Top 10 Considerations When Choosing Professional Tax Software

Practice Management, Workflow tools technology for tax professionals

As professional tax preparers, we need to select a tax software program that’s much more robust than those used by taxpayers who prepare and file their own returns. In order to gain our business, developers have created professional software with an incredible array of tools, options and designs.

The end product, a completed tax return, will be practically identical regardless which software you choose. That said, as with any successful journey, it’s not about the destination, but how you get there. In determining which professional tax software program is best for you and your practice, you should consider the following 10 things, and compare several products before making your decision.

Customer Support

No matter how many years you’ve been preparing tax returns, it’s not unusual for a client to present you with a unique situation you’ve never encountered before. Your tax software and the customer support organization behind it become essential to your practice. You’ll need their assistance to determine as quickly as possible not only if there are various ways to handle the issue, but also the one that will be most advantageous to your client.

Most software will have some embedded tools for guiding you through unfamiliar waters. These can come in the form of “where do I report” queries which will lead you to the right form to prepare, or a simple search function that allows you to type a word or phrase that will return a series of articles or instructions to guide you. In addition to these tools, a good tax preparation program can provide you with information on what data to enter on individual line items within the forms themselves.

If your software doesn’t provide exactly the answer you’re looking for, make sure you have the ability to contact staff who either are knowledgeable from a technical perspective regarding the software itself or are proficient in the tax code. The best companies will provide support by both text and telephone, and have extended hours during tax season.

If there is a telephone option, you’ll want to know if they make you wait on hold, or if they offer a callback service where you can hang up and they’ll call you back when it’s your turn in line. In the end, the most important factor is whether you get the answer you need, which is not always the case. It’s probably unreasonable to expect someone to be available to answer your question immediately, especially as the tax deadlines approach, but you shouldn’t have to wait on hold for an hour either.

Yet another way to seek answers from the simplest questions to the most complex is having the ability to communicate with other practitioners on the software provider’s blog or internet forum. The best of these provide spaces where other practitioners as well as company staff can interact with you to provide answers or options for more in-depth research. Being a former auditor myself, I never assume that the first responses I see to a question are correct when I’m online. You will ultimately need to use your professional knowledge and judgment.

Price

Price can be the most important consideration when purchasing tax preparation software, especially if you’re a sole practitioner or manage a small firm. With the cost of some unlimited individual income tax return licenses topping out at several thousand dollars a year, it may be worthwhile to consider filing on a pay-per-return basis.

You’ll need to take these various options into account when calculating the profitability of your tax preparation business. You’ll also need to factor in how many individual returns you expect to prepare as opposed to corporate or trust returns.

If you have many of each type of return, it may be worthwhile to purchase an unlimited package that covers all return types, whereas if you prepare mostly individual returns, it may be more worthwhile to purchase an unlimited individual package and pay-per-return license for your corporate and trust work.

There is also something of a convenience factor at play when deciding whether to choose unlimited versus pay-per-return licenses. If you prefer to only pay for the returns when you’re done with them instead of keeping a large balance of credit with the software company, you may have to enter your payment information every time you go to print a return for the first time. This can be a huge hassle, especially during crunch time.

Timeliness and Accuracy of Tax Law Updates

While every year brings changes to the tax code, the 2019 tax season saw a sea of change in not only the technical aspects of the law, but in the look and feel of the most well-known form, the 1040 individual tax return.

One of the most important reasons we use tax software as opposed to completing returns manually is knowing that when we enter our data, it’s going to the right place in the right way. While I’m sure we’d all love to have time to read every accounting journal we receive, peruse every tax blog and study every IRS pronouncement, it’s just not practical for most of us.

We also need to be confident that our software is always up to date. It’s best when your software can be set up to update daily and automatically, especially during tax season. With the massive changes brought about by the Tax Cuts and Jobs Act, there were bound to be some glitches, although software providers did their best to keep up.

As a failsafe, your software should be able to tell you whether you’re using the most recent version of the forms you’re about to print or e-file. It should force you to update the software before allowing you to take any action with outdated forms.

Client Analyzer Tools

Two of the most valuable services that tax practitioners provide to their clients are the ability to ensure that their tax returns are prepared properly based on prior year’s returns, and to help them plan for the upcoming year regarding withholdings and estimated taxes. Some may use their tax preparation software solely as data input tools that spit out a tax return without taking advantage of the various analyzers in the software.

A simple multiyear form that compares a client’s year-over-year results is key to ensuring that they are getting all the credits and deductions they’re entitled to. This is especially important with new clients if you can access their prior year’s returns. You may even find that you prepared the current return properly and then looking back, realize that they need to amend one of their prior year’s returns.

Another great tool is one that allows you to estimate the following year’s tax burden based on estimates of income and expenses. I wish more clients would take me up on my offer to review their tax situation during the year instead of waiting until the following April .

Data Import Functions

Probably the biggest time saver for me personally has been the data import function of my software, especially regarding clients who have a significant amount of brokerage activity. Whereas before I might have spent hours inputting trade details from their Forms 1099-B into Schedule D, now with a click of a button, it’s all done.

You should find out which major financial institutions are partnered with your software provider to make sure that they work with those places where your clients have accounts. You may have to work with your clients initially to make sure that they’re able to link their financial accounts to your program, but the effort is worth it.

Of course, that’s not the only data that can be downloaded directly into the return. W-2s and other 1099 data can often be processed this way as well. As a former auditor, I will still check the accuracy of what I’ve downloaded to paper statements if I have them. This is a good way to make sure your program is working correctly.

Ease of E-Filing

There are few moments in the tax return preparation process that are more stressful than when the “e-file” button is hit after completing the return. Yes, there are some errors that really can’t be helped, such as when a client hasn’t told you that their ex-spouse already claimed their child as a dependent.

Aside from those situations, you want your software to be able to tell you beforehand whether everything else is in order for e-filing. As tax season marches along, you want to be able to see how many returns you’ve e-filed, and you need to know which ones were rejected and why.

You also need to have the ability to easily recall what the problems were so you can go back in and fix them. Also, for those who are e-filing on a pay-per-return basis, you’ll want the ability to have funds on account so that you don’t have to input your payment information each time you file.

Number of Forms Available

Needless to say, no matter how much you pay for your software and how good their customer support is, it would be worth a whole lot less if the forms you need to file aren’t available. This is especially important if you have clients across various states and localities. Even if you have only a few clients with out-of-state requirements, your software should be able to automatically create the state and local forms necessary that you may not be familiar with.

While it’s always best to do your own research with the relevant state and local authorities as to which forms to file, that’s not always practical, so we count on our software to provide both the documents and the instructions. Truth be told, though, if all you really encounter are Form 1040, and the common forms and schedules that go along with it, it’s not worth it to pay extra for software that gives you access to obscure items such as IRS Form 8933, Carbon Dioxide Sequestration Credit.

Easy Navigation

Tax returns are not simple one-page documents that you can see all at once on your computer screen. Therefore, it’s vital that your tax software allow you to move back and forth between forms easily, and jump from one form to another to see wherever entries are cross referenced. You’ll want a navigation bar at the top of your screen that allows you easy one-click access to print, e-file and perform other basic functions. You should also look for a menu that can be fixed to the side of your screen that allows you to go to any other part of the return or add a new form easily.

The ease with which you want to be able to navigate through the tax return can be compared to the ease with which you want to be able to find the controls on a car’s dashboard or touchscreen. We’ve all had the experience of driving an unfamiliar car and not knowing how to turn on the windshield wipers or adjust the air conditioning. When you “test drive” a tax program, you’ll want to feel that moving back and forth between forms is intuitive and that you can easily find your way back to the form you were originally working on.

Error Diagnostics

Any program you consider should offer a review function to catch errors or omissions that might affect the return you’ve prepared. We’re only human, and there’s always a chance that we may have forgotten to click a button, fill out a data field or provide additional detail that might prevent an IRS letter or audit.

The diagnostics tool should not only alert you to the error and why it’s important, but should automatically take you to the specific point in the return where a correction needs to be made. You should also be aware that while in limited cases software providers may offer protection should errors be missed by the software, tax preparers are ultimately responsible for the results of their work.

The software we use is a tool only, and like any tool, it needs to be used correctly. No software will sound an alarm if you enter $100,000 instead of $1,000, so make sure you review your completed returns regardless of whether no errors are found.

Accuracy

No matter how many bells and whistles your software has, it wouldn’t serve its purpose if the results it produces are unreliable. Despite everything that’s been mentioned above that’s important to you, the only thing that matters to your client is that the tax return is correct. It’s highly unlikely that a well-known program will produce erroneous calculations, especially on the most common forms and schedules. In fact, some programs may offer an “Accuracy Guarantee.”

However, if you’re relying on the software to provide a calculation or complete a form that you’re generally unfamiliar with, or that is new based on changes to the tax code, you should still study the form and its instructions as published by the IRS so that you can at least check the calculations for reasonableness. Remember, if your clients have questions about either specific line items or the bottom line, they will be asking you if it’s right and you will have to explain the calculation.

Choosing the tax software that’s right for you and your practice is not a decision to be taken lightly, especially given the potential cost. If you take the time to research and compare the different alternatives based on the 10 categories above, you can be sure that you’ll be making the right choice for both you and your clients.

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