CPA Versus CPU
Seven years ago, Rik Ketschke decided to take a new tax filing route: Instead of using an accountant, he started preparing his personal income taxes with a tax software program. It worked out so well that Ketschke, a Brentwood, Tennessee, home designer and builder, decided to find out whether he could also file his corporate taxes by using commercial software.
Ketschke called Intuit Inc., the company whose software he used for personal income taxes, to inquire about corporate tax software, using the tax form 1120S. The only software the company produced at the time was a professional series for accountants that cost around $400 each year for tax information updates.
"They agreed to send me a copy of the pro series to review," says Ketschke. "I told them I thought something like that would be great for small business. Now they have an 1120 series for the small-business owner. I don't know if it was because of my phone call or not, but I haven't used a corporate accountant in three or four years. With the software it's easy for a business owner to do his own taxes."
Which raises a question: Are tax software programs a real alternative to using an accountant for corporate tax filing?
The Experts Advise
Whether to use an accountant or tax software isn't necessarily a question of exclusion; each have their advantages, and depending on your own level of comfort and familiarity with filing procedures, you may choose one or both.
Mark Tenenbaum, senior product manager for Intuit's TurboTax and MacInTax for Business, says, "I would recommend that every small business owner do their own taxes, but that's not to say that some wouldn't want an accountant to review it. They really should do it themselves. The insight and understanding they gain is invaluable, and will help them to understand the process better.
"We have a large group of customers who do not use accountants at all. Many have prepared their own returns in the past. There are others who used to use an accountant and have switched away. There is also a large group who use the software and also an accountant."
Tenenbaum says that if you plan to use software to file, you'll need to know what tax forms your small business will be filing. As a first-time business owner, checking with an accountant may be a priority in this case.
Judy Zone, an accountant with the central New Jersey accounting firm of Weisman & Company, CPAs, LLP, suggests that it is especially important for the the first-time business owner to use an accountant during his or her first year of filing corporate taxes.
"Most people in a small business should be more concerned with getting business into their firms than getting to know tax laws that an accountant would know off the top of their head," Zone says. "Using a tax professional would put your priorities where they belong."
She explains that, when you are first starting a business, an accountant can recommend the type of legal structure, such as a sole proprietorship or S-corporation, that would be most advantageous to you when tax time comes around. The accountant would also analyze other potential problems that an enterprise may encounter, such as questions of liability.
An accountant can also provide you with systems for making tax-time 1997 easier. In this sense, the tax preparer's fee can more than pay for itself. Zone says that an accountant proves his worth by showing clients "legal ways to pay a minimum of tax."
In fact, while Ketschke has been doing his own corporate tax filing for four or five years, he started out by having an accountant prepare them for him.
"By now, I'm aware of all the deductions I'm allowed to take," Ketschke says. "The problem I originally had was that the 1120S form was made out for accountants to fill in. As a small-business owner, I had problems figuring it out, and if you put a number in the wrong place, the IRS will come down on you. Now, by using the program, it's much easier to understand."
Tenenbaum agrees that the business software that was released in 1996 by Intuit is designed for someone who doesn't necessarily have a deep understanding of tax laws. The program takes the user through an interview that gathers information from them, and then places that data in the proper lines on the tax form.
"You do not need to be a tax expert to use the software," Tenenbaum says. "The process is built into TurboTax. You don't even need extensive computer or software knowledge; the program will walk you through the entire process. There's a help system that is context sensitive and is keyed to every line.
"In addition to the interview process, there's a feature called Tax Advisor that pops up with advice and information, like recent tax changes, areas scrutinized by the IRS and tax savings suggestions," adds Tenenbaum.
Weighing The Liabilities
Zone acknowledges that software and tax preparation books can offer a lot of good advice to the small-business owner who wants to prepare his own taxes, and that they keep up with most of the changes in the tax laws. However, she cautions, the software may have flaws that could lead to additional tax penalties.
"You are liable for any interest and penalty regardless of whether you are using a program or not," Zone says. "If you are going to a professional, it is their responsibility, whether they are using a computer program or not. They are also trained to ask you questions and to find information that you may not be aware of in doing your own return. You will then have someone to call during the year if you have questions.
"There are some things the software cannot do, and the software manuals will tell you what you have to do by hand," Zone says. "People may not be geared into the terms to understand all of the implications of the tax code."
According to Tenenbaum, the program's Final Review feature will run a check on your prepared returns and flag problem areas or areas that could raise IRS concerns. "The programs will also make tax savings suggestions, like retirement plans," Tenenbaum says. "You don't need a prior knowledge base. If you're uncomfortable with the tax return, take it to a tax professional and have them review it. You'll save money and have a better understanding of taxes and how they impact your business."
Tenenbaum confirmed that there have been minor "bugs" in tax software programs in the past, and says Intuit guarantees its products and will pay any penalties and interest assessed to a user due to a flaw in the program. In fact, many tax software manufacturers have similar standing offers, but you should check before you invest in a product.
"The other thing you'd want to look for is a well-established provider that has the expertise to put out a program. Intuit has a group of over 100 in-house accountants that put TurboTax together. They have their own tax practices, and through April 15th, they're out getting real-world experience."
Ketschke says he is confident that he and the software are doing a good job of filing taxes. It's not just at tax time when software helps his business; He adds that a sophisticated accounting program, DacEasy Accounting, serves as his bookkeeping system throughout the year, and that he just has to re-type the data into his tax software.
"Now, with the software, it's easy for a business owner to do his own taxes," Ketschke says. "Everything is balanced right, and you don't need to be a math wiz to make it work. The tax program's features give you confidence that, when you mail your return in, everything will be just fine."
Additional Resources
J.K. Lasser's Your Income Tax ($14.95, MacMillan) is a broad-based tax guide that includes a listing of special tax situations for self-employed persons, with checklists of professional deductions and self-employed tax liability. To order, call (800) 223-2336.
Net Taxes ($12.95, Michael Wolff & Co.) is a guide to using the Internet, online services and tax software to "make tax time less risky, less costly and less burdensome." It includes advice on accessing state and federal tax forms electronically. To order, call (800) 793-BOOK.
The IRS offers free advice on tax questions, and will send you the forms for filing small-business taxes, through their toll-free phone service at (800) 829-1040.
Software Programs
Turbotax And Macintax For Business, Intuit Inc.
Intuit Inc. touts its current versions of TurboTax and MacInTax for Business as "the only tax preparation software designed specifically for the small-business owner." The programs are packaged four ways (for Sole Proprietorship, Corporation, S-corporation and Partnership) to offer specific forms and advice for tax planning and filing returns. Features like TaxLink allow users to import accounting data from Windows versions of Quicken or QuickBooks and a Tax Advisor that informs users of potential errors. Modules for states with income taxes are also available.
The programs come with a linked-in, on-screen tax guide called Tax Saavy for Small Business, which incorporates and links all the IRS's business publications into the program. Intuit also includes an edition of Netscape Navigator, providing users free access to the TurboTax home page on the Quicken Financial Network. Intuit's World Wide Web site address is http://www.intuit.com/TurboTax.
TurboTax for Business ($79.95) requires a PC with a 386 processor, 4MB of RAM and Windows 3.1, Windows for Workgroup or Windows 95. MacInTax ($79.95) requires a Mac 68000 co-processor or higher, 6MB of RAM, and System 7.0 or higher. Intuit will pay any penalty and interest incurred by a user due to flaws in the tax program. Upgrades for both versions are $69.95.
To purchase directly from the company, call (800) 695-7778.
Tax Edge, Parsons Technology
Parsons Technology says that Tax Edge is the second-best selling tax preparation program on the market (TurboTax is #1). Versions of the program are available for Windows, DOS, Windows 95, Macintosh and Power Mac, and on CD-ROM for Windows, Windows 95 and Macintosh.
This program is geared to the individual and to very small businesses. It includes 32 separate worksheets, such as medical and dental expenses, partnership or S-corporation ordinary income or loss; 32 different forms, for depreciation & amortization, trade or business gains or losses, farm rental income, alternative minimum tax, and expenses for business use of your home, among others; 13 schedules, to figure profit or loss from a business, household employment taxes, input income loss from partnerships or S-corporations and self-employment tax; plus four short forms for personal filing.
Tax Edge for DOS requires a PC with 640K of RAM, DOS version 3.0 or later and 11MB of hard drive space. Tax Edge for Windows requires Windows 3.1 or later, 2MB of RAM, 13MB of hard drive space and a VGA monitor. Tax Edge on CD-ROM requires a PC with a minimum 80386DX processor, 4MB of RAM and 6MB of hard drive space, Windows 3.1 or later, an MPC compatible CD-ROM drive and a mouse or equivalent pointing device. The Macintosh software requires a 68020 processor or higher, 4MB of RAM, 13MB of hard drive space and System 7.0 or higher.
Tax Edge retails for $19. State versions are available for an additional $19, updates for $16. Parsons Technology guarantees all versions to be accurate, and will pay any penalty and interest incurred for errors due to the programs.
Order from the company at (800) 223-6925 or through their Web site, http://www.parsontech.com.
Kiplinger Taxcut, Block Financial Corp.
Produced by an H&R Block subsidiary and including the expertise of the nationally renowned Kiplinger Washington Editors, TaxCut is a program that is essentially for individual returns. It is available in Windows and Macintosh versions, and on a Windows-based CD-ROM.
The CD-ROM features 48 videos of tax-saving tips from the Kiplinger Editors, including a video for the self-employed, which includes information on Keogh retirement plans. The Automatic Home Office Accounting feature, included in all versions of the program, automatically allocates expenses between your home office and your personal deductions so that you will avoid IRS trouble for doubly deducting expenses. This feature lets you import information from previous years' editions of TaxCut, as well as from TurboTax, MacInTax or Quicken.
TaxCut for Windows requires a 386 processor or higher, 4MB of RAM, 10MB of free hard-disk space, Windows version 3.1 or Windows 95, and a 3.5" high-density floppy-disk drive. The multimedia CD-ROM requires a PC with a 486 or higher processor, 4MB of RAM, 10MB of free hard-disk space, Windows version 3.1 or Windows 95, a 3.5" high-density floppy-disk drive, a CD-ROM drive and speakers.
The Macintosh version requires a MacClassic or higher with System 7, 4MB of RAM, 13MB of free hard-disk space and a color or 16-level greyscale monitor. A modem for electronic filing is optional on all versions.
TaxCut retails for $39.95 (CD-ROM) and $19.95 (Windows diskettes). State editions are available for $24.95; For Windows, 23 states are sold. For Macintosh, only California and New York are available.
To order, call (800) 235-4060.