Tax Preparation Software
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Tax Preparation Software
If you’re interested in preparing your taxes yourself and don’t want to manually fill out IRS forms, one option is to purchase tax preparation software. There are a number of companies that provide such software, and you can either buy CDs or download the software online on your computer. Tax preparation software brings convenience and guidance to the tax preparation process for a cost.
Things To Know
- Tax preparation software guides you through the tax preparation process for a price.
- Before buying software, consider whether you want a CD or a download.
- Software may be able to import some of your financial information, saving you time.
Software Features
Tax preparation software is designed to guide you through the process of preparing your taxes. Various levels of software are available depending on the complexity of your situation.
For example, if you are single and have a very simple return, the software may be free. However, if you have your own business, a more complex and expensive version of the software is available.
The software is designed to gather all the relevant information about your tax situation, crunch the numbers and tell you how much tax you owe and whether you will get a refund or have to pay additional tax. You can also use tax preparation software to prepare your state taxes, if you live in a state that has a personal income tax.
Some tax preparation programs will import information from your employer, last year’s return, data from other financial programs, and information from banks and investment firms that you do business with. The programs will help you find deductions and credits that may reduce your taxes.
They will also expedite the process of electronic filing of your returns with state and federal governments; or you can print your returns and mail them yourself. If you are due a refund, you can provide your bank account information, which the IRS can use to pay your refund to your bank account via direct deposit.
How It Works
Instead of filing in the blanks on a paper or online tax form, the software asks you a series of questions. These questions are grouped by subject matter, such as your personal information, which includes the Social Security numbers of you and your dependents. There are usually extensive help menus, and help may be available through a toll-free number for an additional cost, or it may be included in the price of the software.
As you work through the questions, the software typically keeps a running total of how much tax you owe or the amount of your refund. That information doesn’t really mean anything until you are done entering all the information, so don’t panic if there’s a large total due when you’ve entered income but no deductions yet.
Once you’ve entered all the information requested, the software will run a check for errors and ask for any missing information. At that point, you can take seriously the numbers for either payment due or a refund owed.
The maker of the software program may try to sell you additional services that you might not need, such as audit protection, or upgrading to a more robust and expensive version of the software. You usually have to pay extra to prepare and file state taxes, if you live in a state that has an income tax. Some software lets you prepare your return, but you can’t print the forms or file electronically until you pay for it.
Software makers encrypt your information so that if you file electronically, the connection between the software company and the Internal Revenue Service or the state is secure.
A Few Tips on Choosing Software
When it comes to choosing software, here are a few tips to consider:
- Desktop or online: You’ll need Internet access for updates and to file, but it can be cheaper to buy a desktop version at a big box retailer rather than buy it online.
- Which version: Most tax prep software comes in several versions. With most types of software, you can start out with a basic version and upgrade if you find you need the more expensive version as you are working through your taxes.
- State taxes: If you live in a state that levies a personal income tax, you need to file a state income tax return. That can get expensive with tax preparation software, though the bonus of using it is that the information from your federal return is automatically imported into your state return. If you have an uncomplicated return, some states have online forms you can file yourself, which can save you some money.