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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. .