Choosing Tax Software: Basic, Deluxe or Premier
How to Choose Between Basic, Deluxe, Premier or Other Versions of Tax Software
Online tax programs such as TurboTax offer multiple versions for different users: basic, deluxe, premier, and even versions for self-employed or business owners. The versions are priced according to complexity, and each is best for a different type of taxpayer.
It can be difficult to determine which version will work best for preparing your income tax return, so here's help for deciding on the right software for your needs.
Basic or Free Tax Software
Basic tax software will help you prepare simple returns, check for errors, and e-file the return for you. The basic version of tax software is sometimes also the free version, though certain services may impose income limits on its free service. Basic or free versions may be best for taxpayers who:
- Have a simple tax situation
- Receive all or most of their income through a W-2 job
- File a Form 1040
- Have no deductions other than the standard
- Have no credits other than Earned Income Tax Credit or Child Tax Credit
If your tax situation involves any side jobs, rental income, or other considerations, you'll likely need to use one of the more advanced software versions.
Deluxe Tax Software
The next step up is a deluxe version, which offers help with preparing taxes that include itemized deductions or other expenses you can write off. Unlike basic software that sticks to standard, simple tax situations, deluxe software will search for tax breaks based on unique situations such as whether you own a house, made a donation to charity, paid for schooling, paid state and local taxes, or were the victim of a theft.
However, these sorts of itemized deductions became much less common after the Tax Cuts and Jobs Act was enacted in 2017. That law nearly doubled the standard deduction, making itemization less of a concern for many taxpayers. The standard deduction for the tax year 2020 is $12,400 for singles and $24,800 for married filing jointly.
Deluxe software will help you find the deductions and add them to calculate whether it's better to itemize or take the standard deduction. Deluxe versions also generally provide more resources on specific tax topics. Text and video tips can be helpful if you have questions as you're filling out your return.
If you start preparing your taxes with a selected version of online tax software, you can still upgrade to a higher version if you discover you need it. So, if you're deciding between two tiers, start with the lower level one and upgrade if you find it necessary.
Premier Tax Software
Taxpayers who earned significant income from complicated situations, such as rental income or investment gains, will want to upgrade to even higher-tier tax software levels. TurboTax calls this the "Premier" service, while H&R Block refers to it as "Premium." Premium or premier tax software can import your investment information, calculate cost basis, and handle cryptocurrency trading.
Premier or premium tax software offers even more documentation and resources on all personal income tax topics in text and video format.
This level of software can also handle some simple freelancer situations. However, those with more complicated self-employed situations may consider using software designed specifically for them.
Self-Employed Tax Software
Being self-employed comes with many unique tax situations that don't apply to average taxpayers. If you run your own business, either out of your home or at an office, it will be necessary to use a tax program that accounts for your various sources of income, payouts, investments, and deductions.
Both TurboTax and H&R Block both have products specifically designed for self-employed tax filers. This tax software will cover all situations that commonly apply to business owners, including self-employment taxes. It will also help maximize business tax deductions and asset depreciation.
Self-employed or business tax software is usually the most expensive because of how complex these tax situations can be. If you're self-employed, but don't plan on taking any advanced business tax deductions, you may be fine sticking with the premier or premium software.
No matter what level you choose, make sure you fully understand what services are included in the cost.
State returns, for example, aren't always included with tax software for federal returns. Before you buy tax software, verify whether or not the sticker price includes a state return. If it doesn't, check to see whether your state offers free online returns.
Another extra cost to check for is any electronic filing fees. The price of tax software does not always include e-filing fees, so if you want to avoid printing anything out, ensure you know exactly how much it'll cost you.
Internal Revenue Service. "Be Tax Ready – Understanding Tax Reform Changes Affecting Individuals and Families." Accessed Oct. 22, 2020.
Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2020." Accessed Oct. 22, 2020.