Key Steps In Choosing The Best Tax Preparation Software

By Brian O'Connell | September 02, 2014 AAA
Key Steps In Choosing The Best Tax Preparation Software

Over half of all tax returns are filed online as millions of Americans turn to online filing solutions to satisfy their obligations with the federal government. How do you pick the best ones? How much do they cost? And how can you get the most of them?

Given that figures from H&R Block that show U.S. taxpayers left over $1 billion on the table in missed tax deductions in 2013, these are pertinent questions for every taxpayer. A good tax software package can leave more of that money in the taxpayer's pocket and less in Uncle Sam's. 

But if you haven’t done your homework and read up on tax issues, you may miss out on deductions online just as easily as you could miss them offline.

With that thought in mind, here are some good strategies to deploy before choosing a tax planning software package.

Know the Limits
Software tax programs are tools – they won’t do your thinking for you. The more you’re prepared to handle your tax situation, the more benefits and advantages you’ll derive from a good tax planning software package.

Go for Real-Time Tax Software
New online tax packages pop up regularly. These days, the best tax software can pick up the latest tax law changes from Washington and plug them into their websites as soon as the laws are official. This real-time software allows you to stay ahead of tax law changes and not miss out on tax breaks or deductions.

Have a Plan
Once you’ve decided that online tax planning is for you, it’s time to pick a package. When you go shopping, don’t rely strictly on price (although that’s certainly a factor). What you’re really looking for are the two “Ps” – performance and productivity.

For starters, you want a program that asks simple questions, automatically selects and completes the forms you'll need, and double checks your return. It should also electronically file your return and get your refund faster; otherwise, you will have to print your return and mail it.

Key “Must-Have” Components
Make sure the software is updateable and includes recent tax law changes and updates. Also, be sure the software helps find missing information and missed deductions and flags items that might trigger an IRS audit. It should also let you know when to expect your tax refund. In addition, the software should include unique features, such as providing an up-to-the minute status of your refund or amount due.

 Here’s a checklist of what to look for in tax planning software – make sure you refer to it as you’re shopping, and bring it up to any sales personnel you come across:

  • Uploads your W-2 and 1099 information directly into the program.
  • Free phone support available – even on weekends.
  • Schedule C capabilities (a must for small business owners).
  • An easy to read, clean display.
  • An easy method of opting out of tax situations that don’t apply to you.
  • The ability to import data from other personal finance software you may use.
  • Easy access to relevant tax forms.
  • Customizable features such as a “married versus non-married” tax scenario.
  • The ability to import data from your employer (for W-2 issues).
  • A feature that allows you to organize your data before you get started.
  • Easy navigation (if you forget something, it should be easy to go back and check it out without having to retrace your steps or lose any work).
  • The ability to file an unlimited number of returns.
  • The ability to file both your state and federal taxes.
  • Macintosh support.
  • Ability to skip a section.
  • A thorough FAQ section.
  • Advanced filing options. Major changes in your life – marriage, divorce, having a child, sending one to college, inheritance – may cause you to view commercial tax software programs with some hesitation – not all programs accommodate “big ticket” changes.

Overall, you want a tax planning software package that leads you by the hand through the tax preparation process that pertains to you and your unique needs. You also want a program that begins by importing your information from last year’s return (even if you used a different tax package) along with any relevant financial information from other financial software packages you own (for example: mortgage information from your bank).

Keep it Simple

Without exception, the questions should be clearly presented and easy to understand. In addition, they should always steer you toward the tax breaks and deductions you wanted – but weren’t sure how to get – when you purchased the software in the first place. If you’re stumped, you also want a software program that allows you to stop, pick up the phone or leap over to email or text and ask a tax professional for help.

The better tax software packages also have an appealing look and feel, with timely reminders to, for example, max out on your 401(k) when you’re working on the investment portion of your tax returns or to remind you to sign your return before you send it off. As always, it’s the little things that add up.

Above all, you should be able to easily install and run the software on your home computer, laptop, tablet, or smart phone. 

The Bottom Line
Chances are, once you learn how to use tax-planning software and grow comfortable with the idea of planning your taxes online, you’ll wonder why you waited so long to take the plunge.

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