Finding the match for your situation

Which Tax Preparation Program Is Right for You?

by Gary Foreman


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It's time to do your taxes. You know that you want to use a tax preparation program, but you're not sure which one is right for you.

Finding the right tax preparation program is largely a matter of matching the program to your situation. To help us understand the different software, we spoke with David Weliver, founder of Money Under 30. He just completed a tax preparation program page.

Q: We all like something that's free. Are any of the tax preparation programs free to users?

Mr. Weliver: If your taxes aren't complicated, then yes! You can get truly free tax preparation from at least four of the services we compared: Turbo Tax Free Edition, Tax Act Free, H&R Block Free, and Jackson Hewitt Free Edition. All will prepare basic returns and e-file both your federal and one state return for free.

Q: Not all tax returns are created equal. Some taxpayers have a relatively easy return. How would you know if you're one of those fortunate to have a simple return? And, what programs are easiest to use for those simple returns?

Mr. Weliver: Right. While the free services are great for taxpayers with simple returns, many people will find they do need premium features of the tax prep programs. You can avoid that surprise by determining what you need ahead of time and comparing costs among programs.

The free services are limited to people who can file using forms 1040A or 1040EZ. For example, if your only income is from one or more jobs that issued you a form W-2 (and maybe some interest you earned from a savings account) and you do NOT need to itemize deductions, you'll likely qualify for free services.

If you want to itemize deductions and/or have some income that was reported on 1099s, the lowest-cost "basic" packages should suffice.

The next most expensive packages typically handle investment income while you'll need the most expensive packages if you're self-employed or a business owner and want to deduct business expenses.

Q: Which tax preparation programs are best for people who have a home-based business?

Mr. Weliver: H&R Block Premium and Business or Turbo Tax Home And Business can handle anything you can throw at them, including business expenses like the home office deduction. Unfortunately, they're expensive (around $80 for a federal return). Self-employed taxpayers can save with programs from TaxSlayer. Even their $12.99 "Classic" option can handle business deductions. For that price, however, you give up access to features like professional phone support and audit assistance.

Q: Are any of the tax preparation programs better suited for filers who have a lot of deductions (like medical bills)?

Mr. Weliver: If you need to itemize deductions, then any of the "Basic" tax programs will handle your needs. Even if you start with the free packages, however, the programs will alert you that you could reduce your tax bill by itemizing your deductions. At that time, you will, of course, have to pony up to upgrade the level of whichever tax program you're using.

Q: It's important to claim all the deductions that you're eligible for. Are any of the tax packages better at helping you find those deductions?

Get your biggest tax refund. Start free at TurboTax.

Mr. Weliver: Yes. H&R Block's Deluxe package promises to help you find the most deductions for your home and charitable gifts. TurboTax is also known for its question-and-answer style interface, which should catch most opportunities for deductions that you might not realize you have.

Q: Do all the programs handle state income taxes, too? Or are some solely for federal income taxes?

Mr. Weliver: Yes, all of the programs handle state income taxes, but keep in mind you may run into limitations with your ability to e-file state returns. For example, states begin accepting returns at different dates, and some have limitations on who can e-file. Even if you can't e-file your state return with every program, all will prepare them for you and at least let you print your state return.

Keep an eye on state pricing, however, which may cost more than your federal return on some packages.


Gary Foreman

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com. Gary shares his philosophy of money here. You can follow Gary on Twitter. Gary is also available for audio, video or print interviews. For more info see his media page.

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