Online Tax Software Review
Why Online Tax Software?
The three best online tax software applications in our review make it easier than ever to generate an accurate return and file your taxes online. These online tax preparation software programs use plain language to explain tax topics, have guided user interfaces that help you understand the deductions and credits you qualify for, and offer apps that you can use to file your 1040EZ form using a mobile phone or tablet. We've listed additional noteworthy features for our top software picks below. Continue reading on for additional online tax software recommendations.
Should I File Taxes Online?
Preparing and filing your taxes online for the 2016 tax season is easy and affordable. Online tax filing is the method preferred by the Internal Revenue Service (IRS), and for the past two years, more than 90 percent of taxpayers filed their taxes using this method.
The best online tax software is lower priced than retail franchise fees, certified public accountants (CPAs) and boxed software. In fact, most people filing a Form 1040EZ or 1040A can submit their returns to the IRS free of charge. Online tax services provide the forms to support most tax situations, including the forms self-employed individuals or small business owners require to report income.
- If you only need to file a simple return, all of the products on our lineup are capable.
- For free filing on simple federal and state returns, TurboTax, H&R Block and TaxAct are excellent options.
- H&R Block and Liberty Tax are simple to use and are capable of creating accurate returns. They also have retail offices, which is nice if you want in-person assistance with your tax preparation.
- For more complex returns, such as if you're self-employed, TurboTax and H&R Block are the simplest to use and offer the best guidance. Read more about filing online as a small business at the end of this article.
- If you know which sections you want to fill out or if you want the option of choosing between direct entry and a guided walk-through, consider Liberty Tax and Tax Slayer.
- If you want to compare different filing statuses or deduction models to find out which offers you the largest refund, Turbo Tax, H&R Block and Tax Act are good choices.
- If you want to work with a company that includes audit representation with their tax services without charging a separate fee, consider Jackson Hewitt.
To learn more about income taxes, tax brackets and online filing, see our articles about online tax software. If you're interested in software that can help you get your financial data ready for tax season, check out our Personal Finance Software review. If you owe money on your taxes, our Tax Debt Relief Services review recommends companies that may be able to help you.
Online Tax Software: What We Tested, What We Found
We focused our reviews on the best online tax services on the market. We didn't focus on lesser-known tax software, white-labeled software products (such as Taxbrain and eSmart Tax, which are white label versions of Liberty Tax), or services that our readers aren't likely to find online. To evaluate the experience of using each online tax software as a typical consumer, we had multiple testers, each with minimal or no tax preparation experience, test all of the online tax services on our lineup for ease of use and accuracy. Additionally, we tested each online tax software using three hypothetical test scenarios. The testing scenarios are as follows:
- A married couple filing jointly, with dependents, claiming child tax credit (CTC) and earned income tax credit (EITC).
- A single parent filing as head of household, whose dependent is a full-time college student
- A single, self-employed individual claiming multiple deductions, such as vehicle mileage and business expenses
We evaluated each online tax software using the following criteria:
- Ease of use, including guidance through the software and explanation of terms and forms
- Ease of navigation through the software
- Accuracy of return estimates
- Customer support options, including availability of telephone support
- Audit support and representation
- Disbursement options
- Availability of tax forms and deduction support
- Timesavers for importing W-2s and previous returns
While all of the software was relatively easy to use for the first two scenarios and we received accurate results from every program, the self-employed scenario proved challenging, and we found some programs, such as TaxAct, were more difficult to navigate. There were also some variances in the final numbers we got from some of the programs for this scenario (mainly due to the underpayment penalty that some software automatically factors in rather than letting the IRS bill you later for it).
The best tax software walks the user through the filing process, provides clear instructions and uses clear, simple terminology so the individual can understand precisely what is being asked and provide the correct information to complete the most accurate return possible. The highest-rated income tax software, TurboTax, excels at this. It uses simple, conversational language as it walks you through the filing process. Our testers found it to be the simplest program to use.
The online tax software providers had no input or influence over our testing methodology, nor was the methodology provided to any of them in more detail than is available through reading this article and our reviews. The results of our evaluations weren't provided to the companies in advance of publishing this review.
How Do I Get the Fastest, Largest Refund?
The fastest way to get your refund is by e-filing an accurate return. Once your returns are submitted, how quickly you receive your refund is in the hands of the IRS. If your return is correct, the IRS should process it rather quickly, in most cases, in less than 21 days. By contrast, it can take as long as six weeks if you mail a paper return. You can also check the status of your refund by visiting the "Where's My Refund?" tool on the IRS' website. And, of course, the estimated time for your state income tax refund depends on the state you claim as your state of residence.
2017 Tax Returns Delayed for CTC and EITC Deductions: Due to the 2015 PATH Act, you can expect a delay if you take certain deductions, such as the CTC and EITC, because the IRS needs additional time to screen these returns for fraud.
As far as which online tax software is going to give you the biggest refund (or the lowest balance due, if you owe income tax), although many companies claim their service provides the maximum refund, we received the same results from each program in our testing. No tax service provides secret loopholes or deductions that other services don't have access to.
However, the best tax software applications help you identify which potential deductions and credits you qualify for by asking you questions about your situation. Through these questions, they recommend whether it makes sense to change your filing status or whether you should choose standard or itemized deductions. The best programs allow you to compare your options. Ultimately, how much you get back or have to pay the IRS depends on your specific tax situation.
The marketing language used by tax services can be confusing; to better understand what tax services actually deliver, see our article "Tax Return Accuracy, Largest Refund and Fastest Refund Guarantees, What Can an Online Tax Service Actually Promise You?"
Filing Online: How Secure Is My Data?
Since the tax-return creation process requires working with sensitive personal and tax information, the best online tax software has multiple safety protocols in place to keep your data secure. We recommend you take measures to accurately record your login information, such as email address used, user name, passwords, and security questions and answers.
Some systems also require you to authenticate the device you use to prepare your return, and if you switch devices, you may be required to answer security questions or retrieve a verification code before you can log back in. Most mobile apps also use Touch ID or a passcode to secure access to the app.
Found a Better Deal? How to Change Tax Services
If you're like many filers, you may be reluctant to change tax services from the one you've been using because you can easily import your information from the previous year and quickly prepare your return. However, the best-rated tax software can import tax information from PDF files created by other services. For example, H&R Block can import PDFs from any other tax preparation service. TaxAct can import PDFs from TurboTax and H&R Block. TaxSlayer and TurboTax can also import information from PDF files.
While it may take longer to transfer your information to a new service, it may be worth it if you haven't been happy with your previous tax preparation software or you've found a better deal elsewhere. If you want to change the online tax software you use, you can find detailed instructions on the tax preparer's website about how you can transfer your data.
Tax Tip: You may not know the final price of filing until you go through the entire process of preparing your taxes online. However, the best companies won't charge you until you actually file, so you can try multiple services if you want to shop around for the best price.
What You'll Need to File Your Taxes Online
If you've never filed your taxes online or you've always had a professional do them for you, you'll need either your electronic filing PIN from the IRS (which you can obtain beginning mid-January) or your adjusted gross income from the previous year. You'll also need all of your tax-related paperwork such as W-2 forms, child care provider information, mortgage interest statements, charitable donation receipts, medical expense records, investment interest expenses and more. Your employer should have your 2016 W-2 to you before February 2, 2017. The online tax service will provide all tax forms and schedules you require.
Tax Timesaver: Many of the popular tax services can import your W-2s for you directly from your employer or from popular payroll services such as ADP. Many also allow you to snap a picture of your W-2 using your phone or tablet and upload it, either using an app or from your desktop computer using the online program.
Free Online Tax Filing: Form 1040EZ and 1040A
Most online tax services offer a free filing service if you'll be using Form 1040EZ or 1040A. In addition to these forms, H&R Block also offers free filing for Form 1040 Schedule A, which is notable if you plan to itemize your deductions. Some income tax preparation solutions, such as TurboTax, also let you e-file your state income tax form for free, which sometimes costs extra. If you qualify to use this form, there's no need to pay a high fee to have someone else prepare your return for you since you can use online tax software to easily and quickly create your return.
Generally, you can file a 1040EZ/A for free if you meet the following requirements:
- Your status is single or filing jointly
- You cannot claim dependents (use 1040A if you claim dependent expenses)
- Your income is from common sources, and your taxable interest was not over $1,500
- Your taxable income is less than $100,000
- You do not claim income adjustments
- You do not claim credits other than the earned income credit (EITC)
1040A requirements are generally less restrictive, and you may be eligible to file for free using this form if you meet the following requirements:
- Your taxable income is less than $100,000
- You don't itemize deductions
- You didn't have an alternative minimum tax adjustment
- Your income is from common sources
- Your deductions are only from your IRA, student loan interest, educator expenses or tuition and fees
- You only claim tax credits for CTC, EITC, credit for the elderly or disabled, education credits, retirement saving contributions, the premium tax credit
For the complete list of requirements, see IRS Topic 352.
Tax Tip: Not sure if you qualify to file for free? The best online tax software programs don't charge you until you actually file, so you can try different versions of the software to see which ones include the features you need or if you're required to upgrade to a paid version.
Using IRS Free File
The IRS offers a free service, Free File, which allows taxpayers to prepare and e-file their federal tax returns for free. The program was developed through a partnership with the IRS and the Free File Alliance, a group of 14 private-sector tax software companies. The service is available through the IRS's website but is managed by the Free File Alliance.
The program works through several brand-name tax programs or online fillable forms. You can choose from two options based on your annual income. For those with an adjusted gross income of less than $62,000, you can file your taxes using one of the 14 tax prep software programs Free File partners with.
For those with an adjusted gross income over $62,000, you can only access free fillable forms. While the IRS Free File method is free and a good resource for those comfortable preparing their own returns, most will find the popular online software easier to use.
Tips for Success: Decreasing Stress, Preparing an Accurate Return & Avoiding Audits
We've heard many people say that they plug in their information to multiple online tax services and then pick the one that gives them the most desirable results; that is, the highest refund or the lowest balance due. However, this can be a risky strategy and there really is only one possible accurate return. Here are a few tips to help you create an accurate return and avoid an IRS audit:
Slow Down and Don't Guess: Schedule a quiet space, away from distractions to create your return. In addition, take the time to look up terms you don't understand or are unsure of; don't try to guess and hope you're right. The best tax software for 2016 includes definitions to tax terms as well as built-in assistance. If you're not sure where to enter tax information, it's better to ask than to create an inaccurate return. An incorrect return could delay your refund, increase the balance due, or worse yet, trigger an audit.
Avoiding Audit Triggers: Last year, less than one percent of all tax filers were audited. Even though that number is low, you still don't want to be one of them. The best income tax preparation software runs an audit alert scan to notify you of any problematic areas, but there are also steps you can take to minimize the risk. First, don't submit incorrect information. If your refund amount seems too good to be true, it likely is. You should look over your return to double check that you've entered the correct amounts or see if you may have erred elsewhere.
Although you're not required to submit copies of your tax documents, if you're filing taxes online, you should still keep copies available should you be asked for them. If you're self-employed or filing for your small business, you'll want to be extra careful since the IRS will be watching your claimed income, deductions and credits carefully. And as you might have guessed, those with a higher income tend to be more frequently audited.
Find a Mistake After You've Filed? Use Form 1040X: If you find additional income or realize you made a significant mistake after you've filed your federal tax form, you'll need to file an amendment using Form 1040X. If you made a simple math error, it's likely the IRS will make the adjustment for you.
If you need to file an amendment, you can usually use the same tax service that you used to create your original return, though there may be a small fee and you might have to mail it via traditional mail. If you file in a state that collects state income taxes, you'll likely need to make an adjustment to your state return as well. It's better for you to preemptively correct errors before the IRS does. Being proactive may help you avoid penalties and interest.
When to Hire a Tax Professional: 1040EZ/A filers shouldn't need to hire someone to prepare their taxes due to the ease of online tax software. However, hiring a licensed professional is a good idea if you have a complex tax situation, such as the following:
- You have a high income
- You're filing an international return
- You're filing an estate tax return
- You're filing for a business or corporation
Tax Tip: Although many retail offices, such as Jackson Hewitt, H&R Block or Liberty Tax, use professional tax software to help prepare returns, many of the employees working there may not actually be CPAs or tax accountants. They may know more about taxes than you do, but they're not professionally licensed and cannot communicate with or represent you before the IRS.
Which Tax Situations Are Supported by Online Tax Services?
Online tax software for the 2016 tax season supports most tax situations – individual as well as small business taxes. Freelance and consultant income is also supported. If you're comfortable managing your own tax information, tax software also supports investment income and losses.
Most tax services' fees increase with the complexity of the tax situation. Alternately, some charge more based on the level of customer support offered. So, depending on the complexity of your work or financial situation, the cost to file income taxes online varies widely. Depending on the program you select (and minus any extra features or services you choose), you can expect to pay roughly between $0 and $90 to e-file your taxes.
Tax Tip: Although most forms are available before tax season starts, certain forms aren't released until later in the tax season. If you can't find the form you need, it may not yet be available. Check the IRS website for release dates.
Do I Need Additional Paid Features When I File Online?
Most online tax software companies offer extra services – support packages, online storage, audit support, and identity protection services – for an extra fee. Whether or not they're worth the extra expense depends largely on your specific tax needs. Here are a few of the most common additional services, along with our recommendations for when they're worth considering:
Customer Support Packages
Additional support may be worth it if you have a complex tax situation and want to purchase additional preparation assistance. It's also helpful for those who want to pay for telephone support rather than rely on email support. However, keep in mind that many services include customer support at no additional cost. (Even with this support, you're ultimately responsible for ensuring that your returns are filed accurately.)
Some services will save your returns for a fee. This makes your returns easily accessible, but it's not a necessary expense since no matter which service you use, you should save digital and printed copies of your returns for future reference. Most services can import data from PDF files should you skip entering unchanged basic information from the previous year.
Some applications offer basic audit support for an additional fee. They can help you understand the preliminary audit information sent to you from the IRS and suggest further actions for you to take. However, you should know that companies only take responsibility for mathematical errors they may have made; they cannot take responsibility for incorrect information you provided. In most cases, you're responsible for any errors as well as any penalties and interest that apply.
Identity Theft Protection
All income tax programs are required to take adequate steps to protect your sensitive tax information. You may see some scare-tactic marketing information about cybercrime and such, but in reality, most online tax software companies have secure systems in place to confirm your identity and protect your information.
If you're concerned about identity theft, check with your bank to see what protection measures they have in place, too, as well as any additional coverage offered by your renters or homeowners insurance policy should your personal information be compromised. In addition, you should always monitor your credit and card transactions for inaccurate information.
Can I File Taxes for My Small Business Online?
If you're a small business owner, freelancer or independent contractor, filing your taxes yourself can save you money. Each of the online tax preparation services we reviewed offer an online software plan for small businesses. Five of the six programs we tested delivered the same filing results on our self-employed testing scenario.
In our testing, Turbo Tax, which has an online program designed specifically for small business owners, was the easiest to use. TaxAct, however, has four online programs for small businesses, each designed for a specific business structure. The Jackson Hewitt Premium program was the exception, as it calculated our estimated quarterly state tax payment as an itemized deduction instead of as a payment, which resulted in a higher payment due.
Here are the specific versions of each online tax software that you can use to file taxes for your small business:
- Turbo Tax Self-Employed
- H&R Block Premium
- TaxAct: Sole Proprietor, Partnership – LLC, C Corporation and S Corporation
- Liberty Tax Service Premium
- TaxSlayer Premium (Although not specifically designated as a small business solution, it supports all major forms and schedules.)
- Jackson Hewitt Premium
Although online tax software for small businesses is very capable, hiring a CPA may be helpful if the following apply:
- Your tax situation is complex and you need professional advice.
- Your tax situation has recently changed; you've received new forms, and you're not sure how to file them.
- You have deductions that are borderline or obscure, and you want a professional to explain the tax code to help you decide whether you qualify to take them or not. (Regardless of the accountant's advice, remember that the final decisions are yours to make. If you're audited, you bear the responsibility of proving you qualify for these deductions.)
- You want guidance on what actions you can take during the current year to reduce your taxes for next year.
Whether you do your small business taxes yourself using online tax software or you hire an accountant, you're responsible to ensure the numbers you provide are correct and that you review the filing for accuracy.
We're not certified tax advisors. Please consult with your tax consultant in regards to your specific tax situation. We also recommend that you consult the IRS website for the latest tax information.
Contributing Reviewer: Jill Bowers