comes with a free state return, this is typically limited to just one state, and you may need to pay for the second state's tax return. If your tax software does not include a state return, you will have to pay for two.

Of course, you can opt to do state returns manually or check if the state provides free online income tax filing.

Do You Need Help Organizing Tax Deductions?

The tax software should include understandable explanations of tax laws or quick links to Internal Revenue Service (IRS) publications—if it doesn't, it's probably best to stop and use another service. Ensure that the software includes the option for a tax interview, which explains how to complete a return as you go through it.

If you itemize deductions, good tax software should offer a tax deduction finder feature—asking you questions that can dig up deductions you may not realize are available. If you already use tax deduction tracking software, and you have made many non-cash donations, you may want to ensure that the tax software will import your tax deduction data.

If you are self-employed, be sure the tax software includes Schedule C. If you are an active investor, look for a feature that calculates capital gains and losses.

Should You Use Free Tax Software?

If you have a very simple, basic tax return, you should investigate free tax software. You'll find many free offerings from most online tax software, and some of them work for even more complex returns. The trade-off for free software is that it will nudge you to upgrade to a paid version, and the frequency of these reminders varies by the software. However, if you're confident that you have a basic tax situation, you should be fine declining all of these reminders.

Another option is to take a look at the IRS Free File program, which is open to all taxpayers who qualify.

Do You Want to File Electronically?

Electronic filing fees may be included with the cost of tax software, but there is often a separate charge for it. Find out how much the tax software charges for electronic filing if you plan to file that way. Otherwise, you'll have to print out and mail your tax return. State returns usually have a separate electronic filing fee, as well.

How Much Tax Software Help and Support Do You Need?

If you have a question that is specific to using the tax software, you should be able to contact software support by clicking a link in the software, but you may need to wait for an answer. The top tax software brands offer support by chat, which is instantaneous, but you may need to wait several minutes for an answer if the support rep needs to research your question.

Before deciding on the tax software you'll use, ensure you understand your options for getting help with your returns. Is there a toll-free number, email address, chat, or an online forum available? Is there help for both using the tax software and for income tax questions? Is there a fee for asking a tax professional for help?

Does the Tax Software Have a Guarantee?

Does the tax software manufacturer stand behind the accuracy of the product? If you are audited, will a tax professional be provided to assist you at no cost? Or, if there's a fee, what is it? Do you have to pay that cost at the time you file your return, or can you pay only if you're audited?

While the average taxpayer is very unlikely to be audited, find out if tax audit help includes a professional to work with the IRS on your behalf. Most tax software has a "biggest refund" guarantee. Although the software will often produce slightly different numbers when the same return is entered, the difference is negligible for the top tax software.

Another guarantee to look for if you use online tax software: one that says the price quoted at the time you started your return will not change if you file your return later in the season.

Does Your Computer Meet the Minimum System Requirements?

If you have an older computer, be sure the tax software will run on your system by checking the requirements listed on the box for desktop software. If you use online tax software, this should not be an issue as long as you are using a current web browser. The box, support web page, or other documentation for the software should mention whether the tax software runs on a PC or Mac (or both) and how much hard drive space and memory is required. Video and internet-related requirements should be mentioned as well.

Is the Software for the Correct Tax Year?

This advice sounds obvious, but it's important to use the correct year's software. Income tax software from years past is still for sale online, and it may even be sold at a discount in retail stores. Some people need older software because you can generally amend tax returns up to three years after the initial filing date.

However, for those who aren't looking to amend a past year's returns, they will need current year software. The tax software should note which tax year it is to be used for. In 2021, you will prepare income taxes for the tax year 2020. You must use new or updated tax software every year, but many services will automatically update—especially if you use an online service. Double-check the tax year covered by the software before you begin inputting any information.