Tax software: How to choose

Before you buy tax-preparation software, consider using a free-file program. That's particularly true if you don't have self-employment or farm income, or if you don't have a lot of capital gains or losses to report. 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, offers 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 2011 adjusted gross income is $57,000 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 prepare and file only one return using online software, whereas you can prepare multiple returns with desktop tax prep packages, and some include multiple free federal (but not state) e-filings.

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

  • Is your return simple or complicated? 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 probably  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, though it's harder to use. 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 -- usually even if you used a different brand of tax software last year. Free versions don't always include this ability, and downloaded 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 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 as accurate as the others.
  • 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 one-on-one help? TurboTax, H&R Block At Home and TaxACT all include free online or email advice from tax experts with all of their products. TurboTax Premier 2011 adds unlimited free phone tax help; it's about $8 extra with TaxACT. H&R Block Premium 2011includes a live tax advice session with an H&R Block consultant. All paid H&R Block At Home products include free professional audit support, which costs $40 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 or Android phone this year – if you fit into a  narrow category: You can't have kids or own a home, you must file the 1040EZ and other restrictions. TurboTax's SnapTax app and H&R Block's 1040EZ Tax App both let you snap a photo of your W-2 with your phone, which then feeds the data into simple tax federal and state forms, let you correct any mistakes and then e-file your returns. H&R Block's app is free to prepare and e-file federal and state returns this year. SnapTax is free to download and try; you pay $25 when you e-file.

The IRS offers its own app, 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, follow IRS on Twitter or watch IRS videos on YouTube. IRS2Go works with iPhone, iPod touch, iPad and Android.

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