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Dec 1989

Criteria for selecting tax return preparation software. (The Practitioner & the Computer)

by Flesher, Dale L.

    Abstract- Tax accountants selecting tax return preparation software should look for such standard features as: menu-driven interfaces; automatic linking of forms; the ability to import data from other programs; and an articulation of forms feature. The software should feature: the tax modes for the states in which business is conducted; a wide variety of tax forms; and the ability to calculate the effect on tax liabilities for changes in the return. Accountants should also look for: good IRS instructions; the availability of yearly updates; and on-screen templates of actual forms.

There has been a proliferation of tax preparation software in recent years, and the available programs differ considerably in price and quality. Programs are advertised at prices ranging from $14.95 to over $500, and the advertisements for all of them make the programs sound like the ultimate answer to a tax preparer's prayer. The question is, are there any differences between the low priced software and the higher cost alterntives? Exactly what basis should a preparer use in making a selection of tax preparation software? It is difficult to make a generalized evaluation of a specific software program because users' needs differ. However, there are a number of considerations that should be explored before purchasing a specific program.

You should realize that the lower priced programs were not necessarily designed for tax preparers, but for individuals who prepare their own personal returns. Consequently, some programs do not permit the assignment of unique file names to each tax return. Thus, there must be a separate disk for each client's return.

Standard Features

Almost all programs on the market have standard features which include menu-driven interfaces, the ability to import data from other programs, built-in calculators, and automatic linking of forms (also called articulation of forms). However, check out each program you are considering, particularly the lower priced ones, to be sure that these features are indeed standard. A menu-driven program is normally easier to use than a command-driven program, particularly for those not particularly well expeirenced in computer usage. Thus, always look for menu-driven programs.

Although most vendors seem to place a great deal of emphasis on a program's ability to import data from other application programs, few preparers use this feature, since the data used in the preparation of personal tax returns is typically not available in magnetic form. Besides, entering the data directly into the computer is often easier than figuring out how to import the data. Thus, many prepares will not be too concerned with a program that will not import data from other sources.

A good program has an articulation of forms feature, which means that you do not have to retype the totals of schedules onto other forms. For instance, once you have prepared Schedules A, B, and C, the totals will automatically appear on the proper lines on Form 1040. Do not buy any program that does not have this articulation, or automatic linking, feature.

Other Selection Criteria

The most important criteria to consider in selecting a specific program are outlined below.

1. Where you live. If you live in a state with a state income tax, you may want a program that includes a module for your state. The lower priced programs often do not make a provision for state ax returns (if they do, only California and/or New York are generally available). Some programs offer separate modules (at additional cost) for at least 41 states.

2. Variety of tax forms handled. Most programs on the market include Form 1040 and accompanying Schedules A, B, C, D, E, and SE, plus Forms 2106, 2119, 2411, 3903, and 8615. This means that commonly used Schedules F and R are not available on the lower priced programs. Similarly, Forms 1040-A, 1040-EZ, 2210, and 1040-ES are often not available. There should also be a means of adding explanatory attachments.

In addition to the variety of forms, the potential buyer should question the number of identical forms that can be handled. For example, some low-cost programs permit only one or two Schedule Cs and three Schedule E properties. Some programs can handle Form 4562, but permit the depreciation of no more than five assets. Thus, if your clients are farmers with five or six small businesses and a number of rental properties, you could not use many of the lower priced programs on the market.

3. Ability to perform what-if analysis. This enables you to see the effect on tax liability of various changes on the return. The more basic programs allow you to make changes only by deleting your original figures and recalculating the tax. The better alternative is to select a program that lets you make a copy of the original return and then manipulate the figures without changing the original data.

It is this what-if feature that permits a preparer to perform a tax planning service for clients. By varying income and expenditures, a preparer can give a client a preview of what impact a particular transaction will have on the annual tax bill. Such analyses can be made at any time during the year. Thus, preparers should not consider tax preparation software as something that will only be used during the filing period. Tax planning features of tax preparation programs are not as sophisticated as special-purpose tax planning programs. Programs designed only for tax planning purposes can handle data for a period of years, while the tax planning feature of preparation programs typically examine the impact of various alternatives on the current year only.

4. Printing capability. All programs have the ability to print, but the questionis whether the output will be acceptable to the IRS. For many tax preparers, it is the capability of printing the forms quickly and easily that is the primary incentive for buying the software program. Fortunately, the IRS is not too picky about how forms are printed, except for Form 1040. Other forms can be printed on just about any paper. Form 1040, however, must be an IRS-approved reproduction of an actual form. Some programs will print an actual form that meets the IRS criteria. These programs often require a laser printer and/or special fonts. Other programs will print the Form 1040 figures onto a pre-printed form, assuming of course that you can get the lines on the form properly aligned in your printer (usually a tedious process). Some programs, however, print onto plain paper and you transcribe the figures by hand. This latter alternative is the least desirble and should be avoided. A hybrid method is for the program to come equipped with a transparent Form 1040 plastic overlay that you can place over the printout and then photocopy. This alternative is not as desirable as having the actual form printed out, but it is probably easier than trying to align actual forms in the printer.

5. Availability of directions. Lower priced programs will sometimes have little or no IRS instructions. Others will have good on-line help and clear interpretation of IRS instructions. This feature is quite important to individuals preparing their own returns, but is rarely used by professional tax preparers.

6. Availability of yearly updates. The price of updates should normally be much less than that of the original software. This discount to repeat customers varies considerably and may amount to 75% or more.

7. On-screen facsimiles of actual tax forms make it easier. For most tax preparers it is easier to prepare a return if the screen looks exactly like a tax form. Because of the adage "what you see is what you get," it naturally follows that the printer should print out exactly that which is on the screen.

8. Is the software self-standing or does it require additional software (or hardware)? The majority of popular programs currently on the market are self-standing in that they can be executed directly from DOS. Some programs, however, require Basic A or GW-Basic. Others require a spreadsheet template such as Lotus 1-2-3, VP-Planner, VP- Planner Plus, Twin, Symphony,or Quattro. The need for an additional program naturally increases the price for those preparers who do not already have the needed software.

Start Now

Most programs on the market are fairly easy to learn to use. However, do not wait until the middle of tax season to make your purchase. Start early and try out the program with some simple returns--preferably ones that have also been prepared manually (just in case there is a bug in the program).

For those who have questions about specific programs, some journals and personal computer magazines publish reviews of software programs. Thus, check around and you may find a review of the program you are considering. The only problem with such reviews is the question of whether the reviewer considered the qualities of the program in respect to a client base similar to yours.

What's New

Solomon III Version 6.0 Released

TBL, Inc., released single user Solomon III Version 6.0. This new version features:

* Delayed batch editing capabilities (that is, placing any batch created in a data entry screen on hold for upgrading and revision at a later time);

* Automatic recovery if a system error occurs during a process;

* Voiding of unused batch and document numbers;

* Batch register report which provides a complete list of all batch numbers used;

* New Report and Graph Designer features; and

* Inventory module enhancements.

All current Solomon II users will be advised on how to upgrade to Version 6.0. TLB, Inc. P.O. Box 414 Findlay, OH 45839 800/822-0444

* Requirements: IBM PC, XT, AT, PS/2 and compatibles, DOS 2.1 or higher, minimum 640K.

* Price: Depends on modules used; contact TLB, Inc. for price.

New Printer Sharing System

Speeds Laser Printing

LaserTools Corporation has announced the Local Union Printer Sharing System--a high speed system that allows four or eight PCs to share one laser printer. The system utilizes a combination of hardware and software to achieve its high-performance. Depending on the model, Local Union provides four or eight high-speed parallel input ports, and one high-speed parallel output port. The parallel ports include proprietary receiver circuitry that allows parallel cabling to over 100 feet, overcoming the traditional 15-foot limitation.

Local Union's speed is especially beneficial to graphics uses, since graphics printing involves a large quantity of data --often more than a million characters per page. When printed over a serial cable, commonly used by traditional printer-sharing devices, a grpahics page can take 10 to 20 minutes to print. Local Union can print graphics 10 times faster. Lasertools Corporation 5900 Hollis Street Suite G. Emeryville, CA 94608 415/420-8777

* Requirements: IBM PC, XT, AT, PS/2 and compatibles, DOS 2.1 or higher, minimum 640K.

* Price: For four PCs $595; for eight PCs $795.

Interactive Graphics Presentation


Symsoft Corporation has introduced HotShot Presents, PC presentation graphics software for interactive presentations on projection systems as a result of integrating many of the features currently available on desktop presentation packages with the dynamic capabilities necessary for interactive presentations.

HotShot Presents is designed to prepare and present electronic slide shows on all popular video systems, as well as laptop computers and overhead proejctors.

HotShot Presents features:

* Fast show creation using an integrated outliner and template editor;

* 75-second transparency printing on most laser printers;

* Import or capture of most PC graphics-including Lotus 1-2-3 spreadsheets;

* Pan and zoom larger-than-screen images during a show; and

* Interactive features for use with projection sysystems during a show. Symsoft Corporation 444 First Street Los Altos, CA 94022 415/941- 1552

* Requirements: IBM PC, XT, AT PS/2 and compatibles, DOS 2.1 or higher, minimum 640K.

* Price: $349.

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