The Tax Cuts and Jobs Act (TCJA) of 2017 made a substantial number of changes to the tax code. Over the next couple of years, tax professionals and personal tax preparation service developers had to interpret the new law for their clients and users.
Tax preparers were just starting to breathe a sigh of relief when the COVID-19 pandemic hit. And with it came two new major pieces of relief legislation that once again complicated their work (more on that later). The filing season was extended, so software companies had to deal with ongoing issues of taxpayers’ 2019 returns as well as prepare for the 2020 filing season. And now, the IRS has extended the deadline for 2020 federal tax returns.
The good news is that the 2020 versions of personal tax preparation services have been ready to go for a while now. Your goal is still the same: to prepare and file your taxes before the May 17, 2021 deadline, and to minimize your tax liability as much as is legally possible. The best way to make sure you’re not paying too much to Uncle Sam is to use one of the best tax preparation services we’ve reviewed. You may even be eligible to e-file your taxes for free with one of these services.
If you haven’t filed your 2020 tax return yet, there’s still time to minimize what you owe (or maximize what you get back) by using a personal tax prep website. Several good-to-excellent services are at your disposal, and you can read our reviews to find the one that’s right for you. As always, they’re compliant with the current IRS tax code and have three goals:
- to help you file an accurate tax return
- to make the tax filing process as quick and painless as possible
- to ensure that you only pay what you owe and don’t miss deductions and credits that would lower your tax bill
Less Taxing Taxes
Even if you only write an occasional letter or work memo, your composition skills probably improved when you first started using a word processor. Suddenly, going back and making a correction was no sweat. The same concept applies when it comes to income tax preparation websites. There’s no comparison between completing your return manually (using paper IRS and state forms and schedules) and doing so with the help of a dedicated tax prep site.
The Big Picture
To diehard manual preparers, we ask: Why would you want to sit at a table surrounded by a mound of papers that you have to fill in manually when you can do the same task sitting at your computer—or even your smartphone? Yes, that’s right: You can do your taxes on a phone or tablet. We’ve rounded up the best mobile tax preparation apps in addition to the browser-based desktop PC versions.
Tax site developers know how much most individuals loathe tax preparation, so they’ve made their online solutions exceedingly approachable. Plus, you’re more likely to do a more thorough job when you’re interacting with a friendly, visually appealing, easy-to-use application. Instead of giving up in frustration when you can’t figure out whether you can claim a particular credit or deduction and how to do it, you just need to follow the instructions of your service of choice. TurboTax does an especially good job here, offering an exceptional user experience and strong support. In fact, it’s our Editors’ Choice this year. H&R Block Tax Prep and File is our favorite for mobile tax apps. Can’t decide between the two? Check out our head-to-head comparison between TurboTax and H&R Block.
Easing the Way
How do tax sites streamline such a convoluted, complex process to the point where you’re more likely to file a return that reflects every element of your tax-related finances? Below are just some of the many ways.
Walkthroughs
You don’t have to deal with official IRS and state forms and schedules. All of these applications guide you through the entire process using a series of wizards. They ask simple questions, and you provide answers by filling in fields or selecting from options. The sites do all the calculations and complete the required documents for your returns without you ever having to see an official IRS or state form. Because they touch on every major tax topic (and many minor ones), it’s harder for you to miss something that could save you money.
Organization
Every tax preparation website starts off each section (income, deductions, credits, and so on) with a list of all the ways you could possibly receive money (including W-2s and self-employment income) and the ways you might have spent it (such as mortgage interest and medical expenses). You don’t have to worry about omitting a critical piece of information that could result in an incorrect return—and possible penalties. You also don’t have to scramble to find the right forms (or inadvertently forget one). All you need to do is answer questions about how you earned and spent your money.
“Where Do I Enter?” Tools
Whether you use a step-by-step wizard or choose from lists of tax topics, you may have unused forms at the end. If you’re doing your taxes manually on May 17, it may be tempting to put them back in your tax folder and hope the IRS doesn’t notice. It’s definitely less stressful to not be a last-minute e-filer. The IRS will eventually notice, and you may have to pay a penalty, which adds to the cost of your taxes. The best tax websites help you track down the exact screens where you can enter your leftover data.
Do it Right, Avoid Fines
There are so many ways to file an incorrect income tax return. Forgetting to report income is one of the most serious errors, but you can also make other mistakes that may result in a higher tax bill, or even a fine. Tax sites help you avoid both by providing simple and clear written guidance—not in the complex language of the IRS.
These applications help you put the right numbers and other information in the right places. But what if you don’t understand a topic or are not sure if it applies to your situation? For example, you might want to know whether you are eligible for a certain deduction without risking a penalty if you’re not. Tax preparation services provide multiple types of help. For example, they might:
- explain a question in more depth
- hyperlink a word or phrase and open a window containing a definition
- display FAQs and other context-sensitive information
- include voluminous files that you can search for answers to specific questions
- offer chat, phone, or email help
The better you understand what information your return requires, the more likely you are to knock some money off of your tax bill and stay off the IRS’s radar.
Hundreds of Deductions and Credits Available
All of these helpful tools make it more likely that you’ll claim every deduction and credit you’re legally allowed than if you were doing your taxes by hand.
That’s really the point of these tax preparation services. Yes, they help you document your income carefully. Many, for example, let you import your W-2, 1099, and other data from previous years (or competing websites) and revise it as necessary. But when they break down the Form 1040 for you, they strive to be as comprehensive as possible, especially when it comes to the deductions and credits that can lower your tax bill. TurboTax, for instance, claims to support more than 400 deductions.
More Savings
There are other ways that personal tax preparation websites help minimize your tax obligation:
- They include questions about taxes you may have already paid (such as estimated taxes and taxes withheld on retirement income).
- They pay special attention to health insurance: The individual mandate was eliminated after the 2018 tax year, but you may still have to answer questions about your health insurance for 2020. Millions of Americans still get their health insurance through state or federal Exchanges and receive a Form 1095-A.
- They provide multiple versions of their applications at different prices, so that you don’t add any more to your tax costs than necessary.
- They offer totally free versions for both federal and state filing if your return is simple (in some cases). Credit Karma Tax actually supports all major IRS forms and schedules at no cost to you for either federal or state filing, though it doesn’t offer nearly as much taxpayer assistance as the paid products. FreeTaxUSA charges a modest $12.95 for preparing and filing state returns, but you can process your federal return for free—and have access to a variety of help resources.
- They make tax professionals available to complete your return if it simply becomes too complicated for you to finish on your own. This costs extra money, of course, but may reduce your tax bill in the long run. Jackson Hewitt, H&R Block, Liberty Tax, and TurboTax all offer this.
Unless your return is very simple or you’re well versed in the tax code, you’ll probably have to spring for one of the paid versions of these web services. This will add to your total tax costs for 2020, but not by a significant amount. Since these personal tax preparation services save you time and frustration, ensure accuracy, and can find deductions and credits that lower your tax bill, they are likely worth the cost.
Tax Law Changes for 2020 Returns
The tax sites reviewed here have been retooled to incorporate the changes made to the tax code for 2020. Here are some of them:
Income Tax Brackets
They haven’t changed overall, but individual brackets have been broadened a bit. You can see a table here. Your personal tax owed is, of course, built into tax websites. The standard deduction increased slightly, too.
Economic Impact Payments
Also known as stimulus payments, eligible taxpayers received two rounds of them in 2020. The first was $1,200 per adult and $500 per child, The second was $600 per adult and $600 per child. These are not taxable. If you were qualified and didn’t receive one or both payments, online tax software can help you claim the Recovery Rebate Credit on your tax return. You can file for this on a 2020 Form 1040 even if you’re not usually required to submit a tax return.
Eligibility for these payments was based on 2018 and 2019 tax returns. If your income was too high in 2019 to qualify, but it dropped enough in 2020 that you meet the requirements, you can still file for the credit. The same goes for if you were claimed on someone else’s return as a dependent in 2018 or 2019, but not 2020.
Tax Credit Eligibility
You may be eligible for tax credits in 2020 that you weren’t before. For example, even if you don’t owe any tax, reduced income may qualify you for the Earned Income Tax Credit (EITC). The IRS says that one in five people who could receive this credit doesn’t apply for it.
Also, if a dependent of yours doesn’t qualify for the Child Tax Credit (CTC), he or she may be eligible for the Credit for Other Dependents.
IRA Contributions
Starting with the 2020 tax year, the age limit for making regular contributions to traditional and Roth IRAs has been changed. You can now contribute past age 70-1/2. Contributions that are within the maximum amount thresholds will be deductible if they’re made up to May 17, 2021.
Charitable Contributions
Even if you don’t itemize, you can now take a deduction for up to $300 (per return, not per taxpayer) in cash contributions to qualified charities. Also, cash contributions are no longer limited to 60% of adjusted gross income (AGI). There are some exceptions.
Sick and Family Leave Credits for Self-Employed
If you’re self-employed and had to take time off in 2020 because you or a family member had COVID-19, you should be able to take tax credits against your self-employment tax. This also applies if you had to quarantine. For more on filing taxes as a self-employed worker, see: Did You Work for Uber, Lyft, or DoorDash Last Year? Here’s What It Means for Your Taxes.
Tax Extenders
Congress also extended the life of some tax credits that were scheduled to end in 2020, like the Residential Renewable Energy Tax Credit, mortgage insurance premiums, and college tuition.
Tax Software Can Save You Money
Even though tax changes are built into official IRS paper forms and schedules, it’s still important to consider using a tax preparation website rather than doing your taxes manually. It’s not just that sites can simplify and accelerate your filing chores. They also shoulder the burden of compliance, so you don’t have to. They’ve all built the latest tax law changes into their sites so that—for better or worse—you can file a more accurate return.
