Late last year, Congress passed legislation that will cut tax rates, limit or eliminate some popular deductions, and double the standard deduction. As a result of the changes, the percentage of taxpayers who itemize deductions is expected to drop from about 33% this year to less than 10% next spring, when returns for 2018 are due.
But none of those changes will affect your 2017 tax return, for which the old rules still apply. If you’ve always itemized and your tax situation hasn’t changed, you’ll still want to itemize this year.
Fortunately, tax software can help you identify all the tax breaks you’re eligible to claim in a fraction of the time it takes to fill out a paper return. And if your tax situation is uncomplicated, you may be able to file your return electronically at no charge.
For this year’s tax-program review, we used a hypothetical taxpayer who is single, has no dependents, claims the standard deduction, and had $1,200 in self-employment income in addition to income from a job reported on a Form W-2.
Most tax-filing programs require those who have self-employment income to upgrade to a more expensive version, even if you don’t itemize. It’s important to review each program’s terms beforeyou start plugging in your numbers.
Keep in mind, too, that as the April 17, 2018, tax-filing deadline approaches, some software providers will increase their prices—either for their software or to file a return. That’s a good reason to file as early as possible.
Pros: Easy to navigate, excellent user support
TurboTax is the Mercedes of tax software, with lots of extras designed to make your ride smooth and enjoyable. It electronically imports W-2 forms and documents from financial services firms, saving you the time and trouble. If you’ve used TurboTax in the past, it will remind you about sources of income and deductions from prior years, which reduces the chance that you’ll overlook a charitable contribution or a capital-gains distribution from one of your mutual funds.
When our hypothetical taxpayer reported self-employment income, TurboTax helped to navigate the intricacies of Schedule C.
Assistance is always nearby, whether through the help text that’s accessible at each step along the way, the TurboTax user community, or a tax expert available via live chat.
Like a luxury car, TurboTax carries a hefty price tag. The Premier online version, which you must use if you have investment income, costs nearly $120, as of March 7, for a federal and state return. If you have self-employment income, the price is even steeper: $160 for a federal and state tax return. And TurboTax is one of the software providers that uses surge pricing, so you can expect those prices to rise before April 17.
Pros: Free federal and state return for basic returns, no surge pricing, easy to navigate
Cons: Limited user support
For many years, TaxAct was the darling of budget-minded, do-it-yourself taxpayers, thanks to its low-cost, no-frills software. Although TaxAct is still a relative bargain, it’s not as cheap as it used to be. TaxAct offers a free federal and state return for taxpayers who file Form 1040EZ or Form 1040A, but itemizers must upgrade to TaxAct Plus, which costs $30 for a federal tax return and $37 for a state tax return. If you have self-employment income, you must use TaxAct’s new product, TaxActFreelancer ($45 federal/$37 state), which is filled with helpful calculators and videos. However, TaxAct guarantees that the price in effect when you start your return won’t change, no matter when you pay to file.
TaxAct announced last year that it had expanded its electronic import capabilities, including the ability to import W-2 forms from many employers. However, in our test drive, which used a W-2 from a major payroll provider, TaxAct still required us to enter the information manually.
TaxAct’s program is organized by life events—whether you own a home, for example, or got divorced in 2017. You can skip right over entire categories of questions that are irrelevant to your financial life.
Alas, if you have questions, answers aren’t easy to find with TaxAct. You must seek out the Help section in the program’s menu, then scroll through a list of topics. Other programs do a much better job of anticipating questions and providing clear answers.
Credit Karma Tax
Pros: Free federal and state return, even for complex returns
Cons: Can’t handle multistate returns
Credit Karma Tax has made some significant improvements for tax year 2017 without sacrificing its most appealing feature: You can prepare and file a federal and state tax return free, even if your return is complex.
You can import information from prior years’ tax returns from TurboTax, H&R Block and TaxAct, as well as W-2 forms from major payroll providers. If your payroll provider isn’t supported, you can take a photo of your W-2 with your smartphone to import your data.
The program marches you through the standard tax interview efficiently, with help text available for users who need more information about a particular topic. Credit Karma Tax also provides individual support via live chat. However, when we attempted to use it, we received a message stating that the desk was experiencing an unusually high volume of requests and that our response would be delayed.
If you need to file a return for more than one state, you can still prepare and file your federal tax return on Credit Karma, but you’ll have to use another program for your state returns.