How We Tested Tax Software
The Tester
I’m Lauren Ward, a finance writer with nearly a decade of experience covering personal finance, taxes, and other topics on the best ways to manage money. Plus, I’ve handled my own family’s taxes for years, using both online tax software and CPAs, depending on the level of effort I feel like giving from year to year! I’ve handled things like W-2s, self-employment income, and rental property income, giving me a solid foundation for testing multiple tax personas on the most popular tax preparation software out there.
The Tests
Cost is definitely a factor in tax software, but it’s not the only thing to consider when choosing the right one. It’s equally important to have access to all of the credits, deductions, and income reporting you need to maximize that tax refund (or minimize your final bill).
We tested four online tax filing software programs for the 2021 tax year: TurboTax, H&R Block, TaxAct, and TaxSlayer. Each performs a little bit differently and has its own pricing structure for various upgrades. We evaluated multiple features, including:
- User experience: How easy is it to navigate the software? Do answers save easily and is there the capability to import information rather than having to enter it manually?
- Customer support and guarantees: Is it easy to get answers to your tax questions? And how does the software guarantee its results?
- Adaptability: How detailed can certain types of tax filers get before being prompted to upgrade to a paid version?
Our Fictional Tax Filers
We created four hypothetical tax filers to determine how well each software performs for common tax scenarios.
- Devon Developer is a single, recent college graduate earning an average starting salary of $55,000 as an app developer. He has $37,000 in federal student loan debt, but his payments have been deferred since 2020. He also has some private student loan debt, which allows him to deduct interest from his taxable income. Through his employer, Devon has health insurance and a retirement plan, contributing 3% of his salary to a 401(k).
- Vanessa and Shawn Dotington have two young children. Their son goes to daycare and their daughter who’s in elementary school goes to summer camp while her parents work. Vanessa is a sales manager who earns $85,000 a year while Shawn is a seasoned teacher earning $60,000. They’ve paid off their student loans but have a mortgage.
- Ricky Retiree is single and fully retired. He turned 72 last year and started taking required minimum distributions (RMDs) on his traditional IRA and 401(k). He’s enrolled in Medicare and receives Social Security benefits.
- Franny Freelancer is a social media manager working as an independent contractor. Her business operates as a sole proprietorship. Franny gets her health insurance through the marketplace. She is single with no children and doesn’t have a mortgage or student loans.
What to Know About Filing Your Taxes Online
The “bare minimum” most people need, according to Amy Northward, a CPA and owner of The Accountants For Creatives, are things like W-2s, 1098s, 1099s, and health insurance 1095 forms. You should receive these in your mailbox by late January, although Northward says two firms often don’t get mailed out: student loan interest forms and brokerage account 1099 statements. (The good news: You’ll likely find these by logging into your online accounts.)
If that all looks like a jumble of numbers to you, here’s a basic breakdown of these common tax forms:
- W-2: Your employer uses this form to report your wages and various taxes withheld from your paycheck throughout the year, and also notes things like your retirement contributions and tips. It mails you and the IRS copies to determine whether you owe additional taxes or should receive a refund.
- 1095: As a health insurance holder, you’ll receive one (or more) of three forms. These detail the type and length of coverage you received under the plan.
- 1098: There are a handful of 1098 forms, but the most common involve interest lenders received from loan payments. Specifically, be on the lookout for these if you’ve got student loans or a mortgage. You can also expect 1098 if you paid college tuition bills during 2021.
- 1099: There are more than a dozen types of 1099s. Essentially, these account for any income you earned that did not come from your employer. For example, if you worked as a freelancer or independent contractor, you may receive a 1099-NEC from clients. Anyone who received state unemployment benefits can expect a 1099-G to arrive in their mailbox. Money received from pensions, IRAs, and life insurance policies also falls under this category.
Other Tax Software We Tested:
When to Hire a CPA or Tax Pro
You should strongly consider hiring a CPA or tax professional in certain situations, especially if you expect to owe taxes. Here are some scenarios in which you may want to outsource your taxes to ensure accurate filing—and peace of mind.
- You sold stocks, securities, or bonds: Whenever you sell one of these assets, the IRS considers it a capital asset transaction. The tax rate is different for these types of transactions, and it can be complicated to correctly combine it with your main source of income.
- You’re claiming multiple or shared dependents: Dependents can make taxes complicated (especially with the Child Tax Credit). Unfortunately, it gets even more complicated if there’s a divorce. Even if you provide financial support to someone, that doesn’t necessarily mean you can claim them on your taxes.
- You want to itemize instead of taking the standard deduction: If you spent more money on deductible expenses than the standard deduction allows, you’ll want to itemize your deductions. It sounds simple, but it can be a lot of paperwork.
- You own complex investments: Cryptocurrency is now subject to the capital gains tax if you sell it within a given tax year. If you’re not careful, you could pay more than necessary or under-report if you’re not careful.
- You’re self-employed and want to maximize your deductions: Anyone who is self-employed (meaning business owners, freelancers, and consultants) has to pay self-employment taxes. This is hard enough as it is, and it’s far too easy to pay too much if you don’t know about all of the write-offs and deductions you should be taking advantage of.
- You’ve sold a major asset, like a large investment or a home: Selling a major asset changes how you pay taxes that year. For instance, you may have to pay capital gains tax. A CPA can help you determine what type of tax you’ll need to pay, as well as any deductions you may be able to take to help offset everything.