Ease the pain! Tax-preparation software can be a lifesaver for your business - includes a related article evaluating eight tax-preparation packages

Home Office Computing, Feb, 1992 by Margie L. Haddon

April 15 is a date many of us dread. I'm a CPA who prepares well over a hundred tax returns each year, and most of my clients ask me questions about tax-preparation software. So in order to answer my question they could come up with, I set out to review the top eight programs for preparing individual tax returns: Andrew Tobias' TaxCut, EasyTax, J.K. Lasser's Your Income Tax, MacInTax Personal, Personal Tax Edge, RapidTax, TurboTax Personal, and Turbo-Tax for Windows. What follows are the answes I'll be giving when my clients start grilling me this year.

THE BENEFITS

Q: I prepare tax returns using pencil and calculator. How would I benefit from tax-preparation software this year?

A: You'll gain a deeper understanding of your tax situation. For example, if you prepare your tax return with software, you'll be able to focus more on the overall process rather than the tedious manual steps. You'll also be able to compare different tax scenarios easily by plugging in different numbers. And tax-prep programs offer instant calculations--you generally have to enter relevant figures only once, and the software transfers them automatically from form to form as needed.

There are more ways tax-prep software will speed up the process, especially if you itemize deductions or have business expenses to record. Since these programs offer instant on-line access to IRS instructions and professional advice, you won't waste time leafing through impenetrable IRS publications for the answers to your questions. For example, while preparing a sample return with TaxCut, I asked for help on deducting a home office. After offering a brief description of when a home office can be deducted, the program asked me five yes-or-no questions to help determine whether my office is deductible. After the software determined that I could deduct my home office, it listed some of the deductions I might be entitled to and stepped me through the process of figuring out how much to deduct.

In addition to saving time, tax-rep software helps you organize the IRS forms and document line items on your return. All of the reviewed programs let you create supporting worksheets and itemized lists to back up your figures. When I used EasyTax to prepare a Schedule A, for instance, I needed to list each organization I had given a charitable donation to. All I had to do was go to the line for Contributions, press a key, and a window appeared that let me enter each organization and the donation amount. When I finished, Easy Tax calculated the total and entered it on the proper line.

Q: My return is fairly simple--I don't even itemize deductions. So I don't need tax-prep software, do I?

A: Probably not. All of the tested programs will prepare a 1040A, and nearly all will do the 1040EZ, but paying $50 to $100 to prepare a 1040EZ is overkill, to say the least. You might consider a less expensive short-form version of one of the programs, such as those offered by ChipSoft or MECA Software. Otherwise, you may not benefit at all from tax-prep software.

However, the tax tips and planning advice offered by these programs may be worth the price of admission if you choose the full package. For instance, if you started a business last year (or plan to this year), TaxCut offers lots of good advice on the types of expenses you can deduct. This help can get you off to a good start and make preparing next year's return easier.

You could also find out about deductions or credits you've been missing out on. For example, I told Personal Tax Edge that my client earned $15,000 and had two dependent children. Sounds like a pretty simple tax situation, doesn't it? When I asked the program to review the return, it correctly told me that my client might be entitled to take the earned income credit, and instructed me to complete the Earned Income Credit worksheet. In this case, it resulted in an additional tax credit of $1,258.

Q: I usually prepare returns for a few people. How would tax-prep software help me?

A: If you prepare more than one or two returns, and you haven't been using tax-prep software, you've been missing out on a lot. All of the reviewed programs will prepare multiple returns. And if you prepare a large number of returns, you might consider purchasing the professional version of one of the programs, such as RapidTax Professional from DacEasy or TurboTax ProSeries from ChipSoft. The professional versions include automatic billing, client-data organizers, ways to input from corporate tax-return schedules, and other timesavers helpful to the professional tax preparer.

Q: In the past, I've relied on professional help to do my taxes. Would I save by using tax-prep software instead?

A: If you don't know much about taxes in the first place, these programs won't teach you everything you need to know. Unless you're ready to invest time learning about taxes, you'd be better off continuing to use the services of a professional tax preparer. Also, if you're disorganized to start with, tax-prep programs won't truly help you become more organized, and they could lead to further errors.