Best Tax Software

Desktop or online tax prep?

The two big competitors, TurboTax and TaxCut, are available as boxed software or online. Depending on the version, you can save $20 or so by using the online services. However, buying a hard copy or downloaded copy of the software has multiple advantages. Working off your hard drive is faster (even if you have a broadband connection) than working online, and you'll be able to work on your taxes offline as well. Plus, you can use the software to prepare returns for several family members (up to five federal returns with either TaxCut or TurboTax). If you are audited or you need to file an amended return in a future year, you have easy access to the software and whatever forms you may need.

TurboTax, TaxCut and TaxACT are the three leading software packages. For most, reviewers say that TurboTax is the best choice all around. However, TaxCut is less expensive and a fine choice if you've used it successfully in the past.

If you have a simple tax return -- for example, if you have a couple of W2's, some interest income, a couple of kids, plus some deductions for child care or an IRA, almost all reviewers say you should skip TurboTax and head for the government's IRS Free File program, which will cost you nothing if your adjusted gross income is less than $56,000. Otherwise, you can look to the basic online versions of TurboTax or TaxCut, which are free (state returns are additional). TaxACT and TaxSlayer are also good low-cost choices if you don't meet the IRS Free File income cap. These are discussed further in this report.

If, however, your tax situation is more complex -- say you are self-employed, have income from real estate investments, or you have capital gains or losses (for example, you sold stocks, mutual funds or a home), nearly all reviewers say you should turn to TurboTax. The cost of TurboTax Deluxe Federal + State (*Est. $50) includes the preparation and online filing of your federal tax return, as well as preparation of one state tax return. Preparing and filing additional state returns can be done for an additional fee ($35 per state). The Premier version of TurboTax (*Est. $75) provides additional help for those with rental-property income, while the Home & Business version (*Est. $85) is meant for those with full-fledged home businesses.

Reviewer who compare TurboTax and TaxAct for complex returns, including editors at PC World, PC Magazine, CNet and The New York Times, all say that TurboTax has a much better, more intuitive interview process and did a better job guiding them through deductions. There's a new feature that asks specifically about topical issues like home foreclosure, unemployment natural disasters, guiding you to any deductions or credits you may be able to claim. TurboTax also does a better job importing W-2 and 1099 data from participating employers and banks.

TaxCut Premium Federal + State (*Est. $50) offers a couple of advantages over TurboTax. You'll spend about $15 less for TaxCut software and enjoy some additional perks from H&R Block, which owns TaxCut. For instance, you get one free in-person tax-advice session with an H&R Block consultant. Tax advice with TurboTax costs $30 and up per session. The one significant reviewer that comes down on the side of TaxCut is About.com's Shelley Elmblad, a long-time software reviewer.

Elmblad concludes that both programs are comprehensive and reliable, but claims that TaxCut is the "best price value" and provides more for the money in terms of self-employment taxes and audit support. Elmblad concurs that TurboTax may be worth the additional cost, though, for active investors who want to download 1098s and 1099s, a feature that is lacking in TaxCut.

All versions of TaxCut tax-preparation software include the Worry-Free Audit Support feature. If you file your federal return online using TaxCut, H&R Block guarantees that one of their representatives will assist you in case you are audited. You wouldn't be legally represented by H&R Block, but a tax professional would help you prepare your paperwork if you're one of the unlucky 1 percent of taxpayers who are audited each year.

Instead of buying a CD or downloading software, you can choose to prepare your taxes online with TurboTax. But you don't get to keep a copy of the software, and you can only prepare and file one return.