When it comes to tax software, there are plenty of options available, which can make it challenging to find the best one for your needs. To help you navigate the selection process, we sat down with Robert Barrington, founder of The College Investor, to discuss what to look for in tax software and how to choose the right one.
To start, Barrington emphasized the importance of understanding that tax programs are designed to cater to different niches. That’s why he and his team start reviewing tax software options in October every year and run mock tax returns for different scenarios, including W-2 income, investment income, and rental properties. This allows them to break down the various software options and see how they perform in different categories.
Barrington also highlighted the significance of understanding the costs associated with tax software. He started reviewing tax software 10 years ago because people were complaining about hidden fees and unexpected costs that came up when they filed their taxes. His goal is to help people understand what they are getting and what they are paying for based on what they are filing.
When asked about the different types of filers and scenarios they consider when reviewing tax software, Barrington noted that they cover around 10 different categories, including free tax software, self-employed filers, and those with investments. He also explained that the top five to seven tax software options are the most well-known, but there are many smaller players in the space that can also be worthwhile to consider.
During a conversation, he also provided some recommendations for tax software based on the level of complexity of one’s taxes. For those with a simple 1099 and a side hustle, he suggests using Cash App Tax or TaxSlayer Classic as a runner-up. These options are free and easy to input information.
If one’s business has grown and become more complex, Barrington suggests upgrading to TaxSlayer’s Self-Employed tier for an additional $20 to receive professional help from experts in self-employed business taxes. This can be helpful if it is your first time putting together a Schedule C or if you have a lot of income and expenses and are not sure where to go.
If you have a lot of income and need more support, TurboTax Self-Employed is the most expensive option but offers a lot of help and support for those who are unsure of where to go with their self-employed business taxes. However, Barrington warns that there are many nuances to self-employment taxes, and it may be worth it to jump to a tax professional instead of using DIY software.
In terms of receiving professional help from software, Barrington recommends TaxHawk (which is actually FreeTaxUSA’s premium version) and TaxSlayer Premium for those who want to pick up the phone and call for support. TaxSlayer Premium charges an additional fee for this service, while TaxHawk offers it for free.
He also notes that with all tax software, you do not have to pay until you click “file,” so you can try out different tiers of the software before committing to paying for them. He cautions that this is where many people get caught with unexpected fees, but it can be a useful way to try out different software options before making a final decision.
Barrington also emphasized the importance of starting early when looking for tax software and researching options that cater to your specific needs. He also encouraged people to be mindful of the costs associated with tax software and to choose the best option for their unique situation. To find more good wealth management ideas, check out the Bannerman Wealth blog!