What You Must Know About Tax Software
When it comes to filing your taxes, you have quite a few options. You can file your taxes by hand, go to a tax preparation agency, or use tax software. Tax software has become increasingly popular in recent years because it’s relatively easy to use, cost-effective, and saves time. However, there are some critical things you need to know about tax software before you dive in.
What is Tax Software?
Tax software is computer software that helps you prepare, file, and even pay your taxes. These programs are generally user-friendly, and you don’t need any professional experience to use them. Tax software typically comes with many features, which we’ll discuss later in this article.
Types of Tax Software
There are several types of tax software, including:
1. Online Tax Software
Online tax software is cloud-based, which means that you don’t need to install any software on your computer. You can access online tax software through a web browser. One of the benefits of online tax software is that it’s always up-to-date because the program provider updates it regularly.
2. Desktop Tax Software
Desktop tax software is installed on your computer, and you can access it anytime you want. You have to buy the software upfront and download it onto your computer. Desktop tax software has some benefits over online tax software, including faster processing speed and not being dependent on an internet connection.
3. Mobile Tax Software
Mobile tax software is optimized for mobile devices like smartphones and tablets. Using mobile tax software, you can take photos of documents like W-2 forms or 1099s, and the software will auto-populate the information. Mobile tax software is often less complex than desktop or online tax software.
Features of Tax Software
Here are some of the typical features of tax software:
1. Data Importing
With tax software, you can import your previous year’s tax return or import data like W-2 forms or 1099s directly from your employer or financial institution. By importing data, you reduce the risk of error as you don’t have to manually enter the information.
2. E-File
Most tax software allows you to electronically file your tax return to the IRS or state tax agency. E-filing is the fastest way to get your tax refund, and it’s the most secure method of filing.
3. Tax Calculations
Tax software calculates your taxes for you based on the information you input. When you enter data into the software, it considers the current tax laws, deductions, and credits to calculate your taxes.
4. Audit Protection
Some tax software providers offer audit protection, which means that they’ll assist you if you get audited by the IRS. The software provider may provide you with an audit support professional to help you navigate the audit process.
5. Refund Tracking
Tax software allows you to track your tax refund status after you file your return. You can see when your refund is approved, and when it will be deposited into your bank account.
Pros and Cons of Tax Software
Like any product, tax software has pros and cons.
Pros:
1. Cost-Effective
Tax software is generally less expensive than hiring a tax professional or using an agency to file your taxes.
2. Saves Time
Using tax software saves you time as you don’t have to manually do the calculations yourself or fill out forms.
3. Faster Processing
E-filing your tax return using tax software is quicker than submitting a paper tax return.
Cons:
1. User Error
Tax software relies on the accuracy of the information you enter. If you input incorrect data or misunderstand a tax law, you could make an error.
2. Limited Support
Tax software providers usually provide limited support because they can’t dedicate time to individual users.
3. Less Personalization
Using tax software means that you don’t get personalized advice or suggestions on how to maximize your refund.
What You Need to Know about Tax Law Changes
Tax laws are subject to change, and it’s essential to stay informed about the latest changes. Here are some of the most recent tax law changes to be aware of:
1. Tax Brackets
For the 2020 and 2021 tax years, tax brackets have been adjusted to account for inflation. The income limits for each tax bracket have increased slightly.
2. Standard Deduction
The standard deduction for the 2020 tax year increased slightly from the previous year. For the 2021 tax year, it’s set to increase again.
3. Retirement Account Contributions
The contribution limits for certain retirement accounts like IRAs and 401(k)s increased slightly for the 2020 tax year.
4. Unemployment Benefits
For the 2020 tax year, the devastating economic effects of COVID-19 led to some temporary tax law changes. For one, unemployment benefits received in 2020 are taxable as income.
5. COVID-19 Relief Plan
The COVID-19 pandemic led to the signing of the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) in March 2020. This law had several tax implications, including allowing for a penalty-free withdrawal from certain retirement accounts and creating a new deduction for charitable donations.
Final Thoughts
Tax software is an excellent option for most taxpayers looking to file their taxes quickly and cost-effectively. However, it’s essential to understand the features and drawbacks of each type of tax software and keep up-to-date with the latest tax law changes. With the right software and knowledge, you’ll be able to file your taxes accurately and with peace of mind.
Tax Software Background
Tax software has become a growing trend. Tax preparation software allows for companies and individuals to complete and file their taxes in a timely manner. Tax software can come in a disc form or can be downloaded off of the internet. This type of software allows individuals to enter their information and file their taxes on the computer as opposed to the out dated way of a tax booklet. Popular tax preparation software includes Turbo Tax and H&R Block at Home.
Online Tax Software
Online tax software offers individuals and companies the opportunity to use professional level tax preparation software on their own computers. Online tax software is easy to use and typically includes all necessary forms and documents required to file taxes, as well as a way to check for any errors before submitting. Free tax software may also be found in the form of a free trial, which allows a customer to experience the software prior to purchasing it.
Income Tax Software
Income tax software allows for a company or an individual to properly determine their income taxes. Income tax preparation software can be beneficial to those who are running a company as well as those who have multiple incomes to account for. Income tax software helps individuals determine their income tax return as well by calculating the information of the individual in comparison to the amount deducted from each paycheck.
Instant Tax Service
Instant Tax Service is a fairly new company that is slowly making its way across the country. Popular in 39 states, Instant Tax Service provides tax help to their customers while keeping them relaxed and comfortable. Another popular tax help option is the Tax Cut Software by H&R Block. This software allows for individuals to complete and file their taxes simply. Tax Cut Software users can also update their software regularly keeping their software up to date and allowing their taxes to be filed properly.
Professional Tax Software
Professional tax software is a common purchase for Certified Public Accountants. Professional tax software allows for accountants to file taxes for companies and individuals on a more professional level. Â When looking to purchase professional tax software it is important to look at pricing as well as features, since both can vary greatly. Some professional or business tax software companies include: Tax Works, Tax Wise, and Pay Cycle.
Payroll Tax Software
Payroll tax software is commonly used among many companies. Information about the employees and the company can be entered into the tax accounting software to figure out the proper amount of pay to pay the employee. This information can then be saved allowing the software to pull up the information when the company is filing for taxes and allow for the filing process to be simple and concise.
Tax Filing Software
Tax filing software allows for filing taxes to be quick and easy. Software allows for people to enter information and then the program generates the end result. Most tax return software has a feature to allow for automatic filing through the internet, commonly known as e-filing.
