Preparing accurate tax returns without proper help isn’t an easy task for anyone, but for the self-employed it can be a real nightmare. In fact, many of them don’t even try to cope with the whole process on their own but, instead, will immediately turn to certified accountants. Admittedly, this is an effective way of handling tax returns but it’s also quite expensive and spending a fortune on tax prepping is something that the self-employed often cannot afford. It doesn’t have to be that way, though, as tax software can do the job just as accurately as an accountant. In fact, not only are self-employed tax programs ridiculously easy to use – even without prior experience – and cheaper than having tax returns created by an expert, but they are also equipped with the best and most innovative features to assist with tax preparation.
The Best Tax Prep Programs for the Self-Employed
Despite being the priciest solution on the market, TurboTax is still considered one of the best online tax prep programs and not just because of its user-friendliness and thorough nature. In fact, that’s just the surface as TurboTax is prepared for the needs of any kind of self-employed users, able to uncover industry-specific deductions simply based on the answers given during the quizzes. Additionally, the software is also capable of pulling out data from other Intuit products including the ItsDeductible app and QuickBooks Online to speed the process along.
The advantages don’t stop there, though, as TurboTax also sports an app to manage taxes on the go as well as additional services that cover you should there be any problem with the return or should you unfortunately fall victim to tax fraud. But by far the best feature of the company is TurboTax Live: this extra is included in the $179.99 top-tier plan by default and provides users with the option to be connected with a designated CPA in real-time, who will not only help out self-employed taxpayers with their tax returns but also review all the forms before they are filed with the IRS.
While the online services of H&R Block are a bit similar to what TurboTax has to offer, this company does have its own merits. For starters, it also provides on-premise services as well, meaning that self-employed taxpayers can decide whether they want their tax returns to be prepared by a tax expert or with one of the top-tier programs – yes, that’s plural: programs. Freelancers and contractors can opt for the Premium version at $69.99 to put together their Schedule C-EZs, however it might be better to upgrade to the top-tier version, Self-Employed, for just $25 more to enjoy all of the benefits of H&R Block, including a tool that explains how refunds are calculated, a stellar mobile app, or the option to import data from expense management apps and even from Uber.
These default features are already promising enough, but the additional services are also worth considering. For taxpayers that are worried about issues that might occur after the returns are filed can opt for the IRS audit assistance and ID theft protection bundle for $24.99, whereas users who want their returns to be checked before filing can choose the Tax Pro Review for an additional $89.99 fee.
Liberty Tax isn’t the best solution when it comes to overall appearance and number of features but out of these three tax prep services it’s by far the cheapest. Sole proprietors are covered by the Deluxe version of the software – which is only $43.95 – but even the top product, Premium, comes in at just $69.95.
But price isn’t the only reason why Liberty Tax is worth opting for. It’s good that any irrelevant tax topics can easily be skipped but the fact that one Liberty Tax account can house up to ten returns – five for the current year and five for the previous two years – makes it ideal for managing personal and business taxes alike.
Intelligence is also the forte of Liberty Tax since it is capable of deciding which credits you are eligible for based on your answers and will also do everything in its possession to find and maximize all deduction options relevant to your tax situation. There are the additional services should they be desired, too, like the IRS audit assistance for $29.99 or the option to receive a bound copy of the filed returns that can then be forwarded to your accountant.
Best Tax Software of 2020
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.