June/July 2009

Top 10 Business Tax Software Solutions 2009

New NOL Carryback Bolsters E-Filing

By Phil Britt

States are increasingly mandating electronic filing of tax returns for businesses under certain sizes. Consequently, enhanced e-filing has had the biggest impact on tax preparation firms and independent preparers who focus on business returns, particularly forms 1120 and 1065, according to officials from different tax preparation software firms.

"Tax preparers are looking for ways to tie [electronic filing] into paperless office management," said Dave Olsen, CPA, director of product management for CCH Small Firm Services, Rome, GA. "Being able to pull an electronic document into a document management system helps [tax preparers] save time."

The company's ATX product focuses on the small CPA firm. It includes integration with popular bookkeeping software such as QuickBooks and Peachtree to enable automatic importing of information, eliminating the need to print from one program and re-enter the details into the tax preparation program.

"Much of the focus for tax preparation firms, and therefore on providers of tax preparation software packages, has been on workflow efficiency and firm efficiency," said Angela Askew, product manager for ProSystem fx Tax.

"So many of the changes made in the software have been focused on enabling preparers to work more efficiently," said Askew. "There are more areas with more usability, so the end user doesn't have to open as many screens or click as many times as before."

"The scan-and-fill option that CCH Small Firm Services and other tax preparation software offers is another capability designed to eliminate paper and improve efficiency," Olsen said. "We started to give [preparers] a reason for wanting to [digitize information and eliminate paper]. What's making the difference is the ability to easily save and to organize information electronically."

"Other industries adopted electronic document management and other paperless options (e.g., electronic deposits) a few years ago," Askew said. "Now the tax market is catching up with the idea of electronic workflow."

"The government is also catching up," Olsen said, "hence the increase in e-filing, which improves efficiencies for state and federal revenue departments. The revenue departments are attempting to control their own costs, which is the main driver behind the increasing amount of e-filing.

"Many people want e-filing so that they can get their refunds more quickly. But businesses don't have the carrot of the refund, so to push e-filing, the revenue departments have to mandate it."

Olsen sees the trend continuing, with more states requiring e-filing, and the thresholds for the size of firms required to e-file continuing to increase.

"E-filing makes it easier for states to collect money," said Scott Fleszar, senior director of strategic marketing for tax and accounting for Thomson Reuters, New York.

For 2008 returns, Fleszar added, tax preparation software firms need to account for the rule changes for net operating loss carrybacks that were included in the Recovery and Reinvestment Act.

To accommodate the change in tax law, the IRS updated the instructions for two key forms — Forms 1045 and 1139 — that small businesses can use for the special carryback provision for tax year 2008. These forms are used to accelerate the payment of refunds.

The new provision, enacted by the American Recovery and Reinvestment Act of 2009, enables small businesses with a net operating loss (NOL) in 2008 to elect to offset that loss against income earned in up to five prior years. Typically, an NOL can be carried back for only two years.

To qualify for the new five-year carryback provision, a small business must have no greater than an average of $15 million in gross receipts over a three-year period ending with the tax year of the NOL. Businesses with more than $15 million in gross receipts qualify to carryback their 2008 NOL for two years.

"We worked hard to get out the updates as fast as possible on that," Fleszar said.

"There's also been a change in the extension dates for the 1065 returns," Fleszar said. "The deadlines for those extensions used to be Oct. 15, six months after the deadline for the filing of personal returns. But that has been changed to Sept. 15, putting it in line with extensions for filing of corporate returns."

Economic Impact
Due to the weak economy, "tax preparation companies are trying to do more with fewer resources," Askew said.

"Tax preparation firms are likely to feel the impact of the economic downturn the remainder of this year and next," Scott said. "A lot of their clients' businesses were impacted in 2008, but that doesn't mean that they don't still need services."

"Even a failing business still needs to file a tax return," Scott said. "But such businesses won't need tax preparation services the following year."

Even so, "most of our customers are cautiously optimistic about an economic recovery," Scott said. "Many of our customers have lost a few clients, but there hasn't been a sharp drop off. That could change if the economy stays weak this year; there could be more of an effect [on small businesses and the tax preparation firms that serve them] next year."

"The weak economy is causing more businesses to seek business and financial advice from their tax preparation firms," said John Sapp, vice president of sales and marketing for Drake Software.

"Business owners look at our customers as more than just the tax guy," Sapp said. "Most of the returns done with Drake Software are 1065s or 1120s, for owners seeking personal financial advice as well.

"They're looking for people who can help them do more with less," Sapp said. "So Drake tries to aid those preparers by keeping them updated on the latest tax news ... This helps the preparers work with clients to develop the most advantageous tax strategies for not only the current tax year, but also for the next few years."