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Free Tax Software, Cheap Tax Preparation Software Review

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Best Cheap Tax Prep Software Good Cheap Tax Prep Software TaxSlayer Extreme starting at $15 H&R Block at Home starting at $30 TaxACT Online Ultimate Bundle starting at $18 OnePrice Taxes starting at $15 Don't Bother Tax Prep Software  »

Cheap or Free Tax Preparation Software Buying Guide

Instead of spending hundreds of dollars paying a tax professional to prepare your income tax return, cheap or free online tax preparation software means you can do the work yourself and file electronically. This is a surefire way to save money, minimize errors, and receive your refund in a matter of days.

If you insist on filing a hard copy of your return, some cheap tax prep software providers let you print and mail at no charge. Just make sure you read the website carefully, because not all providers give you this option.

If your adjusted gross income in 2009 was less than $57,000, you can prepare and electronically file your federal tax return for free. The IRS has partnered with some 20 tax preparation software companies to provide this service, although many have specific age, residence, and additional income restrictions. Check the IRS website for a list of providers and eligibility requirements.

When deciding on a cheap or free tax software package, you need to consider the complexity of your tax situation and your comfort with the entire process. Some cheap tax prep software is more user-friendly than others, and the onscreen interface and "help" features vary from product to product. If you need multiple forms and schedules, perhaps because you own a small business, have rental income, experienced gains and losses from stock trading, or married or had a child last year, you'll probably have to buy a more expensive software package (which also gets you more services). The lowest fees generally pertain to the simplest and most basic federal tax returns, and adding a state return to the mix usually adds another charge. Expert and consumer reviewers note that the cheaper and free tax prep software meets the needs of many filers, but the software providers make the bulk of their profits on upgrades (and you'll get lots of prompts to make that choice). Be sure you know what 's included in the package you select and what forms your tax situation demands before making any additional financial commitment.

Most cheap online tax prep software providers don't require any upfront payment, so you can try out a product or two before committing. Many also let you deduct the cost of using the software from the refund that's due. Remember that you're paying taxes on income earned last year, so 2009 may appear in the name of whichever cheap tax prep software package you choose.

There are several big names in this business, including TurboTax, H&R Block, and TaxAct. TurboTax is the market leader, but it happens to be among the most expensive (unless you use the free online version, which only supports federal forms 1040EZ, 1040A, and 1040) and attracts scads of complaints from users about hidden fees. We found several other free or cheap tax preparation software providers that can help you prepare and e-file relatively straightforward federal and state tax returns for less than $30. Of course, the entire process will proceed more quickly if you've already assembled all the relevant information, like your W-2, any 1099s you may have received, and a copy of last year's tax return.

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What to Look for: Cheap or Free Tax Preparation Software Features

Free Tax Preparation Software Online vs. Boxed/Download.

Most cheap or free tax prep software is available either through the Web or sold as a download or CD. The Web-based version is always cheapest; often it's free. TaxACT and H&R Block At Home, for example, offer free online software for preparing and electronically filing your federal tax return. Both companies also offer higher level online packages that give you more features but start out at $9.95 and $14.95, respectively. OnepriceTaxes is available in one Web-based version only at a price of $7.95 for a federal return. TaxSlayer Extreme also has only one online software package this year, which costs $9.95 to prepare and electronically file a federal return. Many tax prep software providers urge you to upgrade to a paid version at many points throughout the process and limit access to certain features unless you pay for the service.

To get a download or CD version of TaxACT or H&R Block At Home, you must step up to one of the packages that provide more features. TaxACT's Online Deluxe edition, for example, costs $9.95 to prepare and e-file a federal return through the Web and $12.95 for a download or CD version. The Web edition of H&R Block At Home Basic costs $14.95 to prepare and e-file a federal return and $19.95 for a download. As of early March, TaxSlayer Extreme was making a download available only to customers who had used a download version last year. OnepriceTaxes is selling a download/CD version for $29.95, which includes both federal and state e-filing.

Aside from the cost differential, you need to consider your personal preferences. Some users have slow Internet connections, making it hard to work with Web-based software. Other taxpayers don't like sending private personal and financial information over the Web; using Web-based software also means all your data is sent to and stored on the software provider's server (under virtual lock and key). If you're concerned about any of these issues, you probably won't be interested in e-filing either, so you should spring for a download or CD. This way you aren't stymied by pokey response times and all your data remains safely stored in your very own computer.

A related matter is the number of federal returns you need to complete and e-file. Most cheap online tax preparation vendors, especially the free basic packages, let you process only one federal return. If you plan to file several (say for an elderly parent, or a sibling), you may be better off buying a download or CD. H&R Block At Home's free basic online service includes only one federal e-file but the Basic desktop model (starting at $19.95 for the federal return only) includes five federal e-files. TurboTax likewise lets you e-file just one federal return with its free basic online package, but if you buy the CD or download you can prepare an unlimited number of returns and e-file up to five for $24.95. In general when you buy a download or CD, you can print an unlimited number of copies even if you can prepare only a limited number of different returns.

Free Tax Prep Software State Filing Fees.

Even the tax preparation software providers that offer free e-filing of your federal tax return assess charges to file a state return; some even charge separate fees for completing the state return and another to e-file it. Again, the price usually varies depending on the package you buy and whether you've chosen the online or download/CD version. TaxACT charges $14.95 for a state tax return if you use the free online federal e-file option but only $8.00 for the state portion if you select the online Deluxe package, which costs $9.95 for the federal return (alternatively, you can buy the Ultimate Bundle package for $17.95). H&R Block At Home charges $29.95 for preparing and e-filing a state return with any of its online packages, but less if you buy a download package. OnepriceTaxes charges $7.95 for a state e-file, but $14.95 if you use the software to e-file your federal and state return. With TaxSlayer Extreme, you'll pay $4.95 to e-file an unlimited number of state tax returns.

Scrutinize each tax preparation software provider's website to make sure you understand the cost structure -- you don't want to be surprised, as was one taxpayer who used the free version of H&R Block TaxCut (now H&R Block At Home) in 2009 for her federal return and discovered she'd have to pay $34.95 to file the state return when she hit "send,"according to a posting on Consumeraffairs.com. Also make sure your state allows you to file electronically before you choose a provider based on its offer of cheap e-filing; the IRS provides a list of states that allow you to file electronically.

Free Tax Preparation User Interface.

The cheapest tax prep software available won't save you any money if you don't understand how to use it. Make sure the interface is simple enough for you to follow along and makes data input quick and easy. You should be able to navigate smoothly from section to section, figure out what information goes where, and get results that avoid overpayment or underpayment of taxes.

Most cheap tax preparation software for the 2009 tax year relies on a guided interview format that asks simple questions about your personal and family status, income, expenses, and general life activities that affect your tax situation. For example, TaxSlayer Extreme helps you determine your filing status (e.g., married and filing jointly vs. separately) and all the deductions you can claim. There's a "help" screen on the right-hand side of each page with detailed explanations about each question if you get stuck and a navigation bar that lets you move from section to section. H&R Block At Home follows an interview format, accompanied by "learn more" buttons, that moves you along a path that depends on your answers to preceding questions. Like the others, TaxACT features an interview format but divides the questions into sections, including life events, federal Q&A, and state Q&A, which elicit information and explain relevant tax laws. OnepriceTaxes has tabbed sections for income, expenses, deductions, and credits that let you to check off relevant variables and then add the necessary data, while an "explain this" link appears next to requests that may not be obvious.

Free Tax Preparation Software Help and Assistance.

Given the intricacies of the U.S. tax code, you'll likely have a slew of questions as you prepare your taxes. All cheap tax preparation software providers rely on email support and/or online help pages or FAQs to answer the most common filing questions, but the extent of help available depends on the package you've bought. Higher-priced TurboTax, for example, offers a user forum and live chat feature, although some users complain in tax prep software reviews on Consumeraffairs.com that live chat isn't always available and there can be long delays before receiving answers.

With the free version of H&R Block At Home, you get access to tax tips and related online conversations; you can post questions for a tax professional, who posts a response that others can read; and you find a list of relevant FAQs on each screen you're working on. When you buy the Basic package, you get all of the above in addition to help in dealing with the IRS in case you're audited. If you buy the Deluxe online program for $49.95, you get one session with a real-live tax professional. The free online version of TaxACT comes with video tutorials about tax matters and program software, lets you email a tax specialist with questions, and has Q&A sections for every form. The paid Deluxe version of TaxACT also gives you access to an online "tax tutor" that explains the tax laws and useful tax strategies, in addition to email or phone access to tax professionals. TaxSlayer Extreme offers users a tax tips video, an online "help center" for questions, and an online message board where you can ask questions and answer others peoples'. OnepriceTaxes offers email support that requires waiting at least five business days for a response, unless you pay $7.95 to have your question answered within a day. There's also a small library of articles you can browse on topics like the child tax credit and tax brackets.

Free Tax Prep Software Hidden Fees.

Most tax prep software providers don't charge to let you print a copy of your return. Others, like TaxBrain, do, although they may not disclose the cost until you're well into the process. In 2009, TurboTax felt the wrath of users who purchased the desktop version of the software primarily to file multiple returns and then learned that a printed copy of each would cost $9.95, according to tax preparation software reviews on CNET. Also watch out for companies, such as Taxextension.com, that charge a fee ($14.95 in this case) to file an extension if you miss the April 15 deadline; TaxACT and TaxSlayer Extreme let you file an extension for free. Also note that online tax preparation software providers have a nasty reputation for raising their rates as the filing deadline approaches. Users also report more system downtime during the countdown to April 15th because last-minute filers bog down the servers.

Cheap or Free Tax Prep Software Error Checks.

All of the better tax preparation software providers include an error check feature that monitors your work as you go along and alerts you to potential mistakes. The downside to these error checks is that they can give you a false sense of confidence. One taxpayer vows not to use TaxSlayer again after the software missed an error on his return that he insists should have been caught, according to a tax preparation software review on Free-tax-software.net.

If the free or cheap tax preparation software (and you) don't notice a mistake until after you've filed, you'll have to file an amended return and perhaps pay the fee again. Cheap tax prep software providers like H&R Block At Home, TaxAct, and OnepriceTaxes guarantee the accuracy of their software (which isn't the same as the accuracy of data you enter into the program). The guarantee means they'll pay any penalties and interest the IRS assesses if you underpaid your taxes because of their mistake.

Cheap Tax Prep Software Refund/Owe Meter.

H&R Block At Home, TaxACT, OnepriceTaxes, and TaxSlayer all feature a refund/owe meter that updates as you complete each section, but TaxBrain does not include this feature. In addition to the feel-good motivation of seeing your potential refund rise as you work through the process, the meter can also help you decide which cheap tax preparation software to use for e-filing. Because of the quirks of each provider's proprietary software, the refund owed (or taxes due) may vary by provider.

Free or cheap Tax Prep Software Direct Deposit.

In 2010, all of the major tax preparation software providers offer direct deposit of your refund into your bank account. TaxACT gives you the option of having your refund credited to a TaxACT Endeavor Card prepaid MasterCard instead. Direct deposit is the fastest way to receive the money owed to you. If you file your return electronically, the IRS says you can receive your refund within 10 days. Some of the tax prep software providers advertise eight days. A paper submission of your tax return generally means waiting several weeks until your refund arrives in the mail.

Cheap or Free Tax Prep Software Deduction Finder.

A deduction finder is a program feature that helps you identify common deductions that lower your tax liability. For example, OnepriceTaxes asks about any real estate and/or vehicle taxes you may have paid in 2009. The same screen explains that you may be able to add a portion of the real estate and new vehicle taxes to your standard deduction and goes on to explain how to determine the amount of local and state tax you paid for your vehicle. Once you enter the amounts, the cheap tax preparation software calculates the highest deduction amount you're entitled to. TaxSlayer Extreme also offers a step-by-step deduction finder and the free online version of TaxACT helps you identify relevant deductions. H&R Block At Home gives you that extra boost when you step up to the Deluxe online version ($29.95) or the Basic download version ($24.95).

Cheap or Free Tax Prep Software Audit Defense.

For many do-it-yourself tax filers, knowing you can get help if the IRS chooses to audit your return will cement the deal. H&R Block At Home Basic and the free and deluxe versions of TaxACT come with some kind of audit support, mostly in the form of helping you prepare. TaxSlayer Extreme has a feature called Audit Slayer that flags entries on your return that increase the likelihood of an audit and also includes a "risk bar" that visually updates the increased risk of an audit as you enter data into the program.

Cheap or Free Tax Preparation Software Import Options.

You'll save a lot of time and energy if you can import data from last year's return or from whatever financial management software you use. Many free online tax preparation software programs can't import any information, but if you upgrade to H&R Block At Home Basic, for example, you can transfer data from last year's return if you used either an H&R Block product or TurboTax. The free version of TaxACT imports some data from PDF copies of last year's return prepared with any of the major tax prep software programs, but stepping up to the paid Ultimate Bundle also gets you automatic transfers of information provided on your W-2 (depending on your employer) and other financial data that you maintain in GainsKeeper.

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Products Mentioned in This Review

TurboTax
TaxBrain 1040 EZ Online
TaxACT Online Ultimate Bundle
OnePrice Taxes
TaxSlayer Extreme
H&R Block at Home

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