How do I Choose the Best Online Tax Preparation Service?

Choosing the best online tax preparation service mainly depends on the type of tax return you need to file. Some of the things to consider when choosing online tax preparation services are cost, completeness, electronic filing availability, and refund guarantee. Reviewing your requirements before committing to a specific tax preparation option should prevent you from spending money on a service that does not fit your needs.

For most tax filers, cost is the deciding factor when choosing a tax preparation service. For example, does purchasing the service allow you to file as many tax returns as you like? It is also important to know whether the service includes both state and federal income tax preparation.

Compare the different preparation services and software to calculate the cost per return. If you are a filer who makes less than approximately $50,000 per year and does not intend to itemize, the Internal Revenue Service may have a program that provides free filing. The criteria for free or "EZ filing" changes every year, so be sure to check the IRS website before purchasing an online tax preparation service elsewhere.

Completeness is another factor to consider when deciding on the best online tax prep service. If you have special circumstances, such as a home-based business or significant investments, some online tax preparation software may not have all the forms you need to file your tax returns correctly. This is also true of tax filers who have real estate, college costs, or have declared bankruptcy. It is best to review your situation and list the types of things that may affect how you file. Search the IRS website to confirm the form number then review the online tax preparation software website to ensure it covers your situation.

Electronic filing is a common method for filing both federal and state income tax returns. Though most online tax preparation services do provide electronic filing, there may be an additional fee. Many services will offer the federal filing for free but charge to file the state return. For taxpayers who live in a different state than they work, this becomes even more expensive since they will have to file two state tax returns. Some online tax preparation software only allows one filing which will prevent you from sharing the software with others.

Choosing an online tax preparation service that offers a refund guarantee is another option to consider. A refund guarantee refers to a guarantee by the service provider to ensure your refund is accurate. If for some reason the IRS changes your return after it has been submitted due to errors in calculations or forms used, the company will compensate the tax payer for the error.