A small-business automation expert looks at several popular tax preparation software packages.
A small-business automation expert looks at several popular tax preparation software packages.
Think twice before paying an accountant to prepare your taxes. You may be able to do it yourself--painlessly--on your computer
If you've always hired an accountant to do your taxes or wrestled with forms and tax-code changes on your own, it's time to let your computer do the work for you. Three of the most popular tax-preparation programs on the market today can save you or your business time, anguish, and error.
The programs--TurboTax (from Intuit), Kiplinger TaxCut (from Block Financial), and Personal Tax Edge (from Parsons Technology)--are a breeze to use. They provide the necessary forms from the Internal Revenue Service, explain in plain English what information is needed and why, and calculate from your data how the new tax regulations apply to you. All three programs come with helpful reference material and are modestly priced.
We looked at the CD-ROM (or "Deluxe") versions of the programs, which cost the same as or a little more than the standard software and offer audio and video accompaniments that make tax preparation almost, well, inviting. The CD-ROM and standard versions are virtually identical except for a few specific audio and video features. The programs discussed here help you prepare federal tax forms, but the manufacturers also offer programs for completing state tax forms, so that you have to enter your data just once.
Of the three programs, TurboTax is the best-known. This year's CD-ROM version includes an easy-to-follow design that takes you through seven steps, among them "interview," "review," "filing," and "planning." You move from one step to the next by clicking on what look like divider tabs in a notebook. Dynamic new features include a refund monitor, which displays the refund amount at all times so you can see how each piece of data affects your bottom line.
If you use a financial-management program like Intuit's Quicken or Microsoft Money and have been categorizing your expenses, you can easily import your data directly into TurboTax. But entering your data from scratch is no problem, either. The heart of TurboTax is an easygoing question-and-answer interview. You answer a question, and the program figures out what to do with the information.
For example, one of the interview questions is, "Did you receive a W-2 form that reported wages, tips, or other amounts paid to you by your employer this year?" If you're not sure where to find the information, the program prompts: "Enter the description and amount for any item that appears in Box 14 of your W-2 form." If you want more information, click on "W-2" (or other key words highlighted in the interview) to bring up related reference material. Once you've finished your interview, TurboTax determines which deductions you qualify for: child-care credit, medical expenses, and so on.
If forms intimidate you, you'll be glad to know that you never have to look at one unless you want to. In that case, click on "View Current Form," and the form will appear, complete with the information you've entered.
After the interview, TurboTax checks for errors, omissions, and overlooked deductions, and shows you what needs correcting, appending, or deleting. It also flags any item that could trigger an audit and offers advice on how to avoid IRS problems. For example, it tells you what kind of documentation to bring to an audit.
Once corrections and adjustments are made, the program compares your return with national statistics of other filers in your income bracket, based on 1994 (the most recent year for which the IRS has compiled records) returns that have been adjusted for inflation. You can see the percentage of all returns in your adjusted gross-income range and the average taxable income reported. This information can be a real eye-opener, especially when you note how others handle their deductions.
TurboTax's CD-ROM can also help you prepare for next year's taxes. Its tax planner creates what-if scenarios for different income and expenditure levels, and it offers advice for future tax savings based on your information.
Of the three programs, TurboTax has the most generous supply of reference material. In addition to IRS instructions (offered by all three companies) and detailed information about the new tax rules for 1996, it gives on-screen versions of more than 30 IRS publications, Mary L. Sprouse's The Money Income Tax Handbook, and Jeff A. Schnepper's How to Pay Zero Taxes. There's also a video library of tax information and strategies.
Kiplinger TaxCut resembles TurboTax: it imports data from programs like Quicken and Microsoft Money; it's easy to navigate; and it offers an interview mode, audit alerts, and IRS instructions. It even has a similar design. But there are differences. For one, as you answer the interview questions on the screen, a little window at the bottom of the screen shows the corresponding tax form, a line or two at a time. Because the terminology on the form sometimes differs from the language used in the interview questions, seeing them at the same time can be confusing.
One nice touch are buttons for frequently used functions, like the IRS instructions and two unique TaxCut features called "The Shoebox" and "Rapid Find." The Shoebox lists sources, such as your state, that may have sent you tax documents. Just click on the source, and the relevant documents appear. Choose one--say a state tax-refund statement--and The Shoebox tells you where to enter your data (on Line 10B of Form 1040, in this instance). Click on "Go There," and the program takes you to the place where you're supposed to enter the data. Rapid Find lets you ask about subjects directly rather than by the source of relevant documents. Just type in a key word or phrase--like alimony or dental expenses, and the program takes you to the interview questions for that topic.
Experts at Kiplinger Washington Editors provide the video tax tips in this program, including general tax-planning advice and a description of the new tax rules for 1996. You won't find as much reference material here as in TurboTax, but there is substantial help.
Personal Tax Edge
If you want real hand-holding, you'll get it from Personal Tax Edge, which gives you video assistance from Steve Crowley, the upbeat host of "Money Pro News," a syndicated radio and TV report. Crowley talks you through much of the interview, which makes the process go more quickly and gives the software a friendly feel. Each time you start a new line of questions, he appears in a video clip to explain what information is needed and why.
Like TurboTax and TaxCut, Personal Tax Edge lets you import data from personal financial managers (like Quicken and Microsoft Money), enter it with the help of an interview, check it when you're done, and receive some tax-saving tips.
Tax Edge's tax-planning option also offers what-if scenarios--including a feature that explores how changing your employee withholding will affect your taxes in the future--and a report that suggests ways to reduce next year's tax bill based on your current data. The program's tax-planning tips are more generic than TurboTax's or TaxCut's. The help option offers IRS instructions, advice from J.K. Lasser, a list of common questions and answers, and the complete text of the 1996 Federal Tax Law update.
Filing Your Return
Once your return is finished, you can print it, sign it, and mail it to the IRS--or you can use a high-tech alternative: file electronically. Electronically filed returns usually get processed faster, so you will probably get a refund faster. There is also a smaller chance of error because your computer handles the calculations; IRS employees, who sometimes do make mistakes, don't reenter the data. (Each vendor charges about $10 for electronic filing.)
If you're determined to put your John Hancock on your return, consider printing the new Form 1040PC. This modified version of the standard Form 1040 prints only those lines that have been filled with a number other than zero. The form also should help reduce data-entry errors at the IRS office and speed your refund.
And speaking of errors, all three programs are guaranteed against any calculation error in the software. If the IRS finds one, the manufacturers will pay your penalty and interest costs. This kind of help is enough to change April 15 from a day of reckoning to a walk in the park.
Minding Your Own Business
David DeLong, chief financial officer at Dynamix Group, in Roswell, Ga., was going nuts. Spread before him was a daunting array of corporate tax forms and pages of complex tax regulations. Before he even dove into the mess, DeLong knew that his strong background in finance wasn't enough to tackle the tax implications of the company's incorporation the last week in September 1995 and its grand opening a week later. But he also knew that the computer reseller didn't need an accountant yet--the company didn't earn any revenues in 1995 (it would earn $5.1 million in 1996)--and that he wasn't ready to hire one just to do his taxes.
What was a beleaguered CFO to do?
DeLong turned to Intuit's TurboTax for Business (on CD-ROM), the most popular consumer business tax-preparation software available. "It was like sitting across the desk from an accountant asking questions," says DeLong. "It took a few hours. But it probably went more smoothly than speaking to a person because the software was methodical, and we didn't get sidetracked."
Here's how it works. First, to receive the appropriate IRS forms for your type of business, you must register the program by calling Intuit during installation and identifying the type of business. You will receive access codes to Form 1040 Schedule C for sole proprietorships, Form 1065 for partnerships, Form 1120 for corporations, and Form 1120S for S corporations.
You can start TurboTax for Business by importing data from QuickBooks, Intuit's small-business accounting program, as well as from Quicken or any other accounting software that supports the tax exchange file (TXF) format. The program's design and steps are like the personal version, but it also comes with additional business tax forms and a wealth of business-related help and advice. Among the reference materials: J.K. Lasser's Tax Deductions for Small Business, by Barbara Weltman, and Tax Savvy for Small Business, by tax attorney Frederick W. Daily.
The business-related help includes information on retirement plans (Keoghs and the like), descriptions of accounting methods (cash, accrual, or combination), and instructions for calculating the value of your closing inventory--all complicated items usually left to an accountant. The program provides lots of advice, as well as video assistance about business travel, meals and entertainment, home-office deductions, property depreciation, vehicle expenses, and many other topics.
Once you complete your return, it goes through a review process--a check for errors and overlooked deductions, and audit alerts. Among the audit alerts are discussions of business record keeping and some industry-specific issues: restaurants, for example, are advised about the possibility of unreported cash income. The "U.S. Averages by Industry" feature can help you gauge how your business compares with others in the same industry. Here you can check statistics, like adjusted gross income, percentage of income-tax liability per dollar, and percentage of the returns in your gross-income range.
TurboTax for Business won't replace an accountant: it doesn't offer the wide-ranging financial management and planning services that your business may need. But if you can go it alone and want to do your taxes accurately and efficiently--or if you do need an accountant but want to save on tax-preparation fees--TurboTax is definitely the way to go. As DeLong notes, "You never even have to look at a form."
TurboTax, TaxCut, and Personal Tax Edge are available in a variety of formats (on CD-ROM and disk, for Windows and Macs, for preparing federal and state returns). The operating-system and hardware requirements vary, so check the package or call the vendors below before you buy.
TurboTax and MacInTax, $39.95 TurboTax Deluxe and MacInTax Deluxe (CD-ROM), $49.95 TurboTax for Business and MacInTax for Business (CD-ROM), $69.95 State versions, $24.95 Intuit Inc., Menlo Park, CA (800-4-INTUIT)
Kiplinger TaxCut, $19.95 Kiplinger TaxCut Deluxe Multimedia (CD-ROM), $39.95 State versions, $24.95 Block Financial Corp., Kansas City, MO (800-457-9525)
Personal Tax Edge and Personal Tax Edge Deluxe (CD-ROM), $19 State versions, $19 Parsons Technology Inc., Hiawatha, IA (800-223-6925)
Ellen DePasquale is a small-business automation expert and writer in New York.