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Give your tax accountant a break–or the boot

Who needs a bean counter when you have a computer with Web access? A guide to CPA-free tax prep.

Ah, springtime–the season when kiosks of tax software line the aisles of your favorite office-supply retailer. When boxes of tax software start stacking up, the signs are clear and easy to read–warm days are coming, and tax time isn’t far behind. But fear not; you needn’t spend the whole season indoors, sweating over your taxes–not if you let your computer do most of the work. Your accountant will also thank you for lightening her load in the season of dread and all-nighters.

This year choices abound in computerized tax preparation. You can opt to buy and install tax software on your computer, or you can go to the Web to do the work. Not only are some of the tax software companies offering a pay-when-you’re-done option for online tax preparation, but you may also be able to do the same thing by visiting your bank’s Web site. You may even find that your accountant, if you have one, has decided to go high-tech and make tax software available to you via his or her Web site.

A less taxing experience

Dozens of software packages exist for those who want to do their own taxes. Intuit’s Quicken TurboTax www.turbotax.com, Kiplinger’s Tax Cut www.taxcut.com, and ValuSoft’s TaxAct www.taxact.com are three of the most popular products available in retail stores and online. I took each of these products for a test run, using the simple scenario of a sole proprietor with a home office and a wide variety of expenses. I was impressed by how easy it was to use each of the products, and found that their answers to similar queries were within a few dollars of each other. It took me about two hours to complete the return, and each package had all the forms I needed. Plus, each product would have allowed me to file electronically had I been ready to do so.

If you’ve been doing your own taxes manually, any of these products will save you hours of time and endless frustration, because once you’ve entered the raw data, the program does the calculations. It even puts the numbers on the right forms and cross-references the data so that when you alter a number in one place, the change ripples through the entire return. You also get to skip the IRS’s ponderous official documentation, and you’re guided every step of the way by carefully researched and worded help files that come with the software.

If you’ve been paying a tax accountant or someone else to prepare your taxes, you might want to save some money by investing in the software and trying it yourself first. Start now, and if you’re uncertain about the way you’ve done the return, or you find yourself stuck with questions you can’t answer, then call your accountant.

You may find that your accountant takes an all-or-nothing stance, refusing to check over the return you’ve prepared yourself and insisting on taking the standard path of entering your numbers into his own program. Admittedly, tax accountants spend all of their professional time working on and learning about taxes, so they should be up-to-date on the latest deductions, credits, and other regulatory fine print. But your accountant’s expertise is something that you need to determine for yourself. Don’t presume that your accountant is keeping up with the latest developments in the field, or that he’ll do a better job than you. Also, your return may not require the firepower of professional tax software. It’s your call; work with your accountant to reach an understanding, or find someone else who’s more flexible.

Don’t want to hire an accountant, but looking for additional insight? You may be able to find out what you need by visiting the Web sites of the tax software companies, or by conducting online research elsewhere. Some of the tax software companies, such as Intuit, offer referrals to tax experts who will answer your questions for a fee.

As I mentioned, a Web search will uncover dozens of tax-preparation software programs, some of them available only from the manufacturer. A good general resource is the Tax and Accounting Sites Directory www.taxsites.com, a comprehensive index of Web-based tax and accounting sites.

Here are some suggestions for evaluating any tax software package before you buy it. You should be able to get the information you want from the company’s Web site (or the product site, if there is one). If the Internet isn’t forthcoming, e-mail the company your questions. Pay attention to how the company responds; if you don’t get a complete and prompt response, that might tell you to stay away. When shopping for a good site, look for: A track record of excellence in the tax field. Make sure the company behind the software has some kind of demonstrable experience and stake in creating reliable and accurate tax software. Free online resources of tax information. If a company invests in good content for its Web site, it’s a good bet that it’s done the same for the software. Free state returns and free e-filing. Why pay more for less than what you can get from the market leaders? Free updates that allow you to buy the software now, do most of the work, and then update the software right before you finish to get the most from the latest regulatory changes. An electronic postmark that verifies that your e-file return has been received by the IRS, so that you can prove later that you did indeed file on time. A comprehensive portfolio of forms. Intuit, for example, offers several varieties of TurboTax, but only TurboTax Home and Business has the Schedule C that you need if you run your own business.

New for 2001

This year’s versions of the leading tax-software programs feature a number of new wrinkles, including automated data entry and free filing for low-income taxpayers.

One of the criticisms leveled at do-it-yourself tax software is that it’s tricky for non-professionals to understand all the tax ramifications of major life events, such as relocating, marriage, divorce, or having a baby. This year Kiplinger has added a guided query to its software, which is specifically designed to help people who encountered such a life-changing experience in the 2000 tax year.

Another quibble is that doing your own return means doing your own data entry. Intuit has taken a step towards solving this problem with a free service called Automated Tax Return (ATR). With ATR you can have such tax data as wages, interest, and dividends imported directly into your tax return–if the organization that generates the information participates in the program. Intuit has signed up some major players (such as Fidelity Investments and the Vanguard Group) so ATR might be worth checking into.

Intuit also has expanded a program it started a few years ago–the Quicken Tax Freedom Project. U.S. taxpayers with an annual adjusted gross income of $25,000 or less are eligible for the program. Through the program, eligible taxpayers can visit the Tax Freedom Web site www.quicken.com/freedom, follow the on-screen instructions, do their taxes online, and then file their returns free of charge.

Virtual deductions

The Application Service Provider (ASP) model is being applied to virtually every category of software, so why should tax software be any different? This year several tax-software vendors, including Intuit and Kiplinger, are offering Web versions of their software. It works this way: You visit the company (or product) Web site, use the resident software as if it were installed on your own hard disk, and pay for its use only when you save or print the return. You can even file directly from the sites, and send the refund directly to your bank to be deposited electronically.

You may also be able to do the same thing at your bank’s Web site. Intuit has partnered with Bank of America, Chase Manhattan, Fleet Boston, Wells Fargo, and other major banks to offer Quicken TurboTax for the Web on their sites. Your accountant may have worked out a similar deal with a tax-software company.

Doing your taxes over the Web can prove cheaper than buying shrink-wrapped software if you have a secure and speedy Internet connection. If you don’t, you may find yourself cut off by your ISP in the middle of calculating depreciation on your Schedule C. You may also not want to do your taxes on the Web if you are at all concerned about unauthorized eyes seeing the information. To be sure, ASPs will do their utmost to ensure your financial privacy, erecting firewalls and encrypting data both on the server and during transmission. But no security umbrella is 100 percent effective, and current privacy law leaves loopholes for companies that may be tempted to share financial information with marketers.

You should know by now that you can file a return electronically if it’s prepared with tax software (yours or your accountant’s). The IRS also lets you file digitally over a Touch-Tone phone, but I have serious reservations about that method. For the butter-fingered, computers make a lot more sense. If you’ve never filed an electronic return, you might want to consider doing so this year.

According to the IRS, filing electronically can cut your refund waiting time down to as little as two weeks–about half the time it takes to generate a refund from a paper return. The IRS has increased the number of forms that can be filed electronically, which means that most people can use the e-file option.

Tax prep heaven

Professional tax preparers and accountants know the game is changing; more people want the flexibility and lower cost of doing their own taxes. That’s why professional tax software is changing, too. These changes will lead to important changes in the way you do your taxes in the years to come.

The day may come in the next five years when all tax-related information held by one or more companies will flow directly into an electronic tax form on your computer or on your accountant’s server. Think of it: All of your 1099, W-2, mortgage, medical spending, investment, and other data could be filed electronically and automatically. Then the tax software would automatically calculate your return and send you an e-mail with the draft return attached for your review. You take a look, make a few changes, add your digital signature, and send in your electronic return. Within hours, your refund is sitting in your bank account.

It may even deduct just the right amount of money so that no return is necessary. All of this work could be done remotely, as well. That means your accountant could be sitting on the beach in some sunny clime chatting with you by phone about home-office deductions while you celebrate springtime in Paris. Nobody touches paper, pencil, an adding machine, or a calculator in the entire process. If everyone worked that way, doing your taxes would be almost painless.

Contributing Editor Molly Joss also writes the monthly careers column and Ask Molly, a career advice column every weekday on ComputerUser.com.

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