Tax preparation software contains programs that ask you questions about your financial and tax issues, then fills in the correct forms (1040, 1099, W-2, Schedule A, B, or C, or whatever is needed) to complete your income tax return. The programs will perform all the calculations for you, and check them for accuracy. Most tax refund software companies will guarantee their financial software's accuracy, and will pay any fees or penalties that might be imposed by the IRS. Most tax computer programs will also check for errors and omissions, alerting you to potential audit flags that you can fix immediately. Finally, you can either print a paper return for mailing to the IRS, or file it electronically via the e-file function.

The cost of tax refund software is usually minimal, and is often deductible! Taxpayer software for individuals is the least expensive. Software for business or corporate taxes is sometimes custom-programmed and will cost much more. Various tax preparation companies have entered the tax program market to supplement their main business. H&R Block sells the well-known TaxCut software. TurboTax by Intuit is also a popular choice.

TaxAct by Second Story Software offers a free tax return software package that you can use to prepare and print your return. If you pay a small fee, TaxAct will add the e-file options, which is highly recommended. Some tax websites, including the IRS website, offer free tax preparation software directly on their site. These website-based services may lack some of the more polished features of boxed software, such as the e-file or help options. If you have a very simple return to file, the free web-based tax programs may be suitable for you.

If you have never used tax preparation software, get recommendations from friends and search for reviews online. You can get the tax programs' features directly from the vendors' web sites, but those are biased. Look for independent reviews by persons who have used several tax programs, and compare the features side-by-side. That will help you determine which program meets your needs. Be sure to check the system requirements for running the tax programs, especially if you have a non-Windows PC, so that you know it will run on your personal computer.

While these software packages offer great help and time savings in tax preparation, they won't do the work for you. You must still gather and total your receipts, and have all your W-2, 1099, and other tax forms ready. If you stay organized throughout the year, it will be easier when the April 15 tax deadline comes near. If you supply the paperwork and some common sense, the income tax software will greatly reduce the burden of preparing your federal tax return.