Tax Software Tips

Read these 19 Tax Software Tips tips to make your life smarter, better, faster and wiser. Each tip is approved by our Editors and created by expert writers so great we call them Gurus. LifeTips is the place to go when you need to know about Taxes tips and hundreds of other topics.

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What are different types of tax software programs?

Types of Tax Software Programs

Many taxpayers may be wondering what the difference between payroll tax software, tax software, and accounting software is. You must have one before the other. (We are not speaking about the manual method of recording things in this tip).

Accounting software is what you use to record your daily transactions. Every transaction affects a general ledger account. (A general ledger account is any item that is found on your financial statements). For proper record keeping purposes, every business needs an accounting software package.

Payroll tax software, however, cannot be used unless you also have an accounting software package. It is usually an ‘add on' to your accounting software. Since not every business has hired employees, not every business will need a payroll tax software – obviously. Payroll tax transactions affect only certain general ledger accounts. For instance, your typical paycheck would affect the following general ledger accounts: cash, payroll expense, and payroll taxes withheld (in very simple terms).

Tax software, on the other hand, is a separate entity from the above two. This software is used to keep you current with all IRS tax laws (not just payroll). It also provides you with income tax preparation options such as inputting your W-2, printing and preparing applicable tax forms and returns, and claiming your deductions. A tax software program has a main purpose of helping you with your income tax return preparation. One of the more popular tax software programs is TaxCut, offered by H&R Block.

Payroll taxes are considered a specialty form of taxes. They calculate wages, withholding, and other items involved in paying employees. Many payroll tax software programs also deal with the 1099 series (where you have paid someone as an independent contractor). One of the better payroll tax software programs around is TaxCut Home and Business. It provides a competent payroll tax software program that has many beneficial features including 940, 941, and W-2 reporting. .

   
What are some tips for using tax software?

Tips for Using Tax Software

Regardless of how much experience you have in using any tax software program, it has to be easy for you to use or else it will of no use to you. A good tax software program will be user friendly for any skills level. What does that mean?

It should provide many ‘drill down menus'. These are the menus found when you click on a subject area. They contain individual sub-categories of the main subject. For instance, ‘Business expenses' is the main subject area. You click on ‘Business expenses' and the following sub-categories are listed: advertising, professional fees, rent, depreciation. By clicking on one of these subcategories, you will receive information that applies to it. This process needs to be quick and easy. Plus, when you click on the subcategory that you are interested in, information applying to it should show up. (Don't laugh, in a poorly written/developed software program, unrelated subjects to pop up.)

It needs to be well written. Well written means ‘plain English'. If there is too much technical lingo and you cannot understand it - Don't use it. Find a tax software program that explains things in easy to understand terms. The most popular, and better ones, present tax information so everyone can understand it.

It needs to have methods of contact. If you have any questions, there needs to be a way for you to contact the company. If not, find a software program that has this capability.

Information is easily obtainable. This means you do not have to wait forever once you click on something. Information you are interested in (and clicked on) should show up within seconds.

Tax library. You need to be able to access a tax library if you have any questions or concerns. This library needs to be broken down per subject area. Information is not linked to an outside program. It is all contained within the tax software program you are using.

Importing. If you can easily import your accounting files from another software program you have, that will save you a lot of time and frustration.

Saving files. You can easily save files for future reference. There needs to be a way for you to save files to your hard drive, if needed.

Printing files. You can easily print what you need while using your tax software. There is no special equipment or download to perform.

Easily downloadable. Your tax software program needs to be easy to download to your computer. It will not tie up your computer for hours during the process.

   
Is there a cost to e-file my return?

Cost to e-File

The cost to e-file varies depending on which tax preparation software or online tax preparation site you are using. If you are participating in the IRS' Free File program using one of the free tax software programs made available by the participating partners, there is no cost. If you purchase tax preparation software such as H&R Block's TaxCut or Intuit's TurboTax, you can expect to pay in the $20 to $30 range to e-file. If you need to file a state return, you'll probably have to pay more for that. However, you may be able to get all or part of the e-file fee refunded, since some software manufacturers offer rebates as incentives. Online tax preparation sites may offer free or low-cost tax preparation tools but then charge more to actually e-file. Shop around to make sure you're getting the best tools, support, and service for your money!

   
How do I pick the best tax software?

Choosing Tax Preparation Software

Tax software programs, such as H&R Block's TaxCut or Intuit's TurboTax, spare taxpayers the hassle of doing the math and interpreting IRS law, and many people will benefit from the larger tax cut software generally delivers over preparing your taxes longhand. Before choosing tax software, check reviews in computer magazines or online sites such as CNet. Compare the features and prices of the programs. Compare the charges for e-filing. Some companies offer free tax software and e-filing by offering rebates or by participating in the IRS' Free-File program. If you need to file a state tax return, make sure the software includes those tools. Otherwise, you'll end up paying extra. If you need tax advice or are looking for more robust tax planning software, get the deluxe version of the tax preparation software. Deluxe versions include access to more resources such as online calculators, forms, advice, and publications.

   
How do I choose a tax preparer?

Choosing a Tax Preparer

If you decide to use a professional tax preparer, make sure you make a smart selection. Get recommendations from friends, family, neighbors, and coworkers. Make sure you use an enrolled agent, certified public accountant, or tax attorney. They are the only ones allowed to represent you in IRS matters such as audits, collection actions, and appeals. Other preparers can only represent you in audits of returns for which they signed off on as the preparer. Check the local Better Business Bureau to make sure there are no complaints against the individual or company you plan to use. Finally, compare service fees, and avoid using companies that charge fees as a percentage of the refund amount.

   
What’s the difference between tax software and financial planning software?

Tax Preparation vs. Financial Planning Software

If it has to do with taxes, you can bet there's a software program for it. Tax preparation software helps you prepare your taxes. There are many different tax preparation software packages, but most function very similarly. The user is prompted to enter income and expense information, the software crunches the numbers, strips them into the appropriate form, and voila! You can either print your income tax return to mail it in or file it electronically. Tax preparation software generally runs anywhere from $20 to $100, depending on whether it includes functions that allow you to do both federal and state tax returns. However, free tax software is available through a partnership between the IRS and various tax preparation software industry leaders. Financial planning software, sometimes also known as tax planning software, is more about strategies to limit your tax burden during the current tax year than performing the mechanics of tax return preparation. Some of the higher-end tax prep software packages do include limited financial planning advice on common tax topics.

   
Is the cost of tax preparation software deductible?

Tax Preparation Expense Deductibility

All tax preparation expenses, including software, are considered deductible. However, tax preparation expense is one of a slew of deductions that are subject to the 2% rule. That means you only get to deduct the amount above 2% of your adjusted gross income for all deductions claimed in this class. Obviously, if you use free tax software, no tax preparation fee deduction applies. Tax planning software may or may not be deductible, depending on the functions it performs. For more information on deducting tax preparation fees and other items that are subject to the 2% rule, read IRS Publication 529, Miscellaneous Deductions.

   
What are tax preparation sites?

Online Tax Preparation

There are many online tax preparation sites. Similar to tax preparation software, the online sites walk you through the income and expense data entry process, crunch your numbers, and allow you to print your income tax forms to mail, or you can file electronically. Using a Web-based tax preparation tool can be less expensive upfront than purchasing software such as TaxCut or TurboTax to prepare your income taxes. However, the fees for filing your federal and state returns can sometimes be much more expensive. You can read a review of several online tax preparation sites at “PC Magazines” Web site.

   
Should I consider using tax software to prepare my taxes?

Using Tax Preparation Software

Depending on your situation, tax preparation software can be a godsend or it can be overkill. If you don't itemize, you're probably better off preparing your forms longhand and saving yourself a few bucks. However, if your income meets certain criteria, you could qualify to use free tax software available at IRS.gov. If you've experienced one or more major life events during the tax year, you actually may be better off having a qualified tax preparer do your taxes. Things like getting married, buying a house, or inheriting money all introduce new tax scenarios into your financial life that even the best tax software can't ideally address. If you're at a point in life where you've been itemizing deductions for a long time and your financial life is relatively stable, tax preparation software is probably a good idea. It's generally cheaper than paying a tax preparer, and you can do it at your convenience (even if that's 9:00 a.m. on April 15). The software—at least for the most popular packages—couldn't be easier to use. If you're hoping for a tax cut, software will likely deliver. That's because the software programs are designed to look for deductions you may have overlooked. If you do decide to use tax software, make sure your computer meets the minimum requirements first. You can find the minimum system requirements on the software box or look it up on the manufacturer's Web site.

   
What are some of the most popular tax software programs?

Popular Tax Software

Tax preparation software has really come into its own in recent years. With easy-to-use interfaces, tax advice to help you net a bigger tax cut, and slick e-file functionality, even the IRS is loving it. Some of the most popular tax preparation software available today is H&R Block's TaxCut, Intuit's TurboTax, and TaxAct. You can purchase the software in many office supply and department stores, or you can order the CDs or download the software directly from the companies' Web sites. Each of these companies also offer online tax preparation and participates in the IRS' Free File program. Free File is new for tax year 2005 and offers taxpayers with adjusted gross income of less than $50,000 the opportunity to use free tax software and file their tax return electronically for free. Other criteria apply. For more information about the Free File program, visit IRS.gov.

   
Should I use a tax preparer instead of tax software?

Using Tax Software vs. a Tax Preparer

If your tax situation is straightforward, and your financial life is relatively stable (i.e., no major life events occurred in the tax year), using tax software is probably fine. However, if you have had a big change in your life during the tax year, you should probably use a professional tax preparer. Some life events that might trigger the need for professional tax preparation include: buying or selling real estate; starting a family; getting married, separated, or divorced; having a spouse die; or inheriting money.

   
Does tax software help you plan your taxes?

Available Software Tax Planning Features

Some tax software programs include tax planning tools, and others don't. Most of the major tax software programs, such as TaxCut and TurboTax offer different versions of their software from basic to deluxe or premier. Each version will get the job—accurately preparing the current year's taxes—done, but the more robust versions (deluxe or premier) include added features such as tax planning software tools. For example, the tool will review your current year's tax return and makes suggestions for strategies you can use to lower your tax liability in the coming tax year. Premium software versions may also gain you access to additional online tax planning tools such as calculators, professional tax advice, and newsletters at the company's site. This is something that is not normally included with free tax software.

   
What are some tips for buying tax software?

Tips for Buying Tax Software

You have decided to purchase some tax software, but are not sure which one to buy.

There are a variety of tax software programs available. You either find the choices difficult, or you are unsure what would apply to you. Price ranges vary from very affordable to hundreds, even thousands of dollars. How do you know which one to buy and install onto your computer? Here are some suggestions to ponder prior to purchasing.

Know what purpose you intend your tax software to fulfill. For instance, are you an employee only concerned about filing your W-2 to get a refund? Are you computer savvy? Then, a basic tax software program would suit you fine. Or, are you a sole proprietor who has a home office? A more advanced tax software program would be for you. You would need one that would help you calculate deductions and also give some tax planning advice.

If you have employees, you will need payroll tax software. You are responsible for reporting federal (and possibly state) payroll taxes. One of the more popular payroll tax software programs is found in TaxCut Home and Office.

Updates. Are they included in the cost? Or, do you pay extra for them? IRS taxes change yearly, and you need to keep updated with them.

Customer service. How is the company's customer service? Do they return calls or emails quickly? Do they welcome your questions and concern? Find this out beforehand to save yourself frustration. Plus, it may be better to pay a little more for a tax software package if you know the customer service is exceptional. Some lower cost tax software packages do not come with good customer service, if any.

Company reputation. Do you know anything about the company who produces the tax software? Check into how long they have been in business. Check into what products they offer. Ask around and see what feedback you get regarding the company. For instance, H&R Block has a positive reputation dating back 50 years. You can be assured of a high quality, customer-oriented product.

Product features. What does your tax software contain? Does it have tax forms you can print or download? Live tax advice? Does it have the capability for electronic filing of your tax return? Does it offer deduction insights? Product features are usually listed on the back of the box, or on the company's website.

Easy to buy. Is the tax software you are interested in easy to buy? That means, is it easy to get a hold of? Can you go to a convenient location and purchase it? Can you purchase it online, if need be? Having your tax software easy to buy can save you time and frustration. A good tax software program that cannot be bought either online or at a store near you, does you no good.

Guarantee. How does the company stand behind their tax software product? What do you need to do to get this guarantee? If it has no guarantee, don't buy it.

   
What is an tax software series?

Tax Software Series

A tax software series is when a company offers tax software programs covering a variety of taxpayer concerns. The series can be developed with various levels of complexity in mind. Or, it can be developed as an enhancement to the original tax software program developed.

Many times when a tax software company enters the market, it offers a product geared towards one level (basic, i.e.). Once that tax software program becomes successful and much positive feedback is received, the company expands into other tax services and programs. For instance, the company finds that their original tax software program dealt mainly with individual taxpayer filing and preparation concerns. The company then receives customer feedback as to how successful the program was. Also, the company has received numerous requests for tax preparation information/help for other forms of taxpayer entities such as corporations, small businesses, other forms of business operations, and payroll taxes. The tax software company then decides to start offering tax software to meet other taxpayer needs. Hence, there are payroll tax programs, business tax programs, and other tax software programs offering more features than the original tax software program.

H&R Block has developed one of the most popular tax software series. It provides taxpayers with a wealth of information in a variety of tax and financial-related fields. For instance:

  • Tax Cut – This standard tax software program is geared towards the individual 1040 taxpayer without any state tax filing needs. This tax software program helps taxpayers with rental property, education credits, home office operations, and business expenses including depreciation. It does not include state income tax filing options.
  • Tax Cut Premium – This software offers the above plus the option to file state income taxes (in simple terms).
  • Tax Cut Premium plus State and E-File – This member of the Tax Cut tax software series includes federal, state, and e-filing capabilities.
  • Tax Cut Home & Business – This tax software program is geared towards business owners operating a corporation, partnership, limited liability corporation, or a nonprofit organization. It also contains a payroll module.
The above are but a sampling of the wide array of products, features, and services provided by H&R Block through their Tax Cut tax software series. Check hrblock.com for more information. They are bound to have something you need to satisfy your tax and financial information/tax return concerns.

   
What are some other tax software for me?

Other Tax Software Questions

If you choose to prepare your 2006 income taxes yourself, you need to ask yourself some questions about which tax software to choose.

In addition to being user friendly, there are some other features and services that are important to concern yourself about regarding your tax software. They include:

  • Be certain that the rates included within the software package are current. If they are not, be certain that it is easy to get them updated.
  • If you file state income taxes, does your federal tax software program have this feature?
  • Also, will you have to manually update your state tax software program? Or, will the software company do this automatically? Automatic updates are included in a variety of state tax software packages. Ask to be certain prior to purchasing your software.
  • If there is an additional charge for these updates, ask what the amount is. Sometimes this additional fee will determine what software program you choose.
  • Is the customer service included in the purchase price?
  • Does the customer service have a limit on hours you can use it?
  • Is there an additional charge for hours used? If so, what is the fee?
  • Is technical support included in the software cost? If so, is there an hour limit? (Same concerns apply as customer service mentioned above.) This is important since sometimes you will need assistance when you are having problems with your tax software. If you are charged additional costs for talking with technical support, you can really rack up a bill.
  • What kind of system requirements does the tax software program have?
  • Does the tax software program let you import your financial information from another program you use?
  • Is the extra price worth the additional services to you? Will you use or need these additional services?
  • Once you buy the software, can you get a discount for updating to another tax software program?
  • Is the tax software program recommended by other taxpayers you know? Why is it recommended? What positive features does it have?

   
What are some online tax software programs?

Online Tax Software

If you find that going online to have your tax preparation needs met is your way, there are choices available to you. Many online tax software programs allow the convenience of e-filing, double checking your errors, and an instant submission confirmation. Also, when you use an online tax software program, you do not have to download any tax software to your computer system. Plus, you do not have to go through the process involved in downloading software to your computer system. You can save a lot of time in this step alone.

IRS service providers Free File, or nominal fee...You can prepare your 2006 income tax return through one of the service providers found in the ‘e-file' category. The online tax software program will take you step-by-step through the process. It is intended (and is) very easy to use and navigate around in. You cannot proceed to the next step, until the current one is completed. You, also, can save your information throughout the process. This is good for when you want to complete the process later.

Others. There are a variety of other online tax software providers; simply perform an online search to see what you like.

   
What form can I buy my tax software in?

Forms of Tax Software

Depending on which you prefer, there are different formats and ways to obtain the tax software you are interested in.

CD-ROM. Many tax software programs are offered in CD format. Before buying this variety, however, be certain your computer system has a CD drive. (Most do nowadays). This is a common sense comment, but many a person has an older computer system and has bought a tax software program in CD-ROM format only to sit at their computer and sigh.

Download. Some tax software providers allow you to go online to their website and download their tax software. Many times there is a charge for this. The benefit to this choice, however, is the convenience. You do not have to run out to a store and purchase the software off the shelf. You can simply sit in front of your computer, go online, and download it.

Online. You can go online to a website that offers the tax software you are interested in. In many cases you can simply use the tax software without downloading it to your computer. The IRS Free File service providers offer a perfect example of this. You have access to tax software through the service providers own tax software to prepare, file, and submit your taxes without you actually buying the software.

When you obtain your tax software program in CD-ROM, or need to download it yourself, be certain you have good instructions for the tax software. When you go online and use software, be sure there is a ‘help' section.

   
What is business tax software?

Business Tax Software

If you operate a business, you will be interested in obtaining business tax software. (Sole proprietors, in general, do not need the complexities involved in a business tax software program). This software will provide you with features not found in a standard tax software program. For instance, a comprehensive business tax software program will contain information regarding a variety of business ownership and entity types. These include:

  • Corporations – C, S, and limited liability
  • Partnerships
  • Nonprofits
  • Estates
  • Trusts
Features of a good business tax software program include:

  • Forms library - there should be a wide variety of tax forms available for you to choose from that are specifically geared towards your business use/purpose. This includes both federal and state – if needed
  • Short information-gathering interview obtaining needed background information about the business
  • Tax savings/advice area meant to help you with your budgeting.
  • Live tax help. This is a definite plus to ease your mind both during the year and at tax preparation time.
  • Applies to all skill levels (receptionists to tax preparers can easily use it)
  • Contains audit flags. This means it highlights areas of concern to the IRS tax laws.
  • Potential (missed) deductions. It points out what potential deductions are available that you have overlooked.
  • Diligence and thoroughness. Information you enter in one area will carry over to another correctly.
  • Integration. Your business tax software should be able to integrate with your accounting software, for your ease and convenience.
  • Compatability. It must be compatible with your computer system.
  • Large enough Data fields. These provide enough space for multi-digit figures to be filled in. Plus, they are easy to read.
  • Easy maneuvering. You can maneuver around the screen easily. You click on something, it opens a field. You can also easily tab from one data field to another. This saves time.
  • Help. If you are having difficulty, you can contact the company by phone, email, fax, or online.
  • Easy filing/printing. You can file your tax form/return electronically or print out a copy easily.
  • Reports generation. Your software program will be able to produce tax reports such as depreciation schedules, rental property summaries, tax schedules, etc.
  • Tax library. You can obtain information regarding your tax concern by clicking on a subject area.
  • Provided updates. Whether tax updates are included in your tax software cost, or purchased separately, you need to stay current. Sometimes companies offering business tax software have an email program you can utilize for this purpose.
  • Multi-state reporting, if needed. If you operate your business in more than one state, you need this feature.
You may find that your business has issues that are too confusing to you, or simply provide a multitude of challenges that are more easily served by hiring a professional tax preparer. These individuals will use a professional grade of tax software (professional tax software) that is beyond the scope of most taxpayers. Plus, the professional tax software program contains information regarding complex tax issues that are best left handled by the professional tax preparer.

   
What is a payroll tax program?

Payroll Tax Software

Payroll tax software is needed if you employ any employees and do not want to be concerned about maintaining paper records. Back in the day, bookkeepers would use a paper ledger system, pen, and calculator. With modern technology being so advanced anymore, payroll tax software programs abound. Some of good, some are not. There are important things to know about these software programs in order to get the most out of them. First of all, your payroll tax software usually comes in different levels. There are the basic, intermediate, and advanced levels.

Since each payroll tax software package offers different features at different levels, the following information is intended to give you a general idea about what to expect.

The basic will probably be what you need if you have less than five employees and need only standard payroll. Standard payroll means you do not need to concern yourself with income other than the hourly or salary rates. You have no commissions or bonuses to worry about, as an example. You also do not have any payroll deductions other than tax withholding amounts. Many times basic packages do not include any electronic filing options for submitting your payroll taxes, either. Also, many standard payroll tax software programs do not include any state income tax filing information.

The intermediate level of payroll tax software will be what you need when you have more than five employees involving a few payroll tax issues. Also, on the average, electronic filing of your payroll taxes is offered at the intermediate and above level. As mentioned, if you need to be involved with any state income tax, the intermediate or advanced levels of payroll tax software will suit you. Downloading of the latest IRS tax tables and forms relating to payroll taxes is usually available at this level, as is direct deposit of payroll into employee's bank accounts.

The advanced level of payroll tax software is for you when you have a large amount of employees, have a state income tax, and have multiple payroll concerns. Large amounts of deductions such as court-ordered garnishments (such as judgments), commissions, tips, vacation and sick day tracking, employee reimbursements, multi-state employees, and worker's compensation will do well with the advanced payroll tax software. Electronic filing is available, as are automatic tax updates. Many advanced level payroll tax software packages also include tax-planning features.

Whatever type of payroll tax software you choose, there are certain features you need:

  • It is user friendly. This means that it is easy to navigate (move around) in. Even someone without any payroll tax experience can use the software easily.
  • It provides you with the payroll reports you need. Payroll reports include: 941, 940, state income taxes, and unemployment taxes (FUTA is the federal one).
  • It allows you to print W-2s.
  • It automatically calculates paycheck amounts and deductions.
  • It integrates with your accounting software. This means that when you enter payroll information, your general ledger accounts are also updated. This saves you time from not having to enter information twice.
  • It is easy to update employee records. You can easily change withholding amounts and addresses, for instance.
  • You can prepare your payroll easily. A good payroll tax software program will allow you to input data into specific fields, input your payroll period, and easily print out your paychecks.
  • Customer service is available when needed.
  • It provides tax updates as needed.
  • They provide a money back guarantee
Some of the more popular payroll tax software programs include: TaxCut Home & Business, Peachtree, QuickBooks, and Proseries.

   
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