Why Online Tax Software?
The top performers in our tax software reviews are TurboTax, the Gold Award winner; H&R Block, the Silver Award winner; and TaxAct, the Bronze Award winner. Here’s more on choosing a tax preparation service to meet your needs, along with detail on how we arrived at ranking the best online tax software.
Preparing and e-filing your return for the 2015 tax season is easy and affordable. E-filing is the method preferred by the Internal Revenue Service (IRS), and last year, over 90 percent of taxpayers filed their taxes using this method. The best online tax preparation software is lower priced than retail franchise fees, 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 those who need to report self-employment or small business income.
If you've never prepared your own tax return or if you don't understand tax lingo, you don't need to be anxious about using these online tax services. It's easier now than ever before to create an accurate return and file your taxes online. Tax preparation software uses plain language to explain tax topics, and the guided interface can help you understand the deductions and credits you qualify for. You can even file your 1040EZ form using a mobile phone or tablet.
Tax Situations Supported by Online Tax Services
Online tax software for the 2015 tax season supports most tax situations – individual as well as small business taxes. Freelance and consultant income is also supported. If you are comfortable managing your own tax information, tax software also supports investment income and losses.
Most tax services' fees increase with more complex tax situations. Or, 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 $20 and $55 to e-file your taxes.
Briefly, below are the most common individual tax situations supported by the best income tax software and the corresponding tax form:
This is the most common tax form that is the simplest to fill out and file, plus many of the tax services don't charge to file your taxes with this form. If you're not sure whether you can use this form or not, read below, where this free e-filing situation is described in more detail.
This form is also for simple situations, but unlike the 1040EZ, it can be used by those who have dependent-related tax credits. This form is also often free to e-file.
This form supports itemized deductions such as unreported tips, self-employment earnings, estate benefits and more. It is suitable for homeowners.
For more detailed information, see IRS Topic 352.
What You'll Need to File Your Taxes Online
If you've never filed your taxes online or you've always had a provider do it for you, before you get started, you'll need either your electronic filing PIN acquired 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 child care provider information, mortgage interest statements, charitable donation receipts, medical expense records, investment interest expenses and more.
Many of the popular tax services can import your W-2s for you from popular payroll services if you do not have them. Employers should have your 2015 W-2s to you before February 1, 2016. The online tax service will provide all tax forms and schedules you require.
To learn more about income taxes in general, see our articles about online tax software.
Free E-Filing…If You Use Form 1040EZ/A
Free online filing does exist. In fact, most online tax services offer free filing if you'll be using Form 1040EZ or 1040A. Some income tax preparation solutions, such as TurboTax, let you e-file your state income tax form for free, which usually costs extra. If you qualify to use this form, there is no need to pay a high fee to have someone else prepare your return for you. Online tax software can easily create your return within minutes. Some can even prepare your 1040EZ return by simply using an image of your W-2 uploaded from your mobile phone.
Generally, you can file a 1040EZ for free if you meet all of 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 (EIC)
For the complete list of requirements, see IRS Topic 362.
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 it is managed by the Free File Alliance.
Basically the program works through several brand-name tax programs or online fillable forms. You can learn more by visiting www.irs.gov/freefile. From there, 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. Free File does not create state income tax returns. Some software companies offer it; others don't. More information is available on the Free File website. Below are some additional restrictions:
Limitations for Those Earning Under $62,000 Annually
Most who file a Form 1040EZ can already file their taxes for free using most popular online tax preparation software. In addition, Free File does not include e-filing; you'll still need to print the returns and mail them to the IRS and your state.
Limitations for Those Earning Over $62,000 Annually
Using Free File, there is no software assistance. Instead, you use fillable IRS forms, and you'll need to know how to prepare your taxes. Free File provides only basic calculations and includes limited error checking, and it does not prepare state returns. This method is not much more advanced than the traditional form and booklet preparation method.
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.
How We Tested Online Tax Software
We had multiple testers, all with minimal or no tax preparation experience, test each of the online tax services on our lineup for ease of use and how well it created an accurate return without professional assistance. Our hypothetical test scenario was based on a married couple filing a joint 1040 return. Our sample married couple were homeowners with children who claimed the usual credits, like child tax credits, and deductions, such as mortgage interest. All of our testers at Top Ten Reviews used the same information and should have come up with the same results.
The test results were eye-opening, however. We were surprised at how many testers struggled to easily create a correct return. Often terms were misunderstood or testers didn't know where to enter information or they became frustrated during the process. Another surprise when comparing tax software was the range of responses we received from the software with regard to the final refund amounts. While we didn't see the consistency we expected, our results are likely representative of the software's average demographic: filers from a variety of age groups and with different levels of experience using online tax software.
We found that most popular tax preparation software potentially can create an accurate return provided the user enters the correct information in the right locations. Although most software is capable, the best tax software should help the filer, regardless of his or her experience. It should be able to walk the user through the process, provide clear instructions and use clear, simple terminology so the individual can understand what is being asked and provide the correct information to complete the most accurate return possible. The highest-rated income tax software, TurboTax, was able to create the highest volume of accurate returns and was reported by our testers to be the simplest to use.
Tips for Success: Decreasing Stress, Preparing an Accurate Return & Avoiding Audits
Seeing the varied results in our testing demonstrated to us that not everyone is submitting a 100 percent accurate return. We have heard, from more than one person that they will submit their information using a few different 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:
Carefully Create Logins
Since the tax-return creation process requires working with sensitive personal and tax information, top tax software incorporates numerous safety protocols 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 move to another device, you may have a hard time logging back in. If you attempt to prepare your return using someone else's computer and you are having a difficult time logging in or the system is auto-filling data, you may want to use another device. In this case, someone else may have already authenticated that device or has used the same software as you on that specific computer. The best way to avoid any problems is to be prepared to create your return in one sitting, use one device and keep your login information secure.
Slow Down & Don't Guess
Schedule a quiet space, away from distractions to create your return. In addition, take the time to look up terms you do not understand or are unsure of; don't try to guess and hope you are right. The best tax software for 2015 includes definitions to tax terms and built-in assistance. If you do not understand where to enter tax information, you may not create an accurate 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 1 percent of all tax filers were audited, and even though that number is low, you still don't want to be one of them. The best income tax preparation software should run an audit alert scan to notify you of any problematic areas, but there are also steps you can take, too, to minimize the risk. The first thing to avoid is submitting incorrect information. If your refund amount seems too good to be true, it likely is. You should look over your return information to double check that you've entered the correct amounts or see if you may have erred anywhere else.
Although you're not required to submit copies of your tax documents if you file taxes online, you should still keep copies available should you be asked for them. If you are 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.
Fixing Mistakes After You've Filed: Form 1040X
If you find additional income or realize you made a significant mistake after you have filed your federal tax form, you'll need to file an amendment using Form 1040X. If you made a simple math error, likely the IRS will make the adjustment for you. If you need to file an amendment, you can most often use the same tax service that you used to create your original return, usually for a small fee, but 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 is 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 should never need to hire someone to prepare their taxes. Most 1040 filers should be able to create their return using 2015 tax software. If you have a tricky tax situation, such as filing for a business or corporation, have a high income, need to file an international return or an estate tax return, you will likely want to hire a professional. You may be surprised to know that many retail offices, such as Jackson Hewitt, H&R Block or Liberty Tax, use professional tax software to help prepare returns and many of the employees working there may not actually be certified public accountants (CPAs) or tax accountants. They may know more about taxes than you do, but they are not professionally licensed and cannot communicate with or represent you before the IRS.
While retail services are suitable for filing relatively simple returns, you'll want to hire a licensed professional for managing complex tax situations. In addition, CPAs and tax professionals can help you better prepare for the future. If your tax situation is complex, it never hurts to hire a professional.
How Do I Get the Fastest, Largest Refund?
Simply put, 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.
As far as which online tax software is going to give you the biggest refund (or if you owe income tax, the lowest balance due), many claim their service provides the maximum refund, but, truthfully, the largest refund is obtained by creating an accurate return. No tax service provides secret loopholes or deductions that other services do not have access to. However, the best tax software for 2015 can help you identify potential tax breaks for which you qualify; it will ask you questions about your situation to help you identify deductions and credits or if it makes sense to change your filing status, but ultimately, how much you get back or have to pay to the IRS depends on providing accurate information.
Tax service's marketing language can be confusing; to better understand what tax services can actually deliver, see our article "Tax Return Accuracy, Largest Refund and Fastest Refund Guarantees, What Can an Online Tax Service Actually Promise You?"
Found a Better Deal? How to Change Tax Services
Some filers are reluctant to change tax services from the one they've been using. Many report they stick with the same service because they can just import their information from the previous year and quickly prepare their return. What many may not realize, however, is that most of the best rated tax software can import tax information from PDF files created by other services. For example, 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, it may be worth it if you have not been happy with your previous tax preparation software. 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.
Affordable Care Act Changes for 2015 – Shared Responsibility Payments
The fee for not having health insurance in 2015 is more than last year – much more. Without an exemption, you will pay $325 per adult and $162.50 per child under 18, or 2 percent of your household income, whichever is more, or a maximum of $975. This payment will be deducted from your refund and/or future refunds. Next year, the fee goes up to $695 per adult and $347.50 per child, or 2.5 percent of your household income, with a maximum payment due of $2,085.
With all of the provisions of the Affordable Care Act, you may be wondering how well online tax software applications are able to handle these new requirements. The answer is that the programs on our lineup should be able to easily guide you through this process should you need to calculate your shared responsibility payment. If you had coverage for part of 2015, these programs can configure how much to reduce the payment amount for the months you had qualifying health coverage.
What is Minimum Essential Coverage (MEC)?
MEC is the type of insurance that meets the Affordable Care Act requirements. In other words, you're not going to have to pay a penalty for being uninsured if your plan qualifies as minimum essential coverage.
Insurance purchased through your state exchange or marketplace should clearly tell you which options qualify. Most full-coverage options provided by employers should also qualify. Other MEC coverage options include CHIP, TRICARE, COBRA, Medicaid and Medicare. Some high-deductible options and supplemental insurances do not qualify as minimal coverage. The IRS may ask you for proof of insurance so be sure to keep documentation with your tax records.
What Are the Exemptions for Not Having Healthcare Coverage?
Exemptions are available for those who have certain hardship issues, dramatic life events, membership to certain groups and more. A few exemptions include the following:
- The lowest available coverage would exceed 8.05 percent of your household income
- You don't have to file a return due to low income
- You were uninsured for less than two months
- You live in a state that didn't expand its Medicaid program that you would have qualified for
- You are a member of a federally recognized tribe
- You are member of a healthcare sharing ministry or you are a member of a religious sect with objections to insurance
- You were incarcerated
- You were living abroad or experienced certain hardships (e.g., homelessness, an eviction, death of a family member, natural disaster and bankruptcy to name a few)
As with all tax-related situations, you'll want to have adequate documentation to support your exemption status. The tax software applications on our lineup can help you ascertain whether you qualify for this exemption or not. You can also find more complete information on the Healthcare.gov website.
Additional Paid Features of Tax Software Applications…Worth It or Not?
You may be wondering if the additional services or features some tax prep software companies offer for an extra fee, such as support packages, online storage, audit support, and identity protection services, are worth the extra expense. Here are a few additional services you may be offered and if it's worth the splurge or not:
Customer Support Packages
Additional support may be worth it if you have a complex tax situation and want to purchase additional preparation assistance. It is also helpful for those who want to pay for telephone support rather than rely on email support. However, keep in mind, that even with this support, you are ultimately responsible in ensuring that your returns are filed accurately.
Some services, for a fee, will save your returns for additional years. This makes them easily accessible, but it is not a necessary expense. No matter which service you use, you should save a digital copy and printed versions of your returns for future reference. Most services can import data from PDF files should you want to skip entering unchanged basic information from the previous year.
Some applications offer basic audit support for an additional fee or per-basis fee. In most cases 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 credit for mathematical errors they may have made; they cannot take credit for incorrect information that you provided. In most cases, you're responsible for any errors as well as any penalties and interest that may 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 software companies should have secure systems in place to confirm your identity and protect your information. If you're concerned about identity theft, you can 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.
Verdict & Recommendations
If you just need to file a 1040EZ or 1040A return, TurboTax and TaxAct are excellent free options. We also found H&R Block and Liberty Tax to be simple to use and capable of creating accurate returns, plus having retail offices is nice if you'd rather have your taxes prepared by a tax professional.
Top Ten Reviews seeks, whenever possible, to evaluate all products and services in hands-on tests that simulate as closely as possible the experiences of a typical consumer. We tested the available online versions of tax software suitable for filing 1040 forms with itemized deductions. The online tax software providers had no input or influence over our test methodology, nor was the methodology provided to any of them in more detail than is available through reading our reviews. Results of our evaluations were not provided to the companies in advance of publishing our tax preparation software reviews.
Other Online Tax Services
We focused our reviews on well-known, easy-to-find tax services; however, you may wonder about other services not included in our lineup when comparing tax preparation software online. We didn't focus on lesser-known products that our readers are not likely to find online. We also didn't cover a lot of white-labeled software products. Many services that look unique are actually related to other products and may in fact even use the same back-end software, known as white-labeled software.
For instance, Liberty Tax is a popular retail tax preparation option; however, Taxbrain and eSmart Tax are also Liberty Tax products. This is something to be aware of when choosing a service. You may find other tax services who have created websites around popular search terms such as "eFile" or "free tax," but in many cases, the service is utilizing white-labeled tax software.
Companies can purchase the permission to add its own branding to white-labeled software and more than one company may purchase this opportunity and market the software as their own. While the service may offer its own tax educational material and customer service, the back-end software may be exactly the same as other services. This type of software is usually functional and works well, but we did not include them in this review.
Please note that the tax prep software in tax preparation software comparison and the reviews and rankings may change as the 2015 tax season rolls out. Through the tax season, services may change their pricing and offer additional incentives.
We are 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.