Income tax season is upon us, that time of the year when those of us who hate to wade through pages and pages of instructions bite pencils in half and consider relocating to somewhere remote where the government can't find you. However, according to the ads that we're inundated with, there are web sites and tax software packages that can turn filing into a day at the beach. Do they really work as easily as they promise? How much should you plan to spend on in order to earn all the refunds that they propose to uncover?
What Will It Cost You to File?
The average H&R Block in-store preparation fee in 2012 was $192 per return, however each of the six online or software vendors we detailed below have similar plans. For those of you with very simple tax needs (no dependents except yourself, no home ownership), they offer free federal tax filing. For those with dependents, deductions, or home ownership, they offer an intermediary level which is usually priced in the $25 to $30 range. And for those with stock and bond income, who are self-employed, or with other complications, they offer a premium level, anywhere from $40 up. Each of these companies offers free filing (via the IRS web site) for taxpayers with an income under $57,000, while some additionally extend this offer to active military families.
But how can these companies make money by giving away free federal filings? In every case, they charge to file state returns — in some cases, they charge a lot. For example, with H&R Block Online's free level of service, you'll pay $27.95 to file your state return. You may also find, as many do, that your return isn't as simple as you thought, and you'll reach a point where you'll have to upgrade to a paying package to enjoy all your deductions and bring in a maximum refund. Several consumers also are lured to upgrade to a higher level of service that might include the ability to contact someone immediately that can answer your questions.
Comparing Tax Software Options
All share a common method of guiding you in constructing your tax return by asking you questions. This interface has proven to be much more user friendly than simply presenting the user with a plethora of forms. Common to them also is the ability to import previous years' returns, even cross-platform. For example, H&Block can import TurboTax forms.
TurboTax: Take a Snapshot of Your W2
TurboTax is the market leader in tax return software. The most popular level of service is Deluxe Online for $29.99. It will cover dependents, home taxes, mortgage interest, and other common deductions, although a state return will cost an additional $36.99. The downloaded or CD versions of the Deluxe software will cost $59.99 retail, which includes five federal e-filings, with an additional charge of $19.99 to file a state return. It comes with chat and phone support. The company also offers TurboTax as an app for the iPad, but doesn't include free tax preparation.
For most consumers, ease of use is the primary concern. Toptenreviews.com found that "TurboTax is by far the easiest-to-use tax preparation service we have ever reviewed." For example, a clever innovation for the iPhone generation allows the user to take a snapshot of their W2 and upload the data into their tax return.
TaxACT: A Budget-Friendly Option
For bargain seekers, PC World found in 2012 that TaxACT was "by far the cheapest alternative option and remains a great choice for people who have relatively simple tax situations and don't need much guidance." Like TurboTax, it also offers the choice of doing your taxes online or installing its software on your computer via download or CD. Simple Federal returns can be done for free, with $14.95 to file a state return. For most customers with deductions, a family, and a home, who choose to do it online, the Deluxe Plus State version is the best deal at $17.95; a state return is included in this price. It also includes free phone support.
TaxACT also has a free app for your iPhone or Android device, with which you can check the status of your return and get answers to your questions.
H&R Block: Head In-Store for Help
H&R Block claims to prepare one in every seven tax returns in the U.S., and uses its many storefront locations as leverage to sell its own online and software tax service. Some people feel reassured that, if they start online and find themselves hopelessly entangled, they can simply take their forms to one an H&R Block office for completion.
The Deluxe Online level of service for $29.95 is quite similar to other companies, allowing you to deal with home costs, children, and other deductions. Unlike some others at this level, though, it also covers investment income. A state return with the Deluxe package will set you back $34.95. The Deluxe user is entitled to help via chat and telephone.
H&R Block offers an app for Android devices and the iPhone to prepare your simple tax return for free, including a free state return. It also includes the ability to take a photo of your W2 to import into your return.
TaxSlayer: File Cheap
TaxSlayer is a cloud-based software service that is often less expensive than other services. For $24, the user receives all the tax forms, support via email and phone, and W-2 upload. State filings are only $29.
eSmart Tax: Lady Liberty's Preferred Service
If you've seen the person dressed in a Statue of Liberty costume dancing at an intersection, trying to entice you to one of Liberty Tax Service's 4,000 storefront locations, then you're familiar with eSmart Tax because it's owned by Liberty. Its Deluxe Online service covers the usual at $19.95 with an additional $19.95 for the state return. This level entitles the user to email support or an online chat with a tax professional.
Jackson Hewitt Online: Unlimited Online Support
This online service charges $26.95 for its Deluxe service, covering the same territory as other Deluxe services. A state filing is an additional $29.95. The user receives unlimited email and online chat support; for phone support, the user would have to step up to the Premium level, which costs $44.95.
Which Service is Right for You?
When shopping, ask these questions:
- How much does it cost if I have dependents, a home mortgage, or other deductions, if applicable? What about education credits, charitable contributions, self-employment options, and investment income? You may need to step up to premium-level products to get all of these options covered.
- How may I access help (email, chat, phone), and how much will it cost if it's an additional charge?
- How much will it cost to file my state income tax, and is my state available?
- What additional charges will I incur (such as a charge to mail me a printed copy of my return)?
- What will the service provide if I'm audited?
Yes, the U.S. tax system is a muddled mess, and we land right in the deepest pool every year at tax time. But by organizing your materials and answering a few questions, online preparation or a tax software program might just save you enough money to drown your sorrows on April 15.
Top photo credit: PR Web