Tax software: How to choose

Before you buy tax-preparation software, consider using a free-file program, particularly if you don't have self-employment or farm income, or have a lot of capital gain/loss reporting. TaxACT offers online or downloadable software to prepare and file all federal tax forms for free, regardless of your income. Other tax software, including TurboTax and H&R Block At Home, offer free versions that can be used by everyone, but they omit some forms. The IRS's Free File program partners with established tax software companies, but it's limited to those whose 2010 adjusted gross income is $58,000 or less.

If you are willing to purchase tax software, which costs $10 to $100 or more, you'll get more help: These for-a-fee programs can tell you how much your donations of household items to charity are worth this year, or whether you'd save money by filing separately instead of jointly. You may also get free tax help on the phone or support in case of an audit.

Buying or downloading software is advantageous in that you can work on your taxes offline. The other option is to do your taxes online. Most vendors' online packages are similar to what you'd get with paid software, but of course, you don't have to download anything. Keep in mind that you can only prepare and file one return using online software.

Here are some important factors to consider before you invest in tax-preparation software.

  • Do you have a simple or a complicated return. If your tax documents amount to a couple of W-2's along with some interest income, a couple of kids and no big life changes, you can likely get by using free online versions of TurboTax or H&R Block At Home. For those who need to file more complicated forms like Schedule C for self-employment income, TaxACT's free edition offers every e-fileable form the IRS has to offer. If you want advanced guidance about things like the value of items donated to charity, free phone help or advice in case of an audit, consider paying more for the deluxe, premium or home/business versions of tax software.
  • Data import compatibility varies greatly. Paid versions of TurboTax, H&R Block At Home and TaxACT can save you time by importing data from last year's tax return -- sometimes even if you used a different brand of tax software last year. Free versions don't include this ability, and download or boxed versions of the software usually have more robust importing features than online versions. For example, TurboTax's download and boxed software can import financial data from Quicken, QuickBooks and Microsoft Money, but the online versions can't. H&R Block At Home's download and boxed versions can import data from Quicken, but the online versions can't. TaxACT does not import data from any financial programs except GainsKeeper.com, a portfolio-tracking website; it's best for simple returns. TurboTax and H&R Block At Home can also import W-2 and 1099 data from participating companies, banks and brokerages, which can save you some time. TaxACT has limited ability to import W-2 information. 
  • Look for a thorough help function if you anticipate a complicated return. TurboTax and H&R Block At Home both offer scads of in-depth tax information for those who use schedules. Reviews say TaxACT's tax help isn't as easy to understand, but if you're comfortable filling out forms and schedules with minimal assistance, TaxACT is just as accurate as the others for basic tax returns.
  • Consider the cost of state software, if you need it. The cheapest versions of all programs don't include state software. Step-up versions include the software or a free download of software for one state. Be sure to check before you buy. Be aware that each additional state return will cost extra and usually so will e-filing a state return.
  • Do you need in-person help? One area where H&R Block At Home beats TurboTax is the availability of in-person advice. All paid H&R Block At Home products include free professional audit support (which costs $40 extra with TurboTax) and H&R Block At Home Premium and higher versions include one free consultation with a professional (at least $30 extra with TurboTax). The H&R Block At Home Best of Both online edition allows you to complete your tax return online, and then submit it to a pro who reviews, corrects, certifies and e-files it for you.

Tax apps for your iPhone or Android phone

You can file your taxes from your iPhone, iPod touch, iPad or Android phone this year – if you file the 1040EZ. TurboTax's SnapTax app lets you snap a photo of your W-2 with your phone, which then feeds the data into simple tax federal and state forms (like the 1040EZ), lets you correct any mistakes and then e-files your returns. SnapTax is free to download and try; you pay $15 when you e-file.

H&R Block's free Tax Central App for iPhone, iPod touch, iPad and Android doesn't let you file your taxes from your phone, but it does answer common tax questions. You can also browse a tax lingo glossary, get a tax refund estimate and alerts to remind you about key filing dates.

The IRS unveiled its own app this year, but you can't use it to file -- only to check the status of your refund. If you're really tax-happy, you can use IRS2Go to get daily tax tips or follow IRS on Twitter. IRS2Go works with iPhone, iPod touch, iPad and Android.

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