Small business owners have a lot to deal with and it can seem overwhelming to deal with filing your taxes. However, the right tax software can not only save you time, but also money and stress. The marketplace is filled with tax software options, which makes it crucial to choose the right one to manage your finances, track your revenue and more.
The software you choose can have a significant impact on your real time financial visibility, productivity and bottom line profits. So, it is well worth taking the time to assess your software options and find the option that best suits your requirements and the unique characteristics of your business.
The Small Business Taxes Basics
Partnerships, S-corporations and multi-member LLCs must file a tax return each year to report income, deductions, profit and losses for the business. The owners, partners or shareholders of these organizations need to pay taxes on this business income.
Sole proprietors report their income as a self employed individual. This does not require a separate tax return, but businesses taxes need to be reported on Schedule C.
Failing to adhere to these tax filing rules can carry heavy penalties, so regardless of whether you have a modest enterprise or a small business that you’re looking to scale in the future, you need to ensure that you are fully aware of your tax obligations.
Why Use Tax Software?
Small business owners often save money by doing their own taxes and tax software can provide a more hands-on experience compared to simply handing their documents off to an accountant. According to a National Association of Tax Professionals report, the average fee tax professionals charge to prepare business returns was $604 in 2023. However, tax software enables you to file your return for a fraction of this cost. Additionally, you can still access one on one guidance and help from tax experts if you need it.
Tax software can also be timesaving, since you don’t need to wait for someone else to complete your return. Many software options automatically record your transactions, which saves time and reduces the chances of human error. It could also provide a centralized platform for all the financial tasks of your business, integrating tax compliance along with services like payroll. Software can also offer a variety of reporting options, analytics and dashboards, so you can enjoy real time insights into the financial performance of your business. This will help you to make data driven decisions to encourage growth. You can also scale your system as needed so the capabilities and features align with your growing needs.
Tax Software vs Other Ways to Handle Filing Taxes
| Method | Time Commitment | Accuracy & Compliance | Ease of Use | Best For |
|---|---|---|---|---|
| Tax Software (e.g., TurboTax, QuickBooks) | Moderate | High (if used correctly) | User-friendly, but requires learning | Small businesses with simple tax needs |
| Hiring a Tax Professional | Low (outsourced) | Very High | Very easy | Businesses with complex taxes or little time |
| Using an Accountant or CPA | Low (outsourced) | Extremely High | Very easy | Growing businesses needing year-round financial guidance |
| DIY Manual Filing (without software) | High | Risk of errors | Difficult | Sole proprietors with very simple taxes |
| Outsourced Accounting Firm | Very Low | Extremely High | Completely hands-off | Medium to large businesses |
Common Features of Small Business Tax Software
Tax software can guide you through filing with prompts to help you report all of your business income, deductions and depreciation. It will also ensure that you file the correct IRS and state forms. Many programs also have deduction databases which can help you to filter through the industry specific tax write offs.
The best software will help you to track your income and expenses throughout the year or seamlessly import data from your accounting program to cut down on the time needed to manually enter all your numbers. Many programs also provide access to tax specialists who can provide personalized advice and answers to your questions.
Desktop vs Cloud Based Tax Software
There is no clear cut answer to whether you should use a desktop or cloud based software, as it is a matter of preference. Desktop software can be integrated into your network server and may support more documents compared to cloud based software. However, cloud based software allows you to work on your finances on any device, anywhere with internet access.
Cloud based software provides greater flexibility for those who need to work on the go or collaborate with an accountant. A cloud solution will automatically save your data, which reduces the risk of losing your progress due to any technical issues. So, if you have a power outage or hard drive issue in your office, you won’t lose all of your tax data. Any updates or security patches will be automatically applied, so your software will remain compliant with any changes in the tax laws.
You will need to think about your business needs to determine which is the most appropriate choice for you.
Considerations for Choosing the Right Tax Software
When you’re choosing software for your small business, it is vital that you think about your specific needs. You should take stock of how you operate your business, so you can explore the different available options. Whether you are a small scale enterprise or you have a business generating millions, there are software options to suit your requirements.
Depending on your industry, you could also explore specialized software that is designed for your niche. These software options offer industry specific functionality and features that could potentially enhance your financial management.
Cost
The first thing you’ll need to consider is the cost of the tax software. Fortunately, there are options to suit all budget levels, from general applications with a broader user base that can be purchased for a low cost to more specialized premium software.
While it may be tempting to go for the cheapest option, you need to think carefully about the essential features your business needs. Many software packages offer tiered pricing, so you can choose a package to match your needs.
Basic plans are typically affordable and well suited to small operations, while premium tier plans provide advanced capabilities that are more applicable for larger businesses.
You should evaluate the overall value of the software including the additional tools, updates and customer support. Remember that investing in quality software offers a cost effective way to simplify your tax management and avoid any costly mistakes.
Just be sure to check what is and what is not included in the software cost. Some software packages charge additional fees for filing over a certain number of returns or there could be other expenses. So, be sure to check the fine print and you’re fully aware of any additional fees you may incur.
Ease of Use
You will also need to consider your software skills and the skills of your team. Most modern software packages are designed to be user friendly, but there may be some degree of learning curve, so you need to feel comfortable effectively navigating the software.
If you lack accounting expertise, you will need to choose a software that is highly user friendly with clear navigation and an intuitive interface. Try to look for a software with step by step guides for all aspects of tax related tasks, which uses plain language rather than tax jargon.
If multiple employees will need to use the software, choosing a simple platform will ensure that anyone can efficiently operate it. Having a straightforward system may mean compromising on some of the bells and whistles, but it can minimize frustration and save time, so you can focus on running your business.
Compatibility With Your Business Structure and Size
Your tax software should align with the structure and size of your business. If you’re a sole proprietor, a basic software with expense and income tracking may be sufficient for your needs. However, larger businesses with contractors, employees or a more complex revenue stream is likely to need a more robust solution.
As we’ve touched on, some software caters to specific industries such as freelancing, manufacturing or retail, so you can enjoy tailored features to simplify your tax management. Choosing a compatible software will help to ensure compliance and accurate filings.
Tax Filing Capabilities
The best software options cover federal, state and local tax filing. Check that your potential software supports the schedules and forms that are required for your business type. A software that integrates sales tax calculations and payroll can further streamline the process. Having a software with comprehensive filing capabilities will eliminate the need to have multiple tools, ensuring that you can meet all your obligations while reducing errors.
Integration With Your Existing Tools
Your new tax software should seamlessly integrate with any tools you’re already using, such as payroll systems, e-commerce solutions or accounting platforms. This eliminates the need to manually enter data, which not only saves time, but reduces the risk of errors.
Platforms such as Shopify, QuickBooks or Xero often pair well with a tax software solution, allowing you to create a cohesive financial management ecosystem for your business. When you choose a compatible software, you can enhance efficiency and streamline your workflow. So, think about your existing tools and look for a tax software that will slot in.
Automatic Tax Law Change Updates
Tax laws frequently change, but it is your responsibility to stay compliant to avoid any penalties. The best tax software will include automatic updates that reflect any changes to the latest regulations. This will ensure that you have accurate and compliance filings even if the laws are evolving. Automatic updates will save you the effort of having to manually research changes and then apply them to your records.
Look for a software that has a strong reputation for keeping systems up to date.
Reliable Error Checking
A mistake on your tax filing could lead to a costly delay or penalty, so a tax software that has built in error checking can be invaluable. This type of feature reviews data for common mistakes, such as incorrect calculations or missing information and prompts you to correct the issue. Some software even has explanations for the flagged errors so you can better understand the mistake and correct them quickly. Reliable error checking will provide greater accuracy, reducing the stress of preparing your returns, so you can feel confident in your submission.
Deductions and Credits Support
If you want to minimize your tax liability, it is vital that you maximize your deductions and credits. The best software will identify applicable credits and deductions based on your business activity. For example, a platform may highlight vehicle use, employee benefits and home office expenses as deductible items. Having access to comprehensive deduction support will help you to take advantage of the opportunities to reduce your tax bills, allowing you to keep more money within your business.
Robust Customer Support
Even if a software is easy to use, having access to a customer support team can be invaluable when you’re troubleshooting software issues or trying to navigate a complex tax situation. Look for a software provider that offers multiple ways to access the support team, such as email, phone and live chat. Some software platforms also provide access to extensive help centers, articles and video tutorials that can help you work through common issues. While you would hope that you don’t need to speak to the support team, it is nice to know that they are available if you need assistance.
Scalability
Most small businesses have the aim of growing over time, so it is a smart idea to choose a tax software that will scale with your growing business. Look for a platform that will allow you to upgrade your plan or add features as and when you need them.
Scalable software will ensure that you can continue to enjoy flexible tax management tools, even if your business diversifies or expands, saving time and effort.
Security
Your tax records contain sensitive information, which makes it a top priority to choose tools and software that take security very seriously. Your software should have robust encryption and secure servers to ensure that your data is protected.
If you’re using a cloud based platform, it should have stringent security, such as two factor authentication to prevent unauthorized access.
Be sure to check the provider’s policies to ensure that your information will not be shared without your explicit consent, so you can have peace of mind your data will remain safe.
Additional Features
Consider any specific features that you may need from your tax software. If you’re considering a comprehensive financial software package, think about whether you need it to record accounts receivable and accounts payable, or if you need inventory tracking, or other ancillary services such as payroll or time tracking.
It is a good idea to list all of your ideal features and then prioritize them. This will allow you to evaluate the value and usability of the software options, and whether you will need to purchase additional compatible software packages.
Trial Periods
A trial period or even a money back guarantee will allow you to test the tax software before you fully commit. This will enable you to evaluate the features, compatibility and usability of the software.
Fortunately, many providers offer a free trial, so you can use the tools and determine if they are a good fit for your preferences and business needs. You can then make an informed decision about which software you want to use in the years to come.
Popular Tax Software Options
There are plenty of software options on the market, but here are some of the most popular.
H&R Block
This small business tax software is available as a Windows compatible downloadable desktop software. It includes five federal and one state filing for free, but there is a charge for e-filing state returns. It can also cover your personal tax filing, making it a competitively priced option.
While the assistance package is not as comprehensive as with the online H&R software options, you can still access the knowledge base and tax preparation services at local branches. It also includes audit support, accuracy and maximum refund guarantees.
TurboTax
This downloadable desktop software is reasonably priced, but it offers support for small businesses and enterprises. It includes five free federal filings, but there is an additional charge for each state return you file.
You can access an in-depth knowledge base and a dedicated phone line if you need support. Additionally, if you use QuickBooks desktop, the integration with TurboTax is straightforward.
TurboTax also has an online software option which is more expensive than the downloadable version, but it does include expert assistance and year round support if you have questions. There are also individual online return options for the self employed. This variety of options can be a little confusing, but if you already use QuickBooks for your accounting, the integration is easy to manage.
TaxAct
TaxAct offers a clear and direct shopping experience, as you simply pick the software package that matches your business needs. There are desktop downloadable versions for PC and Mac, or online versions. There is some upselling, but you can bundle your returns for ease of filing. The software interface is intuitive and there are some clear prompts to help you navigate. You can also access a knowledge base, live expert help or email and phone support.
Although it may take a little time, choosing the right tax software will save you time, money and stress in the long term. So, think carefully about your requirements, preferences and future needs to evaluate the potential software options. Remember if the software has a trial or money back guarantee, you can explore all the tools and features before you make a final commitment.
