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How Does Turbo Tax Work? It Requires These Simple Steps

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There are three predominant ways Americans file their tax returns every year. You can hire a professional, like the ones at H&R Block, or you can go on ahead and prepare file the returns yourself. Then there's the third option that's offers an in-between alternative, like the program Turbo Tax. But if you've never used the software before, you may not know how TurboTax works in the first place.

The answer is actually pretty simple — and explains both why TurboTax has become such a popular product and why it is rated the best tax software by The New York Times-owned product review site, Wirecutter.

How To Get Started

You can access TurboTax by either using your computer or by downloading an app on your phone, depending on which phone you have. If you're old school, you can also purchase a TurboTax disc from a store like Walmart. The advantage of buying the disc is you'll be able to conduct the tax-filing process even if you're offline, since you'd be installing the TurboTax program onto your computer.

Now, this doesn't all come for free (although it's probably cheaper than hiring a human expert to do your taxes). Prices for TurboTax ranges depending on what type of service you want. For the online options, you can start the process for free and only pay when you file. The lowest price option for TurboTax online is $59.99, which would increase if you're also filing state taxes. There are several options in between, and the online price goes up to $179.99 for TurboTax Live, where you can talk to a CPA or EA on demand and get a final review from them. On CD, the price starts at $49.99, plus more for state filing, and goes up to $119.99 for a "home & business" option.

If you indicate that you're a new user, TurboTax will prompt you to select a few animated icons that help identify what type of filer you are. Those icons feature options with labels such as "I want to maximize deductions and credits" and "I have children or dependents."

Based on the icons you choose, TurboTax will advise which version of its software to purchase. There's one that's specialized for business owners, for instance.

After you make your choice, you'll create an account and sign up with a username and password, then you can get to the nitty gritty.

What Happens After You Sign Up

Whereas filing your own taxes would require you to go down a list of all the questions on, let's say, a 1040 (i.e. the most common tax form filed by Americans), TurboTax asks you questions that specifically apply to your financial picture.

The program asks general questions to then see if it has to ask more specific ones. For instance, if you indicate that you paid student loan interest during the year, only then will it ask you to label how much in interest you paid each lender you have.

If you indicate that you paid to renew registration for a car — which can be used as a write-off — only then will it ask for the amount you paid and whether you'd like to itemize that amount as a deduction.

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Here's how the product's official website explains the process,

TurboTax works like an interview — we ask you easy–to–answer questions about your life that affect your tax situation (i.e., Are you married? Do you have kids?) and fill in all the right tax forms behind the scenes. Your answers tell us which deductions and credits to look for, and what to ask next.

The best way to go about using Turbo Tax is to have all of the forms that are relevant to tax preparation process. If you're a filer in your 20s, a couple years removed from graduation college, that could mean a combination of a W-2 form from your employer, showing how much you made during the year and how much the government took away from you, plus student loan interest statements from your lenders, and a form showing the amount of money you donated to a charity.

TurboTax takes all these forms into account when determining how much of a tax refund you're entitled to. As we've explained here before, the chances of you receiving a refund increase with the amount of deductible expenses you had over the year.

If you don't want to find a professional to help you out with the tax filing process — but are too cautious to try filing on your own — you just might find that TurboTax is the best way to go to help you get the refund you want.