Taking Care of Business Taxes

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What did people who run small businesses do before tax software came along? Thankfully, the days of dumping boxes full of receipts on an accountant's desk are long gone. Today,.as the owner-operator of a small business, you have more options than ever for filing tax returns, including versions of popular desktop packages--H&R Block, TaxAct, and TurboTax--specifically geared toward individuals with small-business income.

Of course, small businesses come in many sizes and configurations. If you've filed papers to set up your business as a formal entity--a partnership, an LLC (limited liability company), an S corporation, a nonprofit, or a trust--then you'll have to file separate federal (and probably state) tax returns for that entity, in addition to your personal 1040. But if you haven't, the feds consider your business to be a sole proprietorship, and you can deal with it, taxwise, through Schedule C on your personal return.

For this review, we examined the desktop versions of H&R Block at Home Premium, Intuit TurboTax Home & Business, and 2nd Story Software TaxAct Deluxe, paying special attention to Schedule C and related features. Why desktop software? It's true that Web-based versions of these programs and Web-only competitors such as Complete Tax (which underwent a major overhaul this year) are gaining in popularity, but many businesspeople are still reluctant to entrust sensitive financial data to the cloud--and to depend on Internet connections to access it.

Note that as usual, tax software vendors play numbers games by promoting inexpensive federal returns and then charging heavily for state returns and state e-filing services. Since the vast majority of states impose income taxes, most people will wind up paying a lot more than the low advertised price for the federal software.

This year, TurboTax remains the best and the priciest package of the bunch, while H&R Block's software provides a somewhat less expensive alternative with less detailed but still solid help. TaxAct, by far the least costly of the group, offers significantly fewer features; if you expect to have a lot of tax questions, you're probably better off paying more for a competitor.

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