Best Tax Software Programs for Small Businesses
Best Tax Software Programs
Most small business owners handle their transactions and taxes electronically, but it’s tough to know which software program is right for your business. There are a couple of important factors when making this decision. First, when you are deciding what method of bookkeeping to use for your small business, you should consider whether different bookkeeping options also offer tax preparation software or services, eliminating the need to duplicate some of your workload. If you decide to use bookkeeping software or an online bookkeeping service that does not handle tax preparation for you, you should check to see what kinds of tax software are compatible. Once you’ve made the initial decision, it’s time to review the different tax software options to see how they compare on price and features. Depending on what kind of business you have and how it’s structured, the array of options can be wide or narrow. Below is a list of options; in rough categories, TurboTax and H&R Block are best for business owners with specialized businesses or higher revenues, TaxAct and TaxSlayer are good middle-of-the-road services, and eFile and FreeTax USA are best for a budget.
Many small business owners who use TurboTax for their personal income tax returns will find that using the TurboTax service for businesses is intuitive and includes all the necessary features. TurboTax connects to Quickbooks, so it’s a good choice for small business owners who use Quickbooks for their bookkeeping, or who use an online bookkeeper that uses Quickbooks.
TurboTax for self-employed and other small business owners functions the same as the personal version. The service walks you through each step, including entering your profits and losses, uploading company or personal documents like a 1099 or W-2 form, and figuring out which deductions you can take. You can sign out and save your information at any time and the system asks you to review each section multiple times, including error checks and a final double check of the finished federal and state returns. Users who have used TurboTax for personal returns will be familiar with the “maximum refund guarantee” and live chat feature that allows a TurboTax service associate to answer your questions. Probably the biggest benefit of TurboTax is the section where it walks you through potential deductions. The website advertises a search of more than 450 potential deductions for self-employed persons, including obscure deductions for different industries, and you will receive assistance in figuring out how to calculate the value of deductions related to using your home or vehicle for business.
TurboTax costs $119.99 for a self-employed filer using the Home and Business edition, and $169.99 for a small business filer using the Business edition. This cost is for federal taxes only; state tax filing is an additional charge, so it is not the cheapest option. However, it is absolutely worth the minimal additional cost compared to some budget services if you are not a tax expert. The Home and Business edition, which can be used by sole proprietors, allows you to file your personal tax return along with your business return, since they are intertwined. If you use the Business edition you will have to pay a separate fee when purchasing TurboTax Home and Business (or the personal user version) for your personal return.
2. H&R Block
H&R Block guides users through a series of questions in a similar manner to TurboTax, allowing for data entry and figuring out the appropriate deductions for your small business. Its H&R Block Premium and Business edition includes all the necessary schedules and tax forms for any kind of small business owner to file easily, whether you are a sole proprietor or own an LLC or corporation. H&R Block’s “claim to fame” is the vast array of actual tax preparation services offered in physical office locations. Not only do customers praise the online support available through the “Ask a Tax Pro” feature, you can actually go to one of the physical office locations for guidance if you prefer this method (for additional cost). This is invaluable for small business owners who prefer face to face help even if they’ve decided to use online tax preparation software.
H&R Block Premium and Business costs $89.95, lower than TurboTax, especially since you can use the service to file both your personal and business tax returns even if you’re filing as a corporation. The fee also includes one state return for free. However, it gets a little tricky when comparing the services side by side because the H&R Block Self-Employed software, which is comparable to the TurboTax Home and Business software for sole proprietors, actually costs $104.95, whereas the TurboTax Home and Business edition costs less than the upgraded version for corporations. In addition, the H&R Block Self Employed edition has many fewer features than the comparable TurboTax version (in addition to many fewer than the H&R Block Premium and Business software).
One other thing to note about H&R Block is that, while the process for filing is similar to TurboTax, the language used can be complicated and some of the terms unfamiliar for non-tax-savvy small business owners. When it comes down to choosing between the two, a self-employed business owner filing as a sole proprietor is likely to benefit more from using TurboTax, while a small business owner who has incorporated as an S or C corp and requires some of the more specialized schedules might find H&R Block Premium and Business to be their best bet. Of course, your accounting software of choice will also be a factor; while Quickbooks users will prefer TurboTax, H&R Block has a partnership with Xero, the other major accounting software for small business owners.
The IRS has a “free file” program for any person whose adjusted gross income was less than $66,000 in 2018 (this rate will likely be similar for 2019). If your AGI exceeds that threshold, but you’re still on a budget and every dollar counts, TaxAct charges a flat rate of $77.95 for self-employed filers for federal returns. In return, you get a walk-through return that is somewhat similar to the above softwares, but without any actual tax advice on whether you should take certain deductions; the “tax support” personnel at TaxAct are not always CPAs, but simply people who have completed the company’s required training on preparing taxes. So if you have very specialized tax questions and want that level of support, TurboTax or H&R Block will be better choices, especially because the cost is not substantially different. Basically, TaxAct is a good middle-of-the-road option, with a few extra features for a price that falls somewhere in between the more expensive options and the free or extremely low-cost options. The TaxAct Self Employed edition allows you to import forms from past years from H&R Block and TurboTax, if you decide to make the switch.
An interesting offering from TaxAct is the ability to use the software as a desktop program, rather than solely connecting online. If you want to prepare your tax return and feel you may need to do so without always having an Internet connection, it’s a good feature, though in today’s world not the most practical.
TaxSlayer Self-Employed comes in at $47 for federal return only, and the Ultimate edition for $57 includes a little more support from tax professionals. Unlike TurboTax and H&R Block, you can purchase audit assistance but TaxSlayer will not actually represent you if you wind up being audited by the IRS, which makes up in part for the large cost difference. TaxSlayer does have a streamlined interface that feels just as professional as the big two players, which may be more reassuring for some small business owners than TaxAct despite the lower price tag. There’s even a mobile app that allows you to take photos of your documents for upload, a feature that hasn’t spread to competitors yet. If you don’t need the full support provided by TurboTax or H&R Block, TaxSlayer is a fair middle-of-the-road option like TaxAct, with different benefits and negatives.
Unlike the other options, eFile sets a flat rate for businesses of $39.95 for federal returns and $23.95 for unlimited state returns. This makes it one of the lowest-cost options for business owners on a budget who cannot utilize one of the free tax preparation services. Business owners with corporations cannot use eFile because it can only process returns for pass-through companies, not forms required for corporations. It’s a little funny – literally, the website includes a lot of humor as you go about entering all the information for your return – and it might be more accessible to business owners who are just starting out. If price is the most important consideration and you are a sole proprietor or have a simple business structure, and you don’t need fancy features, eFile is a good lesser-known choice.
6. FreeTax USA
Be careful – FreeTax USA is not the same as the IRS Free File program operated directly by the federal government for filers with income below a certain threshold. FreeTax USA is a good option if you want the absolute cheapest service and don’t require any support or assistance when filling out your forms. If your business is very simple, this works; there are fewer deductions accounted for than the big services, so if you work in a specialized industry you should take advantage of one of the other services, because it’s likely the additional cost will be made up for in your tax deductions. With the $6.99 “Deluxe” edition you receive some very basic support, but the real selling feature of FreeTax USA is the true DIY nature (while still being able to do it online) rather than relying on the service to walk you through it.
7. IRS Free File
Finally, there is the true free filing service offered through the IRS. If your AGI is below $66,000 the IRS provides software similar to what you’d get from the other services for free, though without the very specialized features because you’re unlikely to need them at this income level. There are also free fillable forms if your income exceeds this threshold, but most filers find it advantageous to use one of the above software options if this is the case.
June 4, 2019
Alyssa specializes in creating content and website copy for law and accounting firms and nonprofit organizations. She has an undergraduate degree in history and a J. D. from Columbia Law School.