If you're tired of breaking pencils and running out of ink on your calculator ribbon at tax time, consider the electronic alternative: tax preparation software for your personal computer.
The programs aren't a substitute for professional tax advice, and, although most can churn out a 1040A or a 1040EZ form, the programs aren't going to save too much time for people with simple returns. Instead, they are for taxpayers with modestly complex returns who want to do the job themselves or want to take a first cut at it before visiting their accountant.
Professional tax preparers have long used computers to cope with the volume of their work, but individuals are taking up the practice quickly. In 1990, consumers and professionals bought about 750,000 tax-preparation programs, about the same number sold in the first three quarters of 1991, according to the Software Publishers Association in Washington.
That still accounts for only a fraction of the 112 million individual tax returns taxpayers filed for their 1990 income, according to the Internal Revenue Service. But the sales figures make tax-preparation software one of the fastest-growing home software categories. Indeed, software retailers often use the programs as drawing cards to get people into their stores, sharply reducing the $60-to-$100 list prices of tax programs.
"It certainly looks like it's going to be a banner year," said Mike Tremblay, director of research at the Software Publishers Association.
The market for tax software is dominated by two companies, San Diego-based ChipSoft and MECA Software Inc. of Fairfield, Conn. Together, they sell an estimated 90 percent of personal computer tax software. The rest of the market is shared by three other companies.
Last year, ChipSoft, which makes the TurboTax line of tax software, bought SoftView Inc., which made the MacInTax line. The company has revamped the combined productline into three offerings: TurboTax for MS-DOS computers; MacInTax, the only tax-preparation software on the market for Macintoshes; and TurboTax for Windows. MECA's product line, Andrew Tobias' TaxCut, is now available in two versions, one for DOS and one for Windows.
But even as the number of suppliers shrinks, their programs are getting more sophisticated.
All of the programs will add columns of figures, automatically deduct for your dependents, look up your tax liability and the like. But the best-selling packages no longer simply do the math for you and refer you to electronic reproductions of the IRS instructions when you get stuck. Instead, they will present you with an opening interview to determine, in part, which forms you will need to fill out and to help you organize the infamous shoebox full of stray receipts.
"The interview is a Q & A format that takes you directly to the form," said Debra Kelley of ChipSoft. "It will ask you, 'Do you have any W-2 forms?' and if you say 'yes' will show that form on the screen so you can start filling it in."
The programs also will link information entered in one place to any other forms that require it, eliminating the need to type figures twice.
TaxCut's publisher has always emphasized its "expert system," which does much the same thing as ChipSoft's: It takes the taxpayer through an interview of sorts to aid in filling out the correct forms. The program will also "audit" your finished return, looking for items that might trigger a real audit by the IRS.
The Macintosh and Windows versions will look familiar to users, displaying replicas of the IRS forms on the screen to be filled in. The DOS versions can't do that, because the computers they run on lack the necessary graphics. But all the programs will directly print on dot-matrix and laser printers filled-out forms acceptable to the IRS. All you do is sign them and mail them, along with your W-2 or other forms the IRS requires you to attach to any tax return -- and, for the unlucky, a check.
What neither company's programs will do is enter the numbers for you. You still have to organize your paper records and enter numbers. For that reason, tax software is probably most attractive to people who already organize their finances electronically. They are already comfortable entrusting such data the machine, and most tax programs readily accept data from such programs as Quicken, Managing Your Money and Microsoft's Money.
Besides offering federal tax forms and schedules publishers also offer companion forms for doing state tax returns. In many cases, doing the state returns is easy compared with the federal return, since the program will transfer all relevant information from federal to state automatically. (The state forms cost about $50 extra.)