Is tax filing software for me?
The first thing to know about tax prep solutions is that they’re not for everyone. In fact, it’s safe to say that self-employed taxpayers that have a particularly complicated tax situation or cannot manage their taxes on their own are certainly better off with a certified tax expert, even if it’s no secret that relying on such a service is way more expensive than using tax software. However, it’s worth adding that modern tax prep programs are all created in such a way that users can easily guide themselves through all relevant tax situations, essentially enabling them to put together accurate tax returns just by answering a series of simple questions and providing the data that they are already in possession of.
But the software’s thoroughness isn’t the only thing that self-employed taxpayers can find satisfaction in, though. Firstly, sole proprietors are usually required to purchase the top-tier product of any given company because despite its high price is the often the only option that contains all the features they need, including the filing of business profit and loss reports.
Then there is the function that pulls data from previous tax returns or occasionally from other sources, significantly reducing the need for manual entry. Online tax prep solutions are mobile-friendly, too, meaning that the return can be prepared on the go. It’s useful to know that tax software providers often offer additional services as well, such as IRS audit assistance – which helps audited taxpayers to confidently face the IRS – or ID theft protection that alerts authorities should someone commit tax fraud in your name.
What to look for in your tax prep software
Although thoroughness, convenience, and mobile-friendliness are all indeed important aspects of any tax prep solution, these features shouldn’t be the focus when it comes to picking the most suitable software. These are just secondary traits as the most important features to look for are the presence of the necessary business-related forms, the option to maximize and itemize deductions, and the overall price of the product and any additional services.
The first of these aspects is by far the most important because without the correct forms you won’t be able to properly report your business income and expenses. Thankfully, the top-tier versions of online tax prep software are more than capable of dealing with Schedule C – the form dedicated to business profit and loss – and often these programs automatically detect when this special document is required and prompts you to upgrade to the corresponding solution. However, it’s worthwhile knowing that in case of a partnership, C-corporation, or an S-corporation, specific downloadable products will have to be purchased as those are the only solutions capable of handling the special forms needed for such business entities.
Deductions, however, are handled well by both online and desktop-based tax prep programs. So well, in fact, that not only are they capable of providing every possible deduction option simply based on your answers but they can also reveal hidden deductions that you may not be aware of. Granted, going down the path of tax software means having to purchase a new solution for each tax year but thankfully the costs of doing so will likely never exceed the service fees of an accountant, regardless of whether you buy only the program or decide to add extras like state returns, security services, and/or the option to pay the chosen service provider by deducting the necessary costs from your refund total.
Filing your taxes for the first time
When it comes to the point of using the chosen tax software to file your taxes for the first time, it’s best to be prepared for some manual data entry. Granted, it won’t take an eternity to put together an accurate tax return, especially if the previous year’s return is uploaded into the program to serve as a base for the current one. It is always possible to turn to the tax experts of the tax prep company for help, too, but there are still many things to pay attention to in order to avoid an audit by the IRS.
First and foremost, you will need to be in possession of all documents that accurately report any source of income – which is usually included on Forms 1099-MISC and are issued by your clients – as well as proof of all expenses related to maintaining the business. The key word here is accuracy as no matter how advanced tax programs are it’s still always the taxpayer’s responsibility to feed them with accurate data. Unlike salaried individuals, self-employed people are also required to report an estimate of their federal income taxes on Form 1040-ES and then pay the estimated amount in four installments on April 15, June 15, September 15, and January 15. This estimated amount is usually 100% of the income taxes paid for the previous year or 90% of the tax estimated for the current year – but only if the adjusted gross income is below $150,000.
Zoltán G.
Adam B.
