Professional income tax software is an essential tool for many businesses and households. Tax filing software provides a simple, easy way to prepare tax forms annually, but it can cost. The cost of tax prep software does not always indicate quality. There are many free online income tax preparation software programs, and there are just as many high priced software programs that do not provide anything special.

While pricing and costs of income tax preparation software should factor into your decision, they should not be the deciding factor. Find tax preparation software programs that fit into your budget. Once you find a range products, consider the features and usability of the program before your make a purchase. It is a good idea to consider other factors of the program such as:

1. Accessibility to online resources.

2. Features for the small business, including payroll.

3. Tax prep software that can find additional deductions.

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Choose free online tax preparation software

If you are looking for a simple software program that allows you to fill out your taxes online, you can choose from a variety of free services. Many of these cannot offer you guaranteed corrections if you make a mistake while inputting your information. But if you already know what information to include with your particular form, this is the most cost-effective way to go.

I recommend: FreeTaxUSA offers free state and federal filing, but offers more with a paid service. CompleteTax is a full service online program that helps you file using the correct form and performs all of calculations for you.

Choose mid-price tax return software to access special features

The majority of individuals and small businesses looking for tax prep software will choose a mid-price tax software program in order to access extra extra features not available in the free editions of software. Some of these features include free e-file, maximized deductions, and online assistance.

I recommend: For less than $20, RapidTax can provide you with online support for questions about your taxes, additional deductions, and free electronic filing. TaxCut Premium offers many of the same benefits, plus audit support.

Purchase high-end, professional tax preparation software for complete service

While spending nearly $100 seems too much for tax preparation software, you can think of it as insurance that guarantees your return is filled out properly, and that you catch all the deductions and tax credits you qualify for.

I recommend: Online Office from H&R Block is a unique program that allows you to input all your tax information online through its tax software, then have it prepared by a tax professional. This gives you the convenience of software and the thoroughness of a professional. TurboTax Business has everything you need to file your business taxes, including deduction maximizing and the ability to input Quicken data with a few clicks of your mouse.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  The pricing and costs of income tax preparation software, as well as the features these programs offer, vary widely. Stick with a program that only offers you the features you need to keep your costs low.

Income taxes are an annual chore that many individuals and businesses wish they could do without. The IRS itself is trying to reduce the amount of paperwork it must deal with and so is encouraging taxpayers to file their returns electronically. The latest versions of tax return software feature the ability to file returns online through the user’s Internet connection, while many tax preparation software vendors now offer the entire tax preparation process online.

Income tax preparation software is also made for corporate accounts and professionals who prepare taxes for others. Tax filing software for the home user typically features a friendly question-and-answer interface to put the user at ease, while professional tax preparation software accepts information in a more businesslike format. Both versions of income tax software offer packages targeted to specific taxpayer levels (basic, home business, partnerships, corporations).

Using income tax software offers the following advantages:

1. Comprehensive coverage of the income tax code as it applies to the taxpayer using the package, with the ability to identify possible deductions of which the user may not have been aware.
2. Elimination of errors in calculations and reading tax tables.
3. The ability to plan for future years.

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Choose income tax preparation software targeted to your needs

Not everyone's taxes are the same. Single taxpayers with one source of income and no itemized deductions need very little in the way of tax prep software support, while married filers with multiple income sources, dependents and who donate to charity on a regular basis have more complex needs.

I recommend: TurboTax comes in Basic, Deluxe, Premier and Home and Business editions. (Deluxe is for filers who donate to charity or have significant childcare or medical deductions, while Premier is for rental property owners or estate and trust beneficiaries.) TaxCut also offers several levels of features, including bundles of its Premium level for filers who do and don’t have to file state returns. TaxACT offers business tax software bundles targeted to business partnerships, S-corporations and C-corporations for both home-based and office-based businesses.

Choose income tax software with outstanding features and support

Great tax software comes with powerful features such as interoperability with other software packages and an easy-to-use interface. When that isn't enough, technical and educational support provide answers to problems and instruction on getting the most out of the software package.

I recommend: The computer software and online versions of both TurboTax and TaxCut allow users to import data from previous editions of their own and competitor’s products. In addition, TaxCut offers audit support for e-filers from an experienced H&R Block agent. In professional tax preparation software, Lacerte’s products integrate with QuickBooks and other Intuit products; the company offers training as well as links to Intuit’s online accounting website. GreatTax offers detailed, customizable reports and the backing of industry leaders with a half-century of experience.

Go with online income tax preparation software for greater convenience

Web-based tax preparation software offers many of the same features as disc-based software, without the hassles of having to purchase discs and download updates before you can complete your return.

I recommend: FreeTaxUSA offers its services free to taxpayers who meet its income and state of residence requirements and charges a nominal fee to those who don’t; most returns can be filed in half an hour. TaxExact divides its online services into Gold, Silver and Bronze levels according to the complexity of the return, but offers free filing of state income tax returns. TaxACT also offers an online filing site.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Evaluate features as well as price before you buy. Some tax prep software offers a low initial price, then adds charges for extra features (such as filing state tax returns), while other vendors charge more initially but offer more comprehensive services and information.
• •  Choose online income tax preparation software that uses secure socket layer technology to keep your information safe when you e-file. SSL software displays a small padlock icon on your browser.
• •  Organize your tax records before you sit down in front of the computer. You'll save time entering your data if you don't have to find it first.

Though tax season can be very frustrating, the process is easier since the invention of professional tax preparation software. Tax prep software will help you comply with state and federal tax guidelines. This software can be one of the best tax help solutions for your business, because many business tax preparation software programs can point to tax deductions you may not have found otherwise.

One the surface, using income tax preparation software looks easy. Most of the time, it is. But to better understand how to get the most out of your tax return software, consider the following:

1. How easy the tax prep software interface is to use.

2. Whether there are any additional instructional resources available.

3. If the software explains why you can or cannot take certain tax deductions.

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Use online tutorials to get the most out of income tax software

While many tax prep software programs are self-explanatory, sometimes there are special features you might not be able to access without the aid of detailed instructions. Many companies offer online tutorials so you can get the most out of the features their software has to offer.

I recommend: Gateway offers a detailed walkthrough on using Quicken 2000's Payroll and Taxes preparation software. Drake Software has comprehensive tutorials for the whole line of Drake Software products. There are also troubleshooting topics from Wachovia on how to use different versions of Quickbooks.

Look over information provided by the IRS when using online tax preparation software

Tax preparation software can do a lot of things for you when it comes to filing taxes, but it cannot do everything. Before you begin working on your taxes with any type of tax filing software, see what the Internal Revenue Service has to say about it.

I recommend: The Internal Revenue Service (IRS) has published an article that individuals choose the right tax preparation software for their situation. The IRS also provides information and instructions outlining which individuals and businesses qualify for its Free File program.

Visit online resources to stay updated on tax preparations solutions

Tax prep software is great for filling out your tax forms quickly. But unless you have the latest version of the software, there's no guarantee that what you're filling out still complies with all the rules and regulations of the current tax code. It is important to stay up to date with all the latest information in the tax industry. You can do this by checking out message boards, newsletters and other online outlets.

I recommend: The TMI message board has many solutions for making the most of income tax preparation software, and general tax questions. The message board at MacInTouch discusses TurboTax issues in regards to Mac users.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  If you come to a point where a tax preparation software cannot help with all your tax issues, consult a professional. Tax preparation software may be convenient, but getting into trouble with the IRS is not.

There is an ideal income tax preparation software product on the market for just about anyone. From the single taxpayer to larger enterprises such as small businesses, home-based businesses all the way to business partnerships, S-corporations and C-corporations, there is a suitable package that can guide the user through this complex process. Getting started on evaluating some of the income tax preparation software programs on the market should begin with an understanding of some basic terms.

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Accounting method

Accounting method is the method a taxpayer uses to account for income and expenses. The two primary methods used to compute taxable income for U.S. citizens are the cash or accrual basis. Income tax preparation software can help you determine which accounting method you should use. Tax preparation software has the user identify what type of accounting method they are using.

I recommend: BusinessDictionary.com explains this term as well as the two forms, cash and accrual.

Earned Income

Earned income is any income a person receives for work that they do. It includes wages, salary, tips, bonuses and commissions. Tax preparation software can help the user identify their earned income.

I recommend: InvestorWords.com has a simple definition. For a complete understanding of earned income, visit the Internal Revenue Service website.

Business expense, business deductions

Business expense, quite simply put, is any ordinary or necessary expense that occurs in the operation of the enterprise. Tax preparation software gives the user options on what to count as business expenses.

I recommend: Looking for a list of common business expenses? CompleteTax has one. Find out more about small business expenses and business deductions at Business.Gov.

Above the line deductions

An above the line deduction describes those deductions which IRS allows a taxpayer to subtract from their gross income. It can include rental deductions, alimony or stock losses to mention a few. Tax preparation software can assist a user in identifying these deductions.

I recommend: The Motley Fool discusses these deductions in more detail.

Capital gains or capital losses

A capital gain is a profit that comes from gains in stocks, real estate or bonds and which exceeds the purchase price of the asset. A capital loss arises when the sale of the asset results in less than its purchase price. Tax preparation software includes methods for calculating these.

I recommend: For a capital gains calculator go to Moneychimp. You can find capital losses explained at Bankrate.

Alternative minimum tax

Alternative minimum tax (AMT) is a mechanism for ensuring that high income persons or companies pay at least a minimum tax. Tax preparation software can guide the user through calculating this figure.

I recommend: H&R Block has a comprehensive discussion on this topic.