April/May 2009

Top 6 1040 Tax Software Solutions 2009

Increased Demand, Greater Productivity

By Phil Britt

Despite the prevalence of consumer-based tax preparation products, more consumers are turning to professional preparers than ever before. So makers of tax preparation software are focusing on enhancing preparer productivity in order to handle the increased demand for their services without sacrificing quality.

"Taxes are filed throughout the year, but most of the emphasis is between January and April," says Dave Olson, director, product management, CCH Small Firm Services, a Wolters Kluwer business that provides ATX 1040 and TaxWise professional tax preparation applications. Another division of CCH provides ProSystem fx Tax.

"The segment of the population that does their own taxes continues to go down every year," says Greg Goldenberg, vice president of marketing, CCH Small Firm Services. "Sixty-two percent of taxpayers went to professional preparers last year, compared to 60 percent the year before. Even with the consumer [tax software] programs, the preparation of taxes isn't getting any easier. The tax law gets more complex every year, which is driving more people to paid preparers."

Only about half of all taxpayers used paid preparers at the beginning of the decade, Goldenberg adds. "They need more help than the [consumer-based tax preparation] software can provide."

And it's not just the higher income taxpayers who are seeing more complexity, Olson adds. The past few administrations and the recently passed economic stimulus legislation have emphasized refundable tax credits as opposed to straight welfare to help taxpayers at the lower end of the income scale. Because those tax credits come through income tax filings, the returns for these individuals have become more complex.

More potential clients means more business for tax preparers. But simply putting in more hours to meet the extra demand isn't enough, preparers say. Only so many hours can be put in before productivity drops.

So tax professionals want annual updates to include enhanced productivity tools, even if that means paying more.

"They want us to make their job easier," Olson says. "They're always looking for easier data input, more e-filing capabilities and how to tie in the rest of the office."

That means features that make data entry easier and the workflow of the tax return more intelligent (and therefore faster). Software must also meet the tax preparer's needs beyond filling out tax returns.

For example, Jose Jimenez, who operates Tax Technology, Inc., Hopelawn, NJ, and his preparers see more than 3,000 clients each year, a number that keeps growing. In order to keep clients and preparers happy with the speed and accuracy of returns, Jimenez takes advantage of TaxWise's scan-and-fill feature. For an additional cost, the program automatically populates returns with data from scanned-in W-2s, 1099s and other documents.

The feature recognizes a variety of different W-2 and 1099 formats. "My business focuses on high-volume tax preparation," Jimenez says, "and until 2007, keeping up with the mountains of required paperwork and client documents was a very time-consuming and expensive job. Now with scan-and-fill, I'm able to automate the process of labeling and filing our customer tax data. As a result, my office is more streamlined and organized, saving me both time and money."

Jimenez estimates that he and his preparers can see an additional three to five clients each day as a result of the optional feature.

The more preparers can use automatic entry features, the more accurate the returns they are able to provide, Jimenez says. His reviewers are finding far fewer errors to correct since the scanning capability was added. As the tax software application evolves, he adds, its populating complexity continues to improve.

Other providers of software for tax professionals have added similar scanning capabilities and expanded automation designed to improve workflow.

"Everything is about saving the accountant time and streamlining the workflow," says Jo Ann Cummings, tax product manager for CCH ProSystem fx Tax, which added a scanning feature for this year's version of the product.

Intuit's Lacerte Tax added Document eSort, a new solution that promises to enhance productivity by automating the time-consuming step of sorting and organizing tax source documents.

Intuit's ProSeries Professional includes productivity tools such as Word Auto-Fill, which automatically populates common words such as the names of banks and cities.The ZIP Code and EIN databases eliminate the need to enter these details.

Intuit also offers products designed to help small businesses with marketing and billing (accepting credit card payments, for example). Several software packages added or enhanced form K-1 capabilities this year.

Beyond strict efficiency, some preparers are turning to electronic filing for some clients because of changing state laws, says Cummings, whose company added electronic filing for an additional 10 states this year.

Indeed, more states are requiring electronic filing of certain returns. And those states that already require some electronic filing are requiring more. Cummings expects this trend to continue for the next several years.

Taxpayers like electronic filing because it enables them to receive their refunds in a week rather than in a month or two. The electronic option also provides a revenue opportunity for some professional preparers.

New Regulatory Requirements
New information disclosure rules make 2008 returns more complex.

The Treasury Department and IRS released final 7216 regulations in January 2008, according to RedGear Technologies, provider of TaxWorks. These regulations impose stringent limitations on the disclosure of tax return information for purposes other than preparing the tax return. They apply to the use and disclosure of tax return information occurring on or after Jan. 1, 2009. The regulations prescribe a criminal penalty, which could result in imprisonment and fines.

RedGear and other providers have enabled their programs to block Social Security Numbers for offshore tax preparers. RedGear also added consent-decree capabilities to meet some of the 7216 regulations.

CPAs know that returns and tax laws will continue to get more complex every year, so they look to tax preparation packages to help them maintain or improve their efficiency while serving the needs of a growing client base.