Happy Tax Season! Yes, it is that time of year already. The time of year Americans will spend—according to IRS estimates—6.6 billion hours filing their income tax return: 1.6 billion hours will be spent on the Form 1040 alone. Happy times.
But it is not all doom and gloom. Although the tax code continues to grow in complexity, it has never been easier or cheaper to file your taxes. This guide will highlight the top three tax preparation software products of 2020. It will also highlight the features you need in a tax software product and those you can do without.
But first, let’s start with the good news. Yes, we’re still talking about taxes.
The Good News About Income Taxes
The introduction of free electronic filing of federal and state returns and the increasingly competitive market of web-based tax preparation companies has tipped the scales of power for consumers. Nice change.
- According to an IRS report, 75% of taxpayers in the United States qualify for IRS Free File.
- Taxpayers have so many tax preparation companies to choose from, they have become extremely price-sensitive. Tax software companies have responded by slashing prices.
- Even top companies with professional grade tax software now offer free filing for taxpayers with simple income tax returns.
That is the good news. The bad news is that with so many web-based tax preparation companies to choose from it is not easy to differentiate between good deals and cheap products that could become expensive mistakes.
Features Your Tax Preparation Software Should Include
The SuperMoney team has trawled through dozens of companies and products to find the best tax product picks of 2020. These are the features that informed our analysis and that every good tax preparation software should include.
Accuracy Guarantee. Look for tax preparation companies that stand behind their product and guarantee to pay for any penalties caused by bugs in their software.
Audit-Risk Identification. The IRS uses software to filter through millions of tax returns and determine which ones to audit. The best tax software products flag income tax returns that are likely to be picked up by the IRS, and provide recommendations to minimize the risk of an audit.
Quality Customer Support. Choose companies that offer personalized help by phone, email, and chat.
Income Tax Calculator. Surprisingly, not all tax software products provide it. Look for tax preparation products with a tax calculator that give you a running total of your tax refund/debt, as you work through your return.
Free Tax Filing. If you have a simple tax return and earn less than $100k, you may not have to pay to file your state or federal taxes. Look out for the bait-and-switch tactics of companies that snare customers with “free” federal tax filing and only uncover the ruse once you’ve completed your tax return. Others offset the savings by charging extra for filing state returns.
Intuitive Interface. Good design and a simple interface are crucial when preparing your taxes. Saving a few dollars is not worth the wasted hours you’ll never get back struggling with a poorly designed interface.
Now we know the main features a tax software product should have, let’s see SuperMoney’s top picks.
The Three Best Income Tax Software Products
The Three Best Income Tax Software Products are:
Intuit, the company behind TurboTax, has developed the best-selling tax software for the past 20 years. Just because a product is best-selling does not always mean it is the best, but TurboTax has earned its popularity. It is the smart choice for individuals with straightforward and complex tax returns. If your tax return falls somewhere in the middle, go with TaxAct. You’ll save some cash and still enjoy a top tax preparation service.
- Free federal and state tax return filing.
- Accuracy guarantee.
- Best design.
- Excellent customer support (phone, email, and chat).
- Real-time audit detection.
- Easy to use interface.
TurboTax has a slick, intuitive design that makes it a favorite for taxpayers with complex income tax returns. TurboTax’s Premier and Home & Business editions may be pricier than the deluxe versions of other tax software companies, but it is money well spent. TurboTax provides comprehensive coverage of credits and deductions and intuitive deduction tools that guarantee you will receive the biggest possible tax refund.
Free Income Tax Returns
Taxpayers with simple tax returns (1040EZ/1040A) can file both state and federal returns for free. No catch. You simply can’t beat this deal. The free edition includes prime features, such as automatic uploading of W-2s, government benefits search, real-time tax calculator, and phone, email, and chat support line.
How Can TurboTax Offer Free Filing?
As mentioned above, the free edition is only for simple tax returns. Intuit’s strategy is to attract first-time filers, students, and lower-income families in the hope they will stay with the company when their tax returns become more involved.
For more information, visit TurboTax’s profile on SuperMoney.
TaxAct provides the best value amongst tax preparation software packages. It has rock bottom prices, but it does not sacrifice on quality. Although TaxAct’s interface and customer service are not quite as good as TurboTax, it is close. These are the main selling points of TaxAct’s software.
- High quality at affordable prices.
- Alerts taxpayers of mistakes in real time.
- Free federal and state tax returns.
- Maximum refund guarantee.
- Accuracy guarantee.
- Price lock guarantee.
TaxAct is one of the few tax preparation companies that offers free filing for both federal and state tax returns. Although some taxpayers with highly complex tax returns may miss some of the prime features provided by TurboTax, few will. Most taxpayers will get their maximum tax refund with TaxAct without paying top dollar.
For more information, visit TaxAct’s profile on SuperMoney.
FreeTaxUSA is the only major tax preparation software package that allows you to file all federal tax forms for free. It is a high-quality product that is free for most taxpayers. It doesn’t get much better than that.
Even taxpayers with a small business, a home, rental property, dependents, itemized deductions, and investment income can get away with using its advanced package, which is free for federal and only $12.95 for state tax returns. The deluxe package, which also offers audit assist, priority support, and help with amended returns, only costs $6.95 more. Its interface doesn’t have the bells and whistles of TurboTax but it gets the job done.
- All federal tax forms for free.
- State tax returns at a low price.
- Free option available for freelancers, small business owners, and taxpayers with investments.
- Deluxe option is only $6.95 more.
- Low-cost human tax support and audit assist services.
Who Qualifies For Free Filing Of Federal Income Tax Returns?
FreeTaxUSA, TaxAct, and TurboTax all offer free filing of federal income tax returns. TaxAct and TurboTax will even file your state taxes for free. However, only taxpayers who file using forms 1040EZ or 1040A qualify. FreeTaxUSA does not offer free state returns but practically everybody qualifies for the free federal tax return.
To file taxes using Form 1040EZ or 1040A you must meet the following requirements:
- Your taxable income must be below $100k.
- The only credits you claim are the credit for child and dependent care expenses, the child tax credit, the additional child tax credit, the earned income credit, and the premium tax credit.
- You cannot claim any credits or income adjustments.
- You only received income from wages, salaries, tips, scholarship grants, unemployment compensation, or Alaska Permanent Fund dividends. In other words, no investment income.
Read our in-depth review on FreeTaxUSA for more information here.
The Bottom Line
Any of our top three picks could be the best tax software product of 2020. It all depends on your income, filing status, and personal preferences. Here are some general guidelines.
- If you have a simple tax return, go with TurboTax or TaxAct. You may be able to file for free.
- If you are a sucker for beautiful design and obsessed over squeezing every single deduction and credit you are entitled to, choose TurboTax. There is a reason it is the best-selling tax software.
- If you want the best value without sacrificing quality, FreeTaxUSA or TaxAct are good options.
- If you are self-employed or have a small business and still want to file your federal return for free, go with FreeTaxUSA.
- If it doesn’t seem like any of these options suit your needs, then seeking a tax professional is probably your best bet.
If you are still indecisive over which tax preparation software is the best fit for you, use SuperMoney’s tax preparation comparison engine to filter the top companies by the features that matter the most to you.
Andrew is the managing editor for SuperMoney and a certified personal finance counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.