Review of Tax Preparation Systems -- 2007

From the April/May 2007 Issue

The past 12 months have been the most dynamic period for the professional tax preparation market in several years. We’ve seen new technology developments in many of the programs, as well as blockbuster business deals that have left three major companies in charge of the tax software used by more than 80 percent of tax and accounting professionals.

What’s in a name?
On the business and brand side of things, two major acquisitions last year and one early this year have really changed the dynamics of the professional tax market. CCH, a Wolters Kluwer business, acquired TaxWise and ATX. By taking these two brands into its fold, CCH, which produces the high-end ProSystem fx line of tax and accounting products, essentially tripled its number of users. CCH intends to continue to develop both of these products and has placed them in a new business unit that will oversee its new presence in the smaller practitioner market. In the third acquisition, H&R Block acquired TaxWorks, and also plans to continue the product. This essentially leaves Drake Software as the last independent professional tax software vendor with a notable market share.

Also of note, the Thomson Creative Solutions and RIA GoSystem lines have been under the Thomson Tax and Accounting wing for several years, and their names will soon reflect that, with the dropping of the Creative Solutions brand on all products and the removal of RIA from the GoSystem line (RIA’s research will continue with its current naming). Once again, Thomson has owned both companies for several years and is just finalizing the brand transition. More information on these acquisitions and their potential impact on the market is available at www.TheTechGap.com.

The Big Three makers of professional tax preparation software are now Intuit (which makes Lacerte and ProSeries), Thomson Tax & Accounting (which makes UltraTax CS and GoSystem Tax RS), and CCH, a Wolters Kluwer business (which has the ProSystem fx, TaxWise and ATX brands). The remainder is headed by Drake, whose extremely loyal user base makes up just under 10 percent of the professional tax preparation market.

Technological Advances
Most tax systems can do pretty much the same things when it comes to calculations and completing tax returns. Most have been on the market for 10 or 20 years, or even longer, and have long since ironed out the bugs in calculations. The difference these days between the higher-priced systems and the less-expensive ones is generally everything else that tax packages are now capable of doing — from data integration between various modules, like automatically transferring K-1 data and parent/child return information, to productivity tools, system diagnostics, research integration, support options and workflow design. Then comes integration with third-party programs like write-up, trial balance, practice management, Word, Excel, and other programs.

The continued quest for the “paperless office” has been one of the driving forces for technological evolution in many of these products, with increased tie-ins to digital document management and storage systems (which will be reviewed in upcoming issues). Various online options, which some of the higher-end products in this review offer, also have helped the paperless push, while at the same time enhancing client collaboration through secure online portals that also reduce fileroom time for firm staff members.

Zero manual data entry is the latest goal of developers, using optical character recognition technology (OCR can read numbers and text on scanned documents) along with form recognition capabilities (to know what form is being scanned). Combining these two functions with a tax system will mean that forms can be centrally scanned and data automatically pulled by the system to populate returns. Currently, Intuit’s Lacerte and ProSeries are the only two tax programs to offer this as an add-on option, but the products from Thomson and CCH should be adding their own in coming years. SurePrep, a third-party developer of accounting and tax services and solutions, offers OCR and document recognition as an outsourced service to users of the most-used professional tax preparation products.

Pricing
According to many professionals, pricing is the least important aspect of their technology purchase, but then it is often the most discussed issue. Well, the good news is that price levels have gone down significantly over the past few years for tax systems geared toward small firms, and pricing for the high-end products has remained fairly static. What this means for the professional is that if your smaller firm or practice has a fairly non-complex client base, then you can probably get a system “good enough” to meet most of your needs for less than $2,000, and maybe even cheaper. For the bigger firms, this means you may be able to justify moving up to a full-featured system.

This Review
For this review of tax preparation systems, we have recombined all of the products that perform year-end and special compliance reporting for the major entities into one review section. While most of the programs here are geared toward business and individual filing and support 1040, 1041, 1120, 1120S and 1065 returns and their state equivalents, many also support forms 706, 709, 990 and 5500. Each product is reviewed in the following categories: Learning Curve, Use/Workflow & Productivity Tools, Integration/Import & Export, Support/Training & Help System, and Relative Value. Every firm is different, and different software packages are geared toward the needs of these different firms. Therefore, the Relative Value section provides an overall assessment of how well the product meets the needs of its own target audience and which type of firm would see the greatest benefit from its use. Pricing information is included for each product, but please note the specific package for which the pricing is quoted, as many of the products offer additional modules or networking capabilities. Each review is capped by an overall rating.

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