The latest statistics from the IRS show that of all the e-filed individual tax returns for a recent tax year, 59% were done by tax professionals and 41% were self-prepared. That 59% number is still surprisingly high to me, but today we focus on the 41% self-prepared returns.
When you are part of the 41% who do your own taxes, software makes it a lot easier than doing it directly on forms. Some software such as FreeTaxUSA are purely online. Others such as TurboTax and H&R Block offer both an online service and software for download or on a CD, which you install on your own computer. Most people choose to use the online service. TurboTax reported 80% of the returns it handled came from its online products. When you have a choice between buying the software you install on your computer and paying to use the service online, you are better off with buying the software download/CD.
Operating System Compatibility
Online software is compatible with a wider varieties of devices. You can use it with Linux, Chromebook, or tablets, whereas the software download/CD typically only works with Windows or Mac. Sometimes the software also requires a more recent version of the operating system.
When you use the software online, you don’t have to worry about installing the software and possibly dealing with any errors that pop up. The installed software usually requires several updates before it’s finalized. The online software is updated automatically in the cloud.
Online software clearly has an advantage here. However, if you have a Windows or Mac computer and you are proficient in installing and updating software on it, it’s not that big a burden. It typically takes just a minute.
Possible to Get It Free
Through a partnership with tax software companies, the IRS offers Free File to people with income below a threshold. The cutoff is $66,000 in Adjusted Gross Income (AGI) for the 2018 tax year, which covers 70% of all taxpayers. Unfortunately only about 3% of all taxpayers actually use Free File for whatever reason. Free File is completely online. There is no software download option.
It’s also possible to get it free from the tax software companies themselves. FreeTaxUSA offers free federal returns with no limit on income or any restriction on features. TurboTax and H&R Block both offer a free edition with limited features. If you choose to use FreeTaxUSA or if you don’t require any of the features excluded by TurboTax or H&R Block, it’s possible to get to use the online software free of charge. Again, all these possibilities are only online. There is no free software download/CD unless you get the software through a financial institution due to your relationship with that financial institution.
Online software has an advantage here if you are able to get it free.
Prices
If you must pay, prices for online software are usually higher than software download/CD.
I compared the prices for federal-only, without state on a random day:
| Online | Download/CD (Amazon) | |
|---|---|---|
| TurboTax, Deluxe edition | $40 | $30 |
| H&R Block, Deluxe edition | $30 | $25 |
I also compared the prices for federal plus one state, including e-file for both federal and state:
| Online | Download/CD (Amazon) | |
|---|---|---|
| TurboTax, Deluxe + State edition | $80 | $60 |
| H&R Block, Deluxe + State edition | $67 | $55 |
When you do a state return online, the prices automatically include state e-file. The software download/CD with state return only includes the preparation part of it. E-filing the state return requires an extra $20 fee. I added $20 to the prices of the software download/CD for an apples-to-apples comparison.
I think $20 for just e-filing the state return is too high when the whole software with all the complex logic for both federal and state returns is only $40. If you are willing to print and mail the state return, you can save the $20 and get the software at almost half the price for doing it online.
Features
Not only is the software download/CD less expensive but it also has more features than the same named edition online. For instance if you sold investments with capital gains or losses, the online Deluxe edition of TurboTax or H&R Block software can’t handle it. You’d have to upgrade to TurboTax Premier or H&R Block Premium. However, the Deluxe edition of the software download/CD includes handling capital gains or losses. That makes the software download/CD even less expensive when compared to a required higher edition of the online product.
The software download/CD also makes it easier to access the tax forms. If you are familiar with the forms you can toggle between the interview and the forms to confirm that you answered the questions correctly.
Lower prices and more features give an advantage to the software download/CD.
Multiple Returns
The online product is designed to be used by only one person. If other people in the family need to use it, they must register separately and pay again (unless they can get it free, see above).
After you install the software download/CD to your computer, you can use it for multiple returns. It can be for a married couple filing separately. Or it can be for filing returns for children or parents. The software download/CD includes 5 free federal e-files for this purpose. If you need to do more than 5 returns, the additional returns can be printed and mailed.
Access to Previous Years
With the software download/CD, if you ever need to amend a previous year’s return, you can always fire up or re-install the previous year’s program. If you used online software, by the time the year rolls over, the online software is automatically updated for the next year. There’s a process to get to a previous year’s return but it’s much more difficult.
Filing versus Planning
Online software is designed for after-the-fact filing. You work on only your actual return. It’s difficult to create multiple versions under the same user and compare the effects of different moves. If you’d like to see how much that 1099 cost you in taxes, you can delete it but you will have to re-enter it before filing.
The software download/CD works on a data file. It’s very easy to create a copy of the data file and name it something else. Then you delete that 1099 in the copy and compare the results. You won’t mess up your good copy. For instance you can see the effect of how making more money will affect your ACA tax credit, how contributing to Traditional 401k versus Roth 401k will affect your taxes, what if you earned more interest and less dividends, and so on. Besides filing your tax return, the installed software is also a very powerful planning tool.
It’s much more difficult to do this type of what-if analysis with online software. You can register with two different email addresses, one for filing and the other for planning, but you will have to enter your data twice and be careful to keep them in sync. You will have to remember to undo the changes you made in the planning profile to go back to the baseline before you make additional changes for planning purposes.
Switching Vendors
If you ever want to switch from one vendor to another, it’s very easy with software download/CD. TurboTax is able to import the previous year’s tax file created by H&R Block and H&R Block is able to import the previous year’s tax file created by TurboTax. When you use online software, it’s more difficult to switch because the competing online software can’t get into your online account with another vendor to import your data.
Who Holds the Data
When you use online software you data are with the software vendors. Although we haven’t heard any hacking incidents at tax software vendors, many other places have been hacked. It’s also possible to fall for phishing. When you use software installed on your computer, you have your data file. You can store it on offline media.
Conclusion
Except operating system compatibility and the possibility to get it free, all other factors give the advantages to software download/CD. Although it sounds like more old school, if you must pay, the software you install on your own computer is both less expensive and more powerful.
If you already use online software, it’s possible to switch to software download/CD by the same vendor and carry over all your data. TurboTax gave these instructions: How do I switch from TurboTax Online to the TurboTax software? Contact H&R Block support if you’d like to do the same with H&R Block.
Say No To Management Fees
If an advisor is charging you a percentage of your assets, you are paying 5-10x too much. Learn how to find an independent advisor, pay for advice, and only the advice.
Maura says
Are you familiar with the IRS Free File program? If you meet certain criteria, such as income and age, you are eligible to use the software of various companies for free.
I realize that using an online tax prep does contribute to the security issues you mentioned, however, good for the old wallet?
Disgruntled ex-turbotax user says
Ah, the issue of multiple returns. This can be an issue even if you’re completing a return for just one person, but they need to file with multiple states. You can’t do that on-line. Believe me, I tried!
The other problem with the on-line versions is that they do not allow you to pull up the actual forms. Last year, Turbotax made an error on one of my forms in the on-line version. It was very easy to correct (uncheck a box), but I could not do so through the interview process. I was told by their staff that they disable access to the actual tax forms in the on-line versions.
Furthermore, let me also point out that some states allow free state filing on their websites. The state programs offered by Turbotax et all do nothing but import your federal information. I’ve actually found it easier to do my state tax returns “by hand” on the state website. It also saves me lots of money, because I can get the basic software versions ($4.95 for Turbotax, and free for Taxcut) instead of having to buy one with a state included.
Harry Sit says
Thank you for bringing up the free state filing programs offered by the states.
Don says
I still do it on paper. Yes, I even read the books. And frankly I’ve done better than the professionals I’ve hired (because I later caught things that they should have caught for what they were paid).
I do use a spreadsheet to predict things forward for the next year. But there’s nothing like understanding taxes for yourself. For example, I’m pondering already how the “stimulus payment” is likely to change things for me next year.
Rick says
Hi Harry-can you share where you purchased the $40 “package?”
Thanks,
Rick
Gabe M says
TaxAct just effectively ended its desktop software. One has to go online and sign in through their server to get back into one’s own desktop computer and use the “desktop” program. They claim the IRS made them do this. It is insane! They force you to be online and thereby exposing yourself to attacks. The IRS only asked software companies to build in password security which they had any way. There was not hing forced.
No sense in this!
Olivier says
What do you all think of https://sites.google.com/site/excel1040/
It looks good to get a good understanding of the mechanisms and allows one to easily and instantaneously see the effects of a cell change.
However, I don’t know how to cope with the state returns if using this.
Thanks for any thoughts.
abc says
I don’t see any comments to the old post. Can anyone provide further information on this excel workbook? Like, is it safe to download?
Harry Sit says
It’s safe. I downloaded it. It works well for projecting the federal income tax if you are familiar with the forms. It doesn’t do everything (for example calculating the Saver’s Credit). Tax software still works better but if you can’t use the tax software (no Windows or Mac computer), it’s a good second choice for planning purposes.
Olivier says
I have a Linux PC instead of Microsoft Windows PC so I cannot use the desktop version of TurboTax, Taxcut.
Barbara B says
This year I discovered that I can get a free TurboTax Premium version from Fidelity. I found the link at the bottom of my All Accounts page after I purchased the 2018 download. It appears to give free Federal and State returns. Not sure if it’s the online version only or available for download. Someone mentioned that the free version is available to accounts with a certain value.
Harry Sit says
The free offer can be used for either the online service or the software download, although it’s not as obvious how you would get the download. From people who did it — At the top of the page, pull down on “Products & Pricing” and select “CD/Download products.”
abc says
Thank you Barbara. I had stopped using TurboTax years ago because it was expensive. I just downloaded the premium version for free, which lists for $109.99. Also, the instructions Harry provided for accessing the download were very helpful.
Anthony Goczalk says
Hi Harry,
I really enjoy your blog and most times I agree with your point of view 100%. On this topic, I must disagree with you (and as it turns out most of your other comment posts). Since I switched to using a Chromebook about 5 years ago (and yes, using the cloud for my hard drive) … my life has become much less complex and I have saved money to boot. My first Chromebook was $150 plus tax. The cloud for my drive, is $25 per year. So when you are comparing costs of your download/CD versus an online access program…you are not including the cost difference of the actual machine in your equation. What does a Windows or Mac cost these days? I have no idea! How much time do you devote to maintaining the OS of said machine? I literally spend zero time on OS updates (they are done automatically with a reboot) and zero time keeping up with the latest anti-virus program (plus $$$) … and according to “folks in the know”, a Chromebook is the safest way to be on the net. As far as safety, yes, places are being hacked. If Turbotax (my vendor of choice) exposes my data, at this point in time, I will be very surprised … If Google is hacked (my online drive) … we are ALL in trouble! So you have to ask yourself are you safer on your Windows machine (exposing your data) or at Turbotax or Google???
Refiling an old return? I just had to do such a thing, refiling my 2013 and 2014 returns … I found the online programming very easy (you do have to commit to one vendor for ease) to get the job done. I have nightmares thinking about what I would have had to do if the return was on an old program and computer. My first computer was in 1984. I came up through the DOS/Windows lineage. I can not imagine going back to that now…what a PITA dealing with those machines – especially as they aged.
The last issue is planning…there is an app for that! Turbotax now has a planning app that will load on your phone (and if you have a newer Chromebook, there too, because they now load Android apps)
Sorry for the long post … but cost, history, safety and planning all go to the online program. I will give you access to the actual forms … they used to allow that online and now they don’t. I can live with that!
Harry Sit says
Obviously no one would buy a machine only for the sake of using tax software. The tax software is for people who already have a Windows or Mac machine and they want a Windows or Mac machine for other reasons. I have a Chromebook too. I use my Windows machine and my Chromebook for different purposes.
With regard to the planning app, are you talking about TaxCaster? It can do some calculation but not everything in the tax software (for example, nothing on ACA tax credit or Saver’s Credit).
Alvin Care says
i used to buy CD since there is always sales on it but one year i installed the software and using it on my win destrop and when it comes to linking your bank/brokerage accounts they don’t allow copy paste to your password field i use password manager to generate all these bank accounts and its a nightmare to manually type these passwords from there i stopped buying software and use online filing period.
Arun says
Costco currently has TurboTax CD at a discount of $10 to 15 for in-store purchase – lower than online purchase.
Barry N says
Harry, yours is the best coverage of the tax filing software choices, IMO. I use TurboTax CD for download to my computer because I own publicly traded partnerships that issue K-1s. It tracks important information that comes into play when you sell a partnership (I don’t think the online version does that). Plus the CD version allows one to upload a K-1 file from taxpackagesupport.com rather than enter manually.
FinancialDave says
IRS sponsored free tax help is not necessarily income limited nor age restricted.
The IRS sponsored AARP sites (AARP Foundation Tax-Aide) do not limit help by age or income, however there are items that show up ocassionally that do put returns out of scope, like self-employed business expenses > $25k, some types of bond income on taxable accounts, depreciation of assets, and some K-1 income so check with your local office. There are sites in all 50 states.
https://www.aarp.org/money/taxes/info-2018/aarp-tax-help-fd.html
Some other sites such as VITA/TCE do try to focus on the elderly.
Almost every large city in the US has at least one or the other of these types of sites so check online for your city.
Dave
Harry Sit says
I suppose those in-person help would fall under the 59% of e-filed returns done by a tax professional.
Lindy says
Good points made in the article and comments.
I used to always use a CD or download, and to make sure I and the software were correct, would fill out (but not submit) a return on a competitor’s online site using a made-up name and social security number. I found, too, that sometimes the way questions were asked were clearer in another program. However, the year the ACA went into effect, I had bought H&R Block early and was strung along with messages “We’re still working on these calculations” only to be left hanging at the end of March with a message to the effect of “We decided to not accommodate ACA. Go to a physical office.” So, I was out my money *and* flipping mad, having been a long-time customer who was used to their platform.
Now, I’m afraid to buy a CD or download lest it fail to meet my needs or the program was never intended to handle my situation. I moved on to TaxAct online (for about $30-40; TurboTax is about $100), but I do not like doing taxes online, for the various reasons you noted.
It is also ridiculously confusing trying to figure out what iteration of the program I need. Seems to change every year, and as you noted, online is not the same as offline, but they don’t really tell you this or offer details. Why must they make it so hard?! This is another reason TaxAct currently has my business, despite being a clunky platform: They offer a freelancer version. Usually self-employment catapults me into the same super-expensive tier of software that “real” businesses need.
As a side note, ACA has complicated my taxes greatly, and I have found that if I input the same info into different software, I get somewhat different results. I greatly dislike not getting the exact same results, because I should.
Harry Sit says
I ran into that problem in H&R Block for 2014 as well. It caught up in the following year. Both TurboTax and H&R Block offer a no-question-asked money back guarantee for their software (downloaded or on a CD) whether you bought directly from them or through a retailer. I took them up on it in different years. They both honored it without any hassle.
Have you checked TaxACT’s prices this year? Unless you get a discount, I see the price for the online Self Employed+ edition at $90 for federal + state. For my service-based self-employment (no inventory, no hard assets), the Deluxe + State version of the download/CD product always worked just fine. It’s $35-40 right now. H&R Block Deluxe + State sometimes goes on sale for under $20 on Amazon.
Olivier Schreiber says
I think the ability to trivially do whatif scenarios is capital.
Because of my Linux Desktop, I use the cheaper TaxAct online program
but the ergonomy and lack of other features is a drag.
For whatif scenarios, I put dummy values is some replies, change them up and down
and see the effects on the running Tax totals.
Also, when I checked https://sites.google.com/site/excel1040/home/changes
it was missing:
Form 2106 OMB No. 1545-0074 Employee Business Expenses
Form 8829 OMB No. 1545-0074 Expenses for Business Use of Your Home
Form 4562 OMB No. 1545-0172 Depreciation and Amortization
So even if State tax is easy as mentioned earlier, that is is still a problem about excel1040.
What do all readers think about Turbo vs HR vs TaxAct?
Thanks
Barbara says
Before knowing I could get TurboTax Premium for free at Fidelity, I’ve purchased it from Amazon – the best price I’ve found on the web. Quite a bit less than the Intuit price.
roland torres says
Harry, any thoughts on Credit Karma tax online service? Filing looks free and reputable company?
https://www.creditkarma.com/tax
Harry Sit says
I haven’t tried it but I don’t like the model. I would pay $13 to use FreeTaxUSA for federal and state if I prefer online, but when H&R Block Deluxe + State software is on sale for under $20, it’s already inexpensive enough for me.
Peter says
I just purchased Turbotax from Amazon. To download it requires that you install Amazon’s Games and Software Installer. I was unable to accomplish this even after spending 20 minutes with Amazon support. They finally gave me a full refund under their “one time exception” rule. I’ve never purchased software from Amazon and don’t plan to in the future. Way too much trouble!!
Harry Sit says
Try the CD then? It’s the same price as the download with free shipping.
Gordon Shedd says
For some reason the TT Premier Download on Amazon now costs $15 more than the Premier CD ($70 download vs $55 CD)?? Premier supposedly does more than Deluxe for those with capital gains and rental property income and expenses.
Harry Sit says
You can start with Deluxe. If you see you need more, you can upgrade to Premier within the program.