The Interview in Tax Software:
To use the interview in your tax software, you just read questions and check off answers, make selections from lists or type in financial or other information required to complete your return. This process makes completing your return easier and faster than filling out a form by hand while referencing 1040 instructions and IRS documentation. Speaking that documentation, links to IRS documents that are related to your tax return are included in all good tax software.
Another way the tax interview speeds up your tax return is by allowing you to skip over parts of the return that don't pertain to you. For example, renters don't have to go through the section on mortgage interest deductions and single individuals aren't presented with questions regarding the marriage tax deduction.
Who Should Use the Interview
Because the interview uses a question and answer approach to filling out tax return, it is useful for anyone who is using tax software even if their return very basic. The interview feature is available even in most free tax software. If, for some reason, you want to avoid using an interview, your only option is to use Fillable Forms (for very basic returns only) available from IRS Free File.
The Right Version
As a general rule, both online and desktop tax software come in a variety of versions for someone who just needs to fill out a very basic return on up to home and business versions for the self-employed, with one or two versions in between. Determining which tax software version to use can be tricky if your return isn't obviously very simple or you have a side business or are self employed. The tax interview often starts by asking you questions about tax related lifestyle changes that may have taken place over the past year along with other questions about your income tax scenario to help you to choose the best tax software version for your needs.
If you've chosen tax software do that does not help you to select the correct version, there is little need for concern. If you need to upgrade to a higher version while you doing your return the tax software allow you to do that. However, if you find that the version you're using has more features than you need and you could use a lower-priced version, moving backward will be easier if you use online tax software. Moving to a lower version will be impossible without contacting customer service for your software if you use desktop tax software.
Basic Tax Questions
Life change questions will include your marital status, whether you've made any donations to charity, if you've paid any college education expenses or medical bills, whether a new family member has been added to the household, if you have new employment or have received unemployment compensation, and whether you've bought, sold or otherwise have a change in real estate ownership.
Questions for Higher Tax Software Versions
The tax interview will also ask you if you have received income over the past year related to contract work or owning a small business, if you have any interest income on investments or interest-bearing checking or savings accounts, if you have had any activity in your investment portfolio or with rental properties, and if you've received any pension income or income from IRAs or other retirement income.
The interview takes you through your return by asking questions or presenting checklists. Most tax software interviews are "smart" and will determine what questions to ask later in the interview based on how you answer questions earlier. For example, if you indicate that you have interest bearing accounts early in the interview, later on the software will ask questions to determine what types of accounts these are and then will enter your data into the appropriate IRS tax forms. If you don't have any interest bearing accounts, the software will skip presenting questions related to this topic to you later on.
Using the tax interview ensures that your return is error-free because data entered is always deposited on the correct tax form, in the correct row and column. You could still enter an incorrect number or make a wrong selection in error, so the last step in the interview will be an error check where questionable entries are presented to you for changes or for your approval.