Wealth and taxes. (tax-preparation software)(includes related articles) (Buyers Guide)
by Rosalind Resnick
For millions of Americans, April 15--Tax Day--is a day approached with dread. If you're like many last-minute taxpayers, you'll spend one long, sleepless night rummaging through a stack of old receipts, bank statements, and check stubs. Then, scribbling some numbers on your coffee-stained tax return, you'll dash off to the post office just before midnight--offering up a prayer to the patron saint of Lost Taxpayer Causes as you slip the envelope through the slot. Or maybe you'll simply throw up your hands and dump the whole mess on the lap of the nearest C.P.A., paying dearly for your procrastination.
There is a better way, and if you have a computer, you're already way ahead of the game. If you use tax-preparation software, you'll probably end up spending far less than the $50 an hour charged by many C.P.A.'s, who often use professional versions of the same software that you can go out and buy yourself.
Now that prices are coming down and programs are getting friendlier, you owe it to yourself to give tax-preparation software a try. If you do, you'll be in good company. Dataquest, the San Jose market research firm, estimates that over three-quarters of a million personal tax packages were sold in 1990. Dataquest predicts that figure could double by the end of 1991, and again in 1992.
"It's one of the fastest growing software categories around," says Gladys Francis, a Dataquest information analyst. "If you know how to use a personal computer, you can probably use tax-preparation software."
Once merely glorified spreadsheets, tax-preparation programs now do virtually everything except root through your shoeboxes ad sign your name at the bottom of the return. These days just about all of the top-selling programs--Turbo Tax, TaxCut, MacIntax, Personal Tax Edge, and others--feature IRS instructions online, taxpayer interviews, pop-up help onscreen calculators, almost every IRS form you'll ever need, and the ability to import data files from programs like Quicken and Managing Your Money. Upgrades for the 1992 tax season have improved on these features to make them better, faster, and even friendlier.
"We have turned from form preparers to tax advisers," says Anne Rawland, director of corporate communications at Parsons Technology, which sells Personal Tax Edge. "We're both a form provider and a simplified H & R Block at the same time."
Andrew Tobias, the popular financial writer who lends his name and expertise to MECA Software's TaxCut, says he uses the tax-preparation software to do his own taxes, his friends', and even his mother's.
"If you're rich and you hate this kind of thing, you can take everything over to your accountant and pay $2,000 and not worry about it," Tobias says. Tax software, on the other hand, is inexpensive and "ready when you are, and you don't have to leave messages with the secretary."
Even the U.S. government, often maddeningly slow to embrace change, favors the growing trend toward taxpayers using PCs to fill out their own returns. "We don't have any problem with it as long as it results in an accurate return," says an IRS spokesman in Washington, D.C. In the not-too-distant future, he predicts, home computer users will be able to send their returns to the IRS via modem.
Despite the many pluses, however, tax software isn't for everybody. If you don't do your own taxes now and wouldn't know a 1040 if you tripped over one, you may be better off continuing with your accountant. Likewise, if your taxes involve passive losses, home office deductions, or anything else that's likely to trigger an IRS audit, then a C.P.A. may be your best bet.
Fortunately, when it comes to shopping for tax software, it's hard to go wrong. Since the market is so competitive, once one company unveils a new bell or whistle, it isn't long before everybody else builds in that feature, too. And even though the market for tax software has undergone a good deal of consolidation over the last few years, price competition remains fierce. Most top-selling programs now sell for less than $100 with upgrades available for under $50.
Here's how the Bit Three of the tax-preparation software field break down:
* Turbo Tax ($79.95 for the DOS version, $99.95 for Windows) and MacInTax ($99.00): The most popular program by far, ChipSoft's TurboTax offers versions not just for Joe Taxpayer but for C.P.A.'s and tax preparers, too. TurboTax's latest version features 11 new forms and work sheets, toll-free technical support, quicker data entry, a smoother interface with Quicken, a Windows version, and a final review feature that checks over your tax return after you're done. Now that ChipSoft has bought out Softview, the developer of MacInTax (the leading Macintosh tax program), TurboTax for the Mac has been discontinued, and many of its best features have been grafted onto MacInTax.
* Andrew Tobias' TaxCut 1040 ($89.95): The up-and-coming number 2 of the tax-preparation market, TaxCut owes a lot to a program released several years ago called Ask Dan About Your Taxes. Massachusetts tax lawyer Daniel Caine continues to refine the software as president of Legal Knowledge Systems, while MECA Software (marketer of Andrew Tobias' other software programs) distributes it. The program's strong points are its ease of use, especially for tax novices, and Caine's expert advice that's sprinkled throughout. This year's program includes a soup-to-nuts taxpayer interview, a Windows version to be released in January, and TaxCut EZ/A, a "baby TaxCut" for short-form users that retails for $29.95. If you discover along the way that you really need the long form, you can always upgrade to the regular TaxCut for only $25.00 more.
* Personal Tax Edge ($49): The nation's third-ranked program in user popularity, Parsons' tax software has long been a low-price leader. The $49 package packs in everything the big boys do--depreciation calculator, audit warnings, what-if estimator, taxpayer interview, the works--in addition to free, unlimited technical support by phone. Tax Edge's object-oriented capabilities, added in 1990, let you open the Schedule C file, for example, at the same time you're working away on your 1040. Last October, Parsons released an early bird version of its program by mail for only $29. Rawland, Parsons' director of corporate communications, says this year's Personal Tax Edge crunches numbers faster and offers better graphics.
No matter which tax program you decide to buy, make sure it includes these helpful features:
* Taxpayer interview: A series of step-by-step questions can help guide you through the maze of forms and schedules you'll need to file. This year's TaxCut, for example, starts out by asking you such questions as "Do you want to file jointly?" and then suggesting some reasons to consider doing that. TaxCut even prompts you to enter your name, occupation, and Social Security number.
* Forms and schedules: Besides the basic 1040, most top-selling programs include dozens of approved IRS forms for everything from deductible business expenses to depreciation of rental property. Make sure the program you buy has the forms you need.
* IRS instructions: Unless you get your kicks from wading through a pile of IRS brochures, you'll want a program that has the official IRS instructions online.
* Electronic filing: If you think you're due a refund, get a program that lets you file your return via modem. The reason? You'll get your refund check a lot faster. Many programs let you electronically send your completed form to a third-party service which, in turn, transmits your return to the IRS computers. (There is an additional fee for this.)
* What-if tax planning: You can plot this year's tax strategy and get a head start on 1993 with programs that let you make projections. You can calculate how fast your home business will grow, for example, or whether you can save money if you and your spouse file separately.
* Onscreen tools: Pop-up calculators and scratch pads mean you don't have to waste time rooting through piles of paper to find your pencil.
* Financial data support: If you've used a program like Quicken to track your expenses all year, there's no reason to type everything in again from scratch.
* Technical support: If you're a member of CompuServe or GEnie, you'll welcome the chance to get your questions answered online. Most companies also offer help via phone and fax, though that can get expensive.
What's next for tax-preparation software? In the future, the experts say, tax programs will become even faster, easier to use, and less expensive. They'll hook up not only with personal-finance programs like Quicken but with financial-planning software, IRS computers, online information services, and more.
And yet there will always be limits to what your PC can do to help you with your taxes. It won't write that big check to the IRS. And it won't help you explain the auditor why you deducted that trip with your kids to Disney World as business travel.