Why Use Online Tax Software? |  Standard Features of Tax Return Preparation Services | What should I look for in an Online Tax Software Provider? | How do I file my State Income Tax?

Why use Online Tax Software?

Preparing your income tax return can be a headache. Tax software walks you through forms that are often hard to understand. Filling out a form incorrectly can lead to added stress or even a penalty from the IRS. Furthermore, tax software can help you identify deductionsⁱ to help insure that you get the biggest refundⁱ available from your tax return, which means more money in your pocket.

Using tax software makes it easy to e-file your return or file for an extension. Some providers even offer loans so you can get your tax refundⁱ now. And, if you use the same provider every year, you'll be able to transfer in data from a past year's return. 

Online Tax Software v. Downloadable Tax Software?

All of the companies we reviewed, with the exception of TaxBrain, offer their tax return preparation products in two forms - one is to use exclusively online and the other to either download to your computer or receive as a CD-ROM via mail. There are advantages to both and ultimately, it comes down to your personal tax filing situation. Here are some of the points you might want to consider:

• Online tax services are typically less expensive
• If you are filing a state return, choosing software is more expensive
• If you need to prepare more than one tax return, software can be cost effective. With the software packages, you can prepare unlimited federal tax returns.
• With an online product, you can work on your tax return from any computer with internet access
• With a software product, your information is stored on your computer and you don't have to have internet access

Standard Features of Online Tax Software:

• All products should let you e-file your federal tax return for free.
• Each provider has the ability to transfer in data from a previous year's return if you have filed with them before.
• Some products import W-2ⁱ and 1099ⁱ forms from select payroll providers and financial institution rather, which will eliminate the need for you to enter the information manually. 
• Some providers allow you to import data from accounting software like Quicken, QuickBooks, or GainsKeeperⁱ. 

Accuracy Guarantee

All of the providers pledge to cover any penalties or fees from the IRS if a mistake is made on their part.  However, the likelihood of their automated software making an accounting error is very slim.  It’s much more likely that an error would be the result of a user entering data incorrectly.

What is e-filing?

The IRS accepts an electronic submission of your income tax return through a service called e-filing. All of the products reviewed on our site allow you to e-file your federal income tax return for free. A confirmation email, sent within 48 hours of your submission, assures you that the IRS received your return. E-filing your return is the fastest way to get your refundⁱ. According to the IRS, when you opt for a direct deposit, it could take as little as 8 days to get your refundⁱ.

What should I look for in an Online Tax Software Provider?

All of the providers, except for TaxBrain, let you begin a return online without creating a user account. This allows you to get a feel for the usability of the interface before committing to anything, even entering in your name and email address.

Every provider will at least be able to transfer your data from a previous return filed through their system (although this is not available with the free editions). If you're looking to import data from a W-2ⁱ, 1099ⁱ, or financial software (like Quicken or QuickBooks), you should make sure that the provider offers a product that will be compatible with your needs.

All of the providers offer a certain amount of technical support. This means they'll do their best to answer your questions on how to work through their system. Technical support, however, does not include advice concerning your particular tax situation. For this kind of help, you will need to work with TurboTax or TaxCut who both offer upgraded services involving assistance from certified tax professionals.

How do I file my State Income Tax Return?

Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming don't have state income tax. If you live in one of those states you won't need to purchase the state ad on. You must file a state income tax return in every state in which you earn income so it is possible that you might have to file more than one state income tax return. In this case, you will more than likely have to pay for each state return you prepare.

Can I e-file my State Return?

E-filing your state return is just as easy as e-filing your federal return. Most states are subject to Joint Electronic Filingⁱ (JELF) which requires that your federal return be e-filed before you attempt to e-file your state return.
Arkansas, Hawaii, and Oklahoma are referred to as "true" JELF states and require you to e-file your state and federal returns at the same time.

North Dakota and South Carolina, "preferred" JELF states, require that your federal return has been submitted and accepted before you can e-file your state return.

California, Illinois, Maine, Massachusetts, and Minnesota all have their own e-file processing systems. This means you can e-file a state return independently of your federal return.

New Hampshire and Tennessee do not accept e-filed returns so you will have to submit them by mail.