Choosing Tax Software: Basic, Deluxe or Premium

How to Choose Between Basic, Deluxe, Premium or Other Versions of Tax Software

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Online tax programs such as TurboTax offer multiple versions for different users: basic, deluxe, premium, 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 very simple returns, check for errors, and e-file the return for you. The Basic version of tax software is sometimes also the free version (certain income limits may apply to file for free). Basic or free versions may be best for taxpayers who:

  • Receive a W-2
  • File a Form 1040
  • Have a simple tax situation
  • 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 need to use one of the other 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. The software will search for tax breaks based on 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, to name a few possible deductions.

However, after the Tax Cuts and Jobs Act was enacted in 2017, the standard deduction nearly doubled, making itemization less of a concern for many taxpayers. The standard deduction for 2019 taxes is $12,200 for singles and $24,400 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 documentation on specific tax topics in text and video format, which can be helpful if you have questions as you're filling out your return.

Premier or Premium Tax Software

Taxpayers who earned money from rental income or gains on their investments will want to upgrade to a premier- or premium-level package to handle those concerns. Premium or premier tax software can even import your investment information, calculate cost basis and handle cryptocurrency gains and losses.

Some premier tax software will also handle freelancer income, self-employment taxes, and inheritance. For example, TurboTax requires freelancers or self-employed to use their Self-Employed version, which is more expensive, while H&R Block handles them within its Self-Employed Online package.

This level of tax software offers even more documentation and resources on all personal income tax topics in text and video format.

Self-Employed Tax Software

If you run your own business, either out of your home or at another location, it will be necessary to use a tax program that accounts for your various sources of income, payouts, investments, and deductions. Tax software specifically designed for business owners will cover self-employment taxes and 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.

State Tax Returns and Electronic Filing

State returns aren't always included with tax software for federal returns. Before you buy tax software, verify whether the price includes a state return, or find out if your state offers free online returns.

Also, check on prices for electronic filing if you plan to e-file. The price of tax software does not always include e-filing fees.

Still Aren't Sure?

You can change your mind after purchase. 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.

Article Sources

  1. TurboTax. "TurboTax Free Edition." Accessed Dec. 30, 2019.

  2. "Tax Cuts and Jobs Act of 2017," Page 17. Accessed Dec. 30, 2019.

  3. IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2019." Accessed Dec. 30, 2019.

  4. H&R Block. "Self-Employed Online." Accessed Dec. 30, 3019.

  5. TurboTax. "Self-Employed Taxes for Independent Contractors, Freelancers and Consultants." Accessed Dec. 30, 2019.

  6. H&R Block. "Ways to File." Accessed Dec. 30, 2019.

  7. TurboTax. "How Do I Upgrade or Switch to a Higher Version of TurboTax Online?" Accessed Dec. 30, 2019.