2021 is another year most people are happy to put behind them. While it may be waning, the global COVID-19 pandemic is still with us—many of us are still working from home—though some parts of the US economy are recovering, thanks in part to the American Rescue Plan and 2020’s Consolidated Appropriations Act. These government programs resulted in numerous changes to the tax code in 2021. IRS personal tax deadlines have returned to normal—April 18 is the due date for tax filing this year—and tax services are open for business.
If you've used a personal tax preparation service or desktop software before and you go back to that same product this year, you're not going to notice tremendous differences. Still, every site we reviewed has made improvements—some more than others.
For the most part, the sites look and work much as they did for the 2020 tax year. What's going on in the background as your tax data is calculated and rerouted to accommodate the new laws and forms—and hopefully get you a bigger refund—though, is different. The companies that make today's leading tax services worked hard in 2021 to make fulfilling your tax obligations easier in 2022.
It's past time to get started on your annual journey through form 1040. If you haven't started yet, you should check out our tips for last-minute tax e-filers.
Do I Have to Report Cryptocurrency on My Taxes?
The online tax services available this year support all but the most obscure tax topics. You can report on 1099s, W-2s, unemployment, mortgage interest, medical expenses, new self-employment income and expenses (Schedule C)—practically any tax-related situation you faced this year. One question more people are likely to be asking this year is whether tax software can help you figure out if you need to report activity related to Bitcoin and other cryptocurrencies.
The short answer is that if you've used, sold, exchanged, received as payment, or mined cryptocurrency in the past tax year, all those activities need to be reported. And, as our recent survey shows, gig economy workers have embraced crypto.
TurboTax and H&R Block support reporting cryptocurrency transactions and have articles to help you with it. TurboTax in particular has a guide to cryptocurrency and your taxes. TurboTax has even announced it will disburse your return in cryptocurrency this year.
Am I Eligible to Use Free Tax Filing Services?
Most companies whose services we review this year offer a version that costs nothing to prepare and file your federal taxes, although depending on what types of forms and schedules you need to file, you might not qualify for the free version. All the free options support form 1040 and assume you'll take the standard deduction. You can record—or import, in some cases—your W-2 and some 1099 data in all of them.
Two of the tax services we reviewed are free (or nearly free): Cash App Taxes (formerly Credit Karma Tax) and FreeTaxUSA. Both support all major IRS forms and schedules. Cash App Taxes is the only comprehensive personal tax preparation website that is totally free for both federal and state returns. FreeTaxUSA charges nothing unless you need to file a state return; doing so costs $14.99. You can also buy enhanced support for $6.99.Â
Other sites have free options, too, but they're limited in the forms and schedules they support. H&R Block, for example, is very generous in its free offerings among the normally paid services. It supports W-2 income, the Child Tax Credit (CTC), unemployment income, student expenses, and more for free. TaxAct allows retirement income, unemployment, and support for the Earned Income Tax Credit (EITC), in addition to the W-2 and the CTC, but you’ll pay $36.99 per state filed. TurboTax lets you report W-2 income, the EITC, the CTC, student loan interest, and limited interest and dividend income. Using TaxSlayer, you can enter your education expenses, in addition to the W-2 and other topics.Â
Finally, if your income is below a certain threshold or if you're in the military, you might qualify to use paid software for free. The IRS Free File program allows you to submit your federal (and maybe your state) taxes for free if you're using one of the commercial tax prep websites supported. You can browse your options here or use the IRS's Lookup Tool. You must go through the IRS portal to qualify.Â
For more on qualifying to file for free, see E-Filing Your Taxes for Free: Are You Eligible?
What About the Self-Employed and Filers With Side Gigs?
Whether they were forced to or chose to, individuals continued to take on side gigs—think Uber, Lyft, or Doordash—or start small businesses in 2021 because of the changing economic landscape. According to data from the US Census Bureau, summarized by Economic Innovation Group, nearly 5.4 million new business applications were filed in 2021, the highest of any year on record. That means a lot of taxpayers will face something they’ve never encountered on their 2021 taxes: the IRS Schedule C. Where do you turn for help if you are, say, a TikToker who needs to file as an influencer for the first time?
Professional tax preparation can be pricey. Online DIY personal tax solutions may be a good option for you, especially if you had a side hustle in 2021 and don’t have a whole lot of income and expenses to report. If you’ve never tried using online tax services, there are three reasons 2022 is a good year to start.
First, many changes to US tax laws haven’t made much news because of more pressing topics. Tax websites build in these modifications so you don’t have to keep track of them all. Second, preparing and filing online might reduce your tax obligation, since these sites are trained to dig deep for deductions. Since the services are thorough and guarantee accuracy, they can help you avoid being audited by the IRS, too. Finally, tax website developers continue to offer more ways to connect to tax professionals virtually so they can help you complete and file your return—or even take on the entire task for you.
How Do Changes to the Tax Code Affect You?
In terms of making news, tax law changes have gotten lost in the shuffle this year. But tax website developers have paid attention, and they’ve built the appropriate modifications into their online solutions.
The standard deduction. Although standard deduction amounts are different for the 2021 tax year, they haven’t changed much. If you’re a married couple filing jointly, the standard deduction is now $25,100. Married filing separately is $12,500. If you’re single, you can claim a $12,500 standard deduction. You get an $18,800 deduction as head of household. If you are over 65 or blind, you get an additional deduction of $1,350.Â
Income brackets. The income tax brackets themselves didn’t change for 2021. They remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
Capital gains. For your 2021 taxes, long-term capital gains rates stayed the same, but the income thresholds, which differ depending on filing status, increased. For example, you now qualify for the 20% rate if you earned more than $445,850 as a single filer. For couples filing jointly, the income threshold is $501,600, and heads of household, $473,750. Most taxpayers will fall into the 0% or 15% range. Some high-income taxpayers will be hit with an additional 3.8% Net Investment Income Tax.
Contributions. If you don’t itemize deductions on a Schedule A, individuals can still deduct up to $300 in cash contributions to qualified organizations. Married couples can deduct up to $600.
Other credits. There are many other changes, including the 2021 increase in the Child Tax Credit (CTC) and its advance payments. Workers without children may now be eligible for the Earned Income Tax Credit (EITC). The Dependent Care Credit is now fully refundable.Â
Personal tax preparation websites have built these alterations to the tax code—and many more—into their online products. And to varying degrees, they also explain how you can expect to be affected.
How Does Online Tax Software Work?
When you prepare your income taxes using paper forms, you spend a lot of time shuttling back and forth between them. You come to a line on form 1040 that requires a supporting form or schedule, so you go there and complete it, and then transfer the number back to the 1040. Sometimes you need to fill out a worksheet or chase down a document you got in the mail or double-check your calculations because things just don't look right. You may have to do this many times if your return is complicated
Online tax services work much differently. Once you create an account and comply with the site's security requirements, you can stop worrying about which forms you need and whether your calculations are correct. You also don't need to worry about how any tax code changes are going to affect your return. That's all taken care of in the background.
When you use a digital tax preparation solution, you're really just filling out a lengthy questionnaire. These sites ask questions and you provide answers by entering information in blank fields, selecting the correct option from a list, or clicking a button. You never have to see an actual IRS form or schedule (though in some cases, you can if you want to).
If you're familiar with tax forms, you'll probably recognize the path that the tax site follows. It's patterned after the order of the IRS Form 1040. Personal information comes first, and then you move on to income, deductions, credits, health insurance status, and taxes paid. After you've exhausted all the topics that apply to you, the site reviews your return and highlights potential errors or omissions.
Once you've addressed any concerns, the software transfers your tax data to any state returns you must file. Then you answer some final questions, check your entire return, and pay the service's fees (if there are any). Finally, you file your return electronically and print or otherwise save a copy for yourself.
There's More Than One Way Through Your Taxes
The step-by-step data entry path tax services provide generally works quite well, as long as you work your way through your whole return without a lot of backing up or lurching forward (which some sites don't even allow). Jackson Hewitt, for example, asks whether you'd like to complete your 1040 by using its comprehensive interview. This option takes you through the entire process in one long Q&A session. It asks you about every tax topic that might apply to you.
The other option, and one that every online service offers, involves selecting only the tax topics that apply to you. You choose them from a list with options such as income, deductions, credits, and taxes. When you select one, the sites walk you through a mini interview to get the information they need. Then, they return you to the main list to choose another topic, and you repeat that process until you're finished.
The point is, no matter how you choose to proceed, all you have to do is read what's on the screen and follow the instructions. You spend most of your time responding to questions and clicking links to advance to the next screen or using the site-wide navigation tool. These sites are good guides, most of the time.
Tax Software Speaks Your Language
If you've ever filed a tax return, you know that understanding the IRS's forms and schedules can be challenging, and the official written instructions don't always help. The instructions are so comprehensive that it's often hard to find the answer to your exact question. When you do find it, once again the language can be difficult to decipher.
From their earliest days, personal tax software developers have sought to interpret IRS-ese and make it more understandable to the non-accountant. Some of them have written and revised their content over many years to make it as clear as possible. Services like TaxAct do more. For example, they provide hyperlinks to small help windows that further explain a term or phrase. They anticipate questions you might ask and post Q&As on especially thorny topics. They try to ensure that you understand the question being asked so that you'll provide the correct answer.
Get All the Help You Need
Sometimes a friendly and understandable user experience isn't enough, so tax websites offer online assistance. Some, including H&R Block, provide context-sensitive explanations in panes attached to the main working area.
In some cases, guidance isn't available until you click a Help link. And sometimes a help link brings you to a giant database of questions and answers. You may be directed to IRS instructions and publications on a few sites, but usually, the technical content has been rewritten to make it understandable.
What do you do if you can't find answers to your questions on the site? All sites offer at least one of three ways to contact the company's technical support representatives: email, phone, or chat. TaxSlayer offers all three. H&R Block has online communities where you can see if your problem has already been addressed by someone else.
Technical support representatives cannot advise you on points of tax law—but other professionals can. Some tax prep sites offer to connect you to an accounting professional via chat, phone, or screen-sharing. Everyone charges extra for this, with two exceptions. TaxAct is offering unlimited professional support for free this year. Liberty Tax is offering professional tax help to a point. If your question is too complex or you’re asking too many of them, they’ll suggest that you switch to their virtual tax pro service (for a fee).
Though you'll pay higher fees, you'll get the most innovative and comprehensive guidance if you use TurboTax Live. This service connects you with a tax professional via live video chat, not just during tax season, but year-round. H&R Block has added a similar service.Â
Optional: Let a Pro Take Over
The personal tax preparation services we review here producing very complex tax returns. You'll pay more if you need more forms and schedules to complete your return (we reviewed the most popular versions, which in some cases were not the most robust), but the tools are there for advanced topics like self-employment, depreciation, rental income, and capital gains.
If you're not comfortable in your ability to complete a complicated tax return, but still want to give it a shot, you can go with a site like H&R Block. The company offers DIY preparation and filing, of course. But if you get partway through and realize you're not sure of some tax issues, you can have an H&R Block tax professional review your return, complete it, and sign it. You can even just upload your documents and the pro will take over. TurboTax offers a similar service this year.
For more direct comparisons between these two top tax competitors, you can read TurboTax vs. H&R Block: Which Tax Prep Software Is Best for Filing Your Taxes Online?
File Your Taxes From Your Phone
Many of us are now used to the idea of filing our taxes on our PCs, but that’s not your only option. All the tax services we reviewed this year also let you do your taxes on your phone.
It used to be the case that you could basically only file a 1040EZ via a mobile device, but that’s no longer true. The best services now let you handle surprisingly robust returns without ever needing a full-sized computer.
How do tax services handle the transition to smaller devices? Some have dedicated Android apps and iPhone apps—TurboTax, H&R Block, TaxAct, TaxSlayer, and Cash App Taxes all do—while others offer mobile versions of their websites— FreeTaxUSA, Jackson Hewitt, and Liberty Tax.
Stay Safe and Protect Your Privacy
Whenever you're going to be sending sensitive information over a network you don't control, you should be concerned. Since taxes are nothing but sensitive data, you ought to be doubly concerned if you're filing from a coffee shop, say, or the airport. In fact, you should be concerned enough to not do it.Â
Fortunately, protecting your traffic is as simple as using a VPN. The best VPNs create a secure tunnel that encrypts your data, ensuring that anyone who manages to intercept it sees only gibberish.Â
Each of the tax websites we reviewed follows strict security protocols of its own, as you’ll see when you read the reviews. They’re at least as safe as the sites where you do online banking.Â
Note that the IRS had originally been announced that it would require facial recognition for filers to log into their system in 2022. It has since been announced that the IRS has backtracked on facial recognition, which would have been implemented via a third-party service for those creating new accounts. While this plan has been pulled for now, the IRS is looking for other authentication solutions.
Filing Your Taxes Online Is Easier Than Ever
Online tax preparation and filing services can save you a lot of time and frustration compared with filing your taxes on paper. They might even help you save money by finding deductions you hadn’t considered.
Tax apps and websites just keep getting better. If you’ve felt lost using a web-based tax solution in the past, consider giving it another try this year. Read our in-depth reviews and find the right service for your financial needs. You might be surprised at how easy it is to get through your taxes.
