Opinions expressed by Entrepreneur contributors are their own.
Seven years ago, Rik Ketschke decided to take a new tax filingroute: Instead of using an accountant, he started preparing hispersonal income taxes with a tax software program. It worked out sowell that Ketschke, a Brentwood, Tennessee, home designer andbuilder, decided to find out whether he could also file hiscorporate taxes by using commercial software.
Ketschke called Intuit Inc., the company whose software he usedfor personal income taxes, to inquire about corporate tax software,using the tax form 1120S. The only software the company produced atthe 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 toreview," says Ketschke. "I told them I thought somethinglike that would be great for small business. Now they have an 1120series for the small-business owner. I don't know if it wasbecause of my phone call or not, but I haven't used a corporateaccountant in three or four years. With the software it's easyfor a business owner to do his own taxes."
Which raises a question: Are tax software programs a realalternative to using an accountant for corporate tax filing?
The Experts Advise
Whether to use an accountant or tax software isn'tnecessarily a question of exclusion; each have their advantages,and depending on your own level of comfort and familiarity withfiling procedures, you may choose one or both.
Mark Tenenbaum, senior product manager for Intuit's TurboTaxand MacInTax for Business, says, "I would recommend that everysmall business owner do their own taxes, but that's not to saythat some wouldn't want an accountant to review it. They reallyshould do it themselves. The insight and understanding they gain isinvaluable, and will help them to understand the processbetter.
"We have a large group of customers who do not useaccountants at all. Many have prepared their own returns in thepast. There are others who used to use an accountant and haveswitched away. There is also a large group who use the software andalso 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 befiling. As a first-time business owner, checking with an accountantmay be a priority in this case.
Judy Zone, an accountant with the central New Jersey accountingfirm of Weisman & Company, CPAs, LLP, suggests that it isespecially important for the the first-time business owner to usean accountant during his or her first year of filing corporatetaxes.
"Most people in a small business should be more concernedwith getting business into their firms than getting to know taxlaws that an accountant would know off the top of their head,"Zone says. "Using a tax professional would put your prioritieswhere they belong."
She explains that, when you are first starting a business, anaccountant can recommend the type of legal structure, such as asole proprietorship or S-corporation, that would be mostadvantageous to you when tax time comes around. The accountantwould also analyze other potential problems that an enterprise mayencounter, such as questions of liability.
An accountant can also provide you with systems for makingtax-time 1997 easier. In this sense, the tax preparer's fee canmore than pay for itself. Zone says that an accountant proves hisworth by showing clients "legal ways to pay a minimum oftax."
In fact, while Ketschke has been doing his own corporate taxfiling for four or five years, he started out by having anaccountant prepare them for him.
"By now, I'm aware of all the deductions I'mallowed to take," Ketschke says. "The problem Ioriginally had was that the 1120S form was made out for accountantsto fill in. As a small-business owner, I had problems figuring itout, and if you put a number in the wrong place, the IRS will comedown on you. Now, by using the program, it's much easier tounderstand."
Tenenbaum agrees that the business software that was released in1996 by Intuit is designed for someone who doesn't necessarilyhave a deep understanding of tax laws. The program takes the userthrough an interview that gathers information from them, and thenplaces that data in the proper lines on the tax form.
"You do not need to be a tax expert to use thesoftware," Tenenbaum says. "The process is built intoTurboTax. You don't even need extensive computer or softwareknowledge; the program will walk you through the entire process.There's a help system that is context sensitive and is keyed toevery line.
"In addition to the interview process, there's afeature called Tax Advisor that pops up with advice andinformation, like recent tax changes, areas scrutinized by the IRSand tax savings suggestions," adds Tenenbaum.
Weighing The Liabilities
Zone acknowledges that software and tax preparation books canoffer a lot of good advice to the small-business owner who wants toprepare his own taxes, and that they keep up with most of thechanges in the tax laws. However, she cautions, the software mayhave flaws that could lead to additional tax penalties.
"You are liable for any interest and penalty regardless ofwhether you are using a program or not," Zone says. "Ifyou are going to a professional, it is their responsibility,whether they are using a computer program or not. They are alsotrained to ask you questions and to find information that you maynot be aware of in doing your own return. You will then havesomeone to call during the year if you have questions.
"There are some things the software cannot do, and thesoftware manuals will tell you what you have to do by hand,"Zone says. "People may not be geared into the terms tounderstand all of the implications of the tax code."
According to Tenenbaum, the program's Final Review featurewill run a check on your prepared returns and flag problem areas orareas that could raise IRS concerns. "The programs will alsomake tax savings suggestions, like retirement plans,"Tenenbaum says. "You don't need a prior knowledge base. Ifyou're uncomfortable with the tax return, take it to a taxprofessional and have them review it. You'll save money andhave a better understanding of taxes and how they impact yourbusiness."
Tenenbaum confirmed that there have been minor "bugs"in tax software programs in the past, and says Intuit guaranteesits products and will pay any penalties and interest assessed to auser due to a flaw in the program. In fact, many tax softwaremanufacturers have similar standing offers, but you should checkbefore you invest in a product.
"The other thing you'd want to look for is awell-established provider that has the expertise to put out aprogram. Intuit has a group of over 100 in-house accountants thatput TurboTax together. They have their own tax practices, andthrough April 15th, they're out getting real-worldexperience."
Ketschke says he is confident that he and the software are doinga good job of filing taxes. It's not just at tax time whensoftware helps his business; He adds that a sophisticatedaccounting program, DacEasy Accounting, serves as his bookkeepingsystem throughout the year, and that he just has to re-type thedata into his tax software.
"Now, with the software, it's easy for a business ownerto do his own taxes," Ketschke says. "Everything isbalanced right, and you don't need to be a math wiz to make itwork. The tax program's features give you confidence that, whenyou mail your return in, everything will be just fine."
Additional Resources
J.K. Lasser's Your Income Tax ($14.95, MacMillan) isa broad-based tax guide that includes a listing of special taxsituations for self-employed persons, with checklists ofprofessional deductions and self-employed tax liability. To order,call (800) 223-2336.
Net Taxes ($12.95, Michael Wolff & Co.) is a guide tousing the Internet, online services and tax software to "maketax time less risky, less costly and less burdensome." Itincludes advice on accessing state and federal tax formselectronically. To order, call (800) 793-BOOK.
The IRS offers free advice on tax questions, and will send youthe forms for filing small-business taxes, through their toll-freephone service at (800) 829-1040.
Software Programs
Turbotax And Macintax For Business, Intuit Inc.
Intuit Inc. touts its current versions of TurboTax and MacInTaxfor Business as "the only tax preparation software designedspecifically for the small-business owner." The programs arepackaged four ways (for Sole Proprietorship, Corporation,S-corporation and Partnership) to offer specific forms and advicefor tax planning and filing returns. Features like TaxLink allowusers to import accounting data from Windows versions of Quicken orQuickBooks and a Tax Advisor that informs users of potentialerrors. Modules for states with income taxes are alsoavailable.
The programs come with a linked-in, on-screen tax guide calledTax Saavy for Small Business, which incorporates and links all theIRS's business publications into the program. Intuit alsoincludes an edition of Netscape Navigator, providing users freeaccess 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 386processor, 4MB of RAM and Windows 3.1, Windows for Workgroup orWindows 95. MacInTax ($79.95) requires a Mac 68000 co-processor orhigher, 6MB of RAM, and System 7.0 or higher. Intuit will pay anypenalty and interest incurred by a user due to flaws in the taxprogram. 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 sellingtax preparation program on the market (TurboTax is #1). Versions ofthe program are available for Windows, DOS, Windows 95, Macintoshand Power Mac, and on CD-ROM for Windows, Windows 95 andMacintosh.
This program is geared to the individual and to very smallbusinesses. It includes 32 separate worksheets, such as medical anddental expenses, partnership or S-corporation ordinary income orloss; 32 different forms, for depreciation & amortization,trade or business gains or losses, farm rental income, alternativeminimum tax, and expenses for business use of your home, amongothers; 13 schedules, to figure profit or loss from a business,household employment taxes, input income loss from partnerships orS-corporations and self-employment tax; plus four short forms forpersonal filing.
Tax Edge for DOS requires a PC with 640K of RAM, DOS version 3.0or later and 11MB of hard drive space. Tax Edge for Windowsrequires Windows 3.1 or later, 2MB of RAM, 13MB of hard drive spaceand a VGA monitor. Tax Edge on CD-ROM requires a PC with a minimum80386DX processor, 4MB of RAM and 6MB of hard drive space, Windows3.1 or later, an MPC compatible CD-ROM drive and a mouse orequivalent pointing device. The Macintosh software requires a 68020processor or higher, 4MB of RAM, 13MB of hard drive space andSystem 7.0 or higher.
Tax Edge retails for $19. State versions are available for anadditional $19, updates for $16. Parsons Technology guarantees allversions to be accurate, and will pay any penalty and interestincurred for errors due to the programs.
Order from the company at (800) 223-6925 or through their Website, http://www.parsontech.com.
Kiplinger Taxcut, Block Financial Corp.
Produced by an H&R Block subsidiary and including theexpertise of the nationally renowned Kiplinger Washington Editors,TaxCut is a program that is essentially for individual returns. Itis available in Windows and Macintosh versions, and on aWindows-based CD-ROM.
The CD-ROM features 48 videos of tax-saving tips from theKiplinger Editors, including a video for the self-employed, whichincludes information on Keogh retirement plans. The Automatic HomeOffice Accounting feature, included in all versions of the program,automatically allocates expenses between your home office and yourpersonal deductions so that you will avoid IRS trouble for doublydeducting expenses. This feature lets you import information fromprevious years' editions of TaxCut, as well as from TurboTax,MacInTax or Quicken.
TaxCut for Windows requires a 386 processor or higher, 4MB ofRAM, 10MB of free hard-disk space, Windows version 3.1 or Windows95, and a 3.5" high-density floppy-disk drive. The multimediaCD-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, a3.5" high-density floppy-disk drive, a CD-ROM drive andspeakers.
The Macintosh version requires a MacClassic or higher withSystem 7, 4MB of RAM, 13MB of free hard-disk space and a color or16-level greyscale monitor. A modem for electronic filing isoptional on all versions.
TaxCut retails for $39.95 (CD-ROM) and $19.95 (Windowsdiskettes). State editions are available for $24.95; For Windows,23 states are sold. For Macintosh, only California and New York areavailable.
To order, call (800) 235-4060.
