In our last article, we talked about how small businesses must pay quarterly estimated income taxes. Then, at the end of the year, the business totals up its actual revenue and expenses and then calculates its true taxes based on actual income. You get the revenue and expenses numbers from your accounting software. (Here are a few business accounting software we recommend.) But, at the end of the year, you’ll need a tax software to file your federal and state income taxes for your business. In this article, we’ll profile some of the tax software for small businesses. We’ll also point out which software you can use based on your business’s legal format.
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For this article, we assume that your business is a US business filing your taxes with the IRS and your state.
- Where it Comes to Tax Software for Small Businesses, Your Choices are Limited
- Which Tax Software You Can Use Depends on Your Business Entity
- Popular Tax Software for Small Businesses and Their Pricing
- Tax Software Can Help You with Standard Deductions, but for Strategic Financial Planning, Work With a CPA
Where it Comes to Tax Software for Small Businesses, Your Choices are Limited
There are a lot of tax software for filing personal taxes. In fact, the IRS has a page of free tax filing software for individuals who make less than a certain income.
But if you wish to use a tax software instead of hiring a CPA, you’ll have limited choices. There are only a handful of tax software for small businesses, and not all of them cover every type of business entity.
If you run a sole proprietorship or an LLC treated as a disregarded entity, you’ll have the best luck finding DIY business tax software. This is because these business entities’ taxes are filed with your personal 1040, on Schedule C.
But, if your business is a C or S corporation, you’ll have a harder time finding DIY tax software for your business. Don’t get us wrong—there are plenty of tax software for corporations. But they tend to be something professionals like CPAs use and not for DIY-minded small business owners.
Which Tax Software You Can Use Depends on Your Business Entity
Below, you’ll find information on five popular tax software for small businesses. Not all of them can handle tax returns for partnerships, LLCs filing as corporations, S corporations, or C corporations.
Small Business Tax Software and the Types of Business Entities They Accommodate
For quick reference, here are the software we researched and the types of business entities they can handle:
- TurboTax: sole proprietorships, single-member LLCs filing as disregarded entities, partnerships, multi-member LLCs, S corporations, C corporations, LLCs filing as S or C corporations
- FreeTaxUSA: sole proprietorships, single-member LLCs filing as disregarded entities
- H&R Block: sole proprietorships, single-member LLCs filing as disregarded entities, partnerships, multi-member LLCs, S corporations, C corporations, LLCs filing as S or C corporations
- TaxAct: sole proprietorships, single-member LLCs filing as disregarded entities, partnerships, multi-member LLCs, S corporations, C corporations, LLCs filing as S or C corporations
- TaxSlayer: sole proprietorships, single-member LLCs filing as disregarded entities
How Tax Software for Small Businesses Treat LLCs
Some of these tax software don’t specify whether they can handle LLCs. But, by default, the IRS treats a single-member LLC like a sole proprietorship and a multi-member LLC like a partnership. This means that, for these LLCs, you simply file your taxes using software that can handle sole proprietorships or partnerships.
An LLC can also elect to file its taxes as an S corporation or C corporation. So, an LLC that wishes to file as a corporation must first file Form 8832 with the IRS. If it also wants to be treated as an S corporation, then it files a second form, Form 2553. Once the proper forms are filed, then the LLC just files whichever income tax form it’s chosen to be treated as.
So, even though some tax software do not mention they can handle LLCs, depending on how you elect to file, the software can indeed handle LLC filings.
Popular Tax Software for Small Businesses and Their Pricing
Below, we’ll quickly cover the pricing of the tax software listed above. The software are not listed in any order of preference. They’re simply the most popular tax software currently in the marketplace.
The pricing we list is the price as of the writing of this article. In our experience, when tax filing time approaches, the tax software companies tend to discount their price. So, if you file your taxes according to the calendar year, check the most current pricing before making a decision.
TurboTax is a Hugely Popular Tax Software
TurboTax is owned by Intuit, which also owns the hugely popular small business accounting software QuickBooks. Intuit cross-sells a lot, so both TurboTax and QuickBooks are very popular.
There are four TurboTax products for small businesses:
- TurboTax Self-Employed (cloud based): for sole proprietorships and single-member LLCs filing as disregarded entities
- TurboTax Business (cloud based): for partnerships, multi-member LLCs, partnerships, and S corporations; no C corporations
- TurboTax Home and Business (CD/download): for sole proprietorships and single-member LLCs filing as disregarded entities
- TurboTax Business (CD/Download): for partnerships, multi-member LLCs, S corporations, and C corporations
In general, for each of the above software, you can either do the taxes yourself, pay for help on an as-needed basis (called Live Assisted), or pay for TurboTax to handle all the taxes and filings for you (called Full Service). Here are the costs for each:
- TurboTax Self-Employed: for DIY, $129 for federal, $59 per state; for Full Service, $409 for federal, $64 per state
- TurboTax Business (cloud): for Live Assisted, $739 but discounted to $489 as of this writing, $64 per state, service only available in CA, TX, FL, WA, NV, WY, SD, and AK; for Full Service, $1,499 but discounted to $999 as of this writing, $64 per state
- TurboTax Home and Business: for DIY, $130 with one free state filing, $45 each extra state and $25 for each e-file
- TurboTax Business (CD/download): for DIY, $190 for federal, $55 for each additional state
FreeTaxUSA is a Free Tax Software
FreeTaxUSA is free for federal returns. They make money by charging for state filings, which costs $14.99 per state.
Unfortunately, FreeTaxUSA is only available for sole proprietorships and single-member LLCs filing as disregarded entities.
FreeTaxUSA is highly recommended by small business owners on various internet chat forums. We were a long-time TurboTax user but switched to FreeTaxUSA this year. We were very satisfied with the software.
H&R Block is Another Well-Known Tax Software for Small Businesses
H&R Block was a tax filing service before DIY tax filing software became popular. They continue to offer a service where a tax specialist would do your taxes, but they have DIY software as well.
H&R Block offers both a cloud-based service as well as downloadable software. Here’s how much they cost, based on the type of business entity:
- Self-employed (cloud): for DIY, $115; for tax specialist $220
- Partnership, S or C corporation (cloud): for DIY, $80; for tax specialist, $260
- Premium & Business (download): $89.95 and includes one free state, additional states $39.95 each and $19.95 for e-file; tax specialist help starts at $85 and help with state filing costs extra; this software covers all types of business entities
TaxAct Offers a Cloud Based Software for C Corporations
Of the software profiled in this article, only H&R Block and TaxAct offer a cloud based software for C corporations. All the other services, if they offer software for C corporations, they only offer it as a downloadable product.
Pricing for TaxAct’s cloud-based services:
- Sole Proprietor: $99.95 and $54.95/state
- Partnership, S and C corporations: $124.95 and $54.95/state
Pricing for TaxAct’s downloadable software:
- Sole proprietor: $159.95 and includes 1 state filing; additional states cost $60 each or $115 for all states
- Partnership, S and C corporations: $519.75 (on sale as of this writing for $199.95) and includes state filings
TaxSlayer Offers a Product for the Self-Employed
TaxSlayer only offers a product for sole proprietors and single-member LLCs filing as disregarded entities. This product for the self-employed costs $64.95 and $39.95/state.
Tax Software Can Help You with Standard Deductions, but for Strategic Financial Planning, Work With a CPA
Tax software for small businesses—even when you pay for a live person’s help—have their limitations. They’re pretty good at going through each possible deduction and asking you questions along the way. In our experience, TurboTax and FreeFileUSA ask similar questions and will get you similar deductions. We suspect the other software profiled in this article will give you a similar experience.
Even when you hire a person to help with the software, because they’re not CPAs, they will probably just go through the same questions with you. You’ll save on some taxes, but they might not be huge savings.
If you wish to find true tax savings, you will need to work with a CPA. True tax savings often come when you structure your business in some specific way—sometimes by moving assets to a subsidiary, or by adjusting the ratio of your S corporation dividends vs. your salary. Often, these strategies are only appropriate after your business matures to a certain stage. Only a CPA can alert you to these strategies and tell you the proper timing. A tax software that systematically goes through a set of questions isn’t “smart” enough to do the same.
As long as your business is small and your income isn’t too high, using small business tax software to prepare and file your income taxes is a good money-saving strategy. But if you’re successful, eventually hiring a CPA will make the most sense.
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