Include your tax preparation software when itemizing your deductions.
Each year, you can purchase tax software to prepare your income taxes. If you itemize deductions, you can deduct your prior-year tax software cost from your prior-year taxable income. You enter your prior-year tax software deduction by responding to a dialog prompt, such as "If you purchased tax-preparation software last year, enter its cost on the line below." After you type in the cost, the software automatically enters the deduction exactly as required on one or more tax forms.
Time Frame
You cannot deduct your current-year tax-software cost from your prior-year taxable income; you can deduct only your prior-year cost. For example, if you paid $75.00 in 2010 for software to prepare your 2009 taxes, you can deduct $75.00 from your 2010 taxable income while preparing your 2010 income taxes in 2011.
Federal and State
If you use federal tax software, it enters the prior-year cost on line 22 of your federal Schedule A (Form 1040), Itemized Deductions. If you also use state tax software, its action varies according to your state; it either imports the federal value or ignores it. You must always buy federal and state software from the same vendor. To enjoy greater convenience (and usually save money), buy a tax-software product that includes both federal and state software.
Benefits
Tax software simplifies your tax preparation. You type in each information item only once. For example, after you type in your name when prompted, the software automatically enters it on all forms that require it. The software automatically makes all calculations. For example, after you type in your income, the software enters that value on all forms that require it, and then uses it as a factor in making multiple calculations and entering the results. The software lets you either file electronically through e-file, or print your forms for filing through the U.S. Postal Service.
Packaged, Downloadable or Online
You can purchase packaged, downloadable or online tax software. Purchase only a proven brand. During the first several months of each year, you can purchase packaged tax software either online or at most stores that sell office supplies. If the package includes state tax software, you install both on your computer. If you purchase downloadable tax software, you download both federal and state software. If you purchase online tax software, you do not download it; you prepare your taxes online through the vendor's website.
Updates
You need not update online tax software because the vendor makes all updates on its website. However, while preparing your taxes through either packaged or downloadable software, you should frequently download and install all updates to your federal and state software. Tax rules and codes can change at any time, and some alterations might affect your taxes. Each time you update your software, recalculate your taxes (or restart the software) and then make sure your software has generated neither errors nor exception warnings.
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