TaxAct vs. TurboTax: Which Is the Best Tax Software?
Preparing and filing your taxes isn’t usually a pleasant experience — unless you’re expecting to receive a large tax refund. On top of paying a large portion of your income to the government, you’ll most likely have to pay tax preparation fees. If you’re not sure how to prepare your taxes, there are tax services to help you this tax season.
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As long as your tax returns are simple ones that don’t include itemized deductions, there’s a good chance you can tackle them on your own, for free. Two of the largest tax-filing software programs, TaxAct and TurboTax, offer free federal and state returns. Whether you’re going solo for the first time or have some experience under your belt, both programs can walk you step by step through the tax preparation process.
Here’s a comparison of TaxAct versus TurboTax to help you decide which free tax-filing service is best for you.
TaxAct vs. TurboTax | |||
Price | Best for Filers with | Features | |
TaxAct Free |
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TurboTax Free Edition |
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TaxAct Free and TurboTax Free Edition Features
Although both platforms do essentially the same thing — help you prepare and file your tax returns — each has unique features and ways to support you as you work.
TaxAct Free
TaxAct Free is for individuals to file the most basic federal return using Form 1040. Although you can also use TaxAct Free to prepare your state return for free, you’ll pay $4.95 for each state return you file.
The program includes TaxAct Alerts that let you know if you’ve made a mistake that could trigger an audit or cause you to pay more tax than you need to.
Another useful feature is assistance with your Free Application for Federal Student Aid. TaxAct Free lets you compete and print a worksheet containing the information you’ll need when you fill out the FASFA.
In addition, TaxAct Free guarantees that you’ll receive the maximum refund available and that its software is 100% accurate.
In the event you encounter a problem with your account, username and password or account preferences, customer service is available by phone, chat or email.
TurboTax Free Edition
Like TaxAct Free, TurboTax Free Edition is a free program to file basic federal and state tax returns. It provides a CompleteCheck review of your return to alert you to errors and omissions. And TurboTax guarantees that its calculations are accurate. If you incur a penalty because TurboTax Free Edition made an error, TurboTax will pay it.
You have a couple of ways to get help if you need it. Once you’re signed in, you’ll see a Contact link at the top of your screen that will connect you with assistance. If the issue is about your tax return itself rather than the program or your account, you can upgrade to TurboTax Live Basic at any time to get help with a tax professional.
Who Can Use TaxAct Free and TurboTax Free Edition?
TaxAct and TurboTax both promise free tax preparation for filers with simple returns. “Simple” generally means that you earned your 2020 income as a W-2 employee or through unemployment.
When it comes to deductions, your return is a simple one if you take the standard deduction rather than itemize deductions. Note that for tax year 2020 only, you will not need to itemize deductions to claim cash donations you made to a qualified charitable organization. That rule has been lifted temporarily to encourage donations during the pandemic.
Beyond that, the platforms have slightly different limitations.
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TaxAct Free
In addition to W-2 and employment income, TaxAct Free supports retirement income as well as child and earned income credits and coronavirus stimulus credits.
Expenses allowed by TaxAct free are limited to dependent credits and credits for current students.
If you have a more complicated situation, such as investment income, adoption credits or deductions for child or dependent care, or you contributed to a health savings account, you’ll need to upgrade to a paid version.
TurboTax Free Edition
In addition to the income TaxAct Free supports, TurboTax lets you report interest and dividend income from forms 1099-INT and 1099-DIV.
Expenses allowed using the free version include child and earned income credits.
For situations not included on this list, you’ll need to upgrade to a paid version. Compare the different TurboTax filing options.
How to File Your Taxes Online for Free
Both platforms aim to simplify tax preparation, so they’ve eliminated most of the guesswork. Completing your returns is a matter of entering the information the program asks for as you navigate through the interview screens.
TaxAct Free
Once you’ve created an account and logged in, you can get to work on your federal return. Just click on Start for Free, and TaxAct will walk you through the rest. The screens show you how much you owe or are due at each stage, so you always know where you stand. If you used TaxAct last year, you can speed things along by importing information from that return for a nominal fee.
TaxAct Free will also help you prepare your state return, but you’ll pay a $4.95 fee to file it.
After you’ve finished your returns, you can file them electronically. Have your prior-year adjusted gross income on hand before you start. The IRS will use that to authenticate your return. If you’ve filed electronically in the past, you’ll also need your self-selected PIN.
TurboTax Free Edition
TurboTax Free Edition is very similar to TaxAct Free, but you can take a photo of your W-2 with a smartphone and upload it to the program. In addition, there’s no charge to transfer your last year’s information to your current-year return. Filing your state return is also free.
As with filing with TaxAct, you’ll need your last year’s adjusted gross income and self-selected PIN, if you have one, to file your TurboTax Free Edition returns electronically.
TaxAct Free vs. TurboTax Free Edition: Which Tax Software Should You Choose?
TaxAct Free and TurboTax Free Edition offer similar free services, although TurboTax Free throws in some extras, like free import of last year’s return and free state filing, plus the ability to report 1099-INT and 1099-DIV income. However, the real differences start to appear when you compare the paid upgrades.
TaxAct offers multiple package options that build on TaxAct Free. Packages range from $29.95 for the Deluxe service — ideal for taxpayers with dependents and college expenses — to the Premier for $39.95 for filers with investments and rental property. Self-employed individuals can use the $74.95 version that supports 1099 income and business deductions and calculates depreciation. These prices do not include the extra fee to add state taxes.
TurboTax offers a variety of paid options that range from $60 for the Deluxe package — TurboTax’s most popular — to the high-end Self-Employed version for $120. Prices vary based on if you want to include state returns, for which all versions except the Free Edition charge a fee, or speak to an enrolled agent or certified public accountant who will answer questions and complete a final check prior to filing.
TaxAct and TurboTax offer similar services. TurboTax’s free edition is a bit more robust, but upgrades are more expensive. If you file more complex returns but are still looking to save some money, TaxAct might be the better tax program for you.
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Krista Baum and Taylor Bell contributed to the reporting for this article.
Last updated: Jan. 20, 2021
This article originally appeared on GOBankingRates.com: TaxAct vs. TurboTax: Which Is the Best Tax Software?
