A few weeks ago my sister, a family doctor who owns a small practice, asked me if it would be a better idea for her to use a tax preparation software package instead of paying her accountant.
There are lots of options for tax preparation software, with one of the most popular being Intuit’s TurboTax. Another good program is TaxSlayer. Well known tax preparation firms like H&R Block and Jackson-Hewitt also offer do-it-yourself products. All of the big players differ on features and functionality. For example, TaxSlayer provides you with all tax forms, instead of just directing you to download them from other places as their competitors do. TurboTax can be used on more mobile devices than others. Jackson Hewitt’s service offers help via email and text as compared to some of its competitors. There are many good guides comparing the big players, including this excellent one from PC Magazine.
Regardless of which one you pick, it seems that a good tax package could also be significantly cheaper than paying an accountant. My sister’s accountant charges her more than $2,500 to do her personal and business tax returns. The products mentioned above range in price from $13-$60 depending on the features offered.
Another great feature of tax preparation software packages is that most can import data from spreadsheets or integrate with popular personal and business accounting software packages like Quicken, QuickBooks and Sage50. So, if my sister is keeping up with the data entry then she doesn’t have to worry about re-keying information into another place. She can reduce data entry errors and get more current information on her tax status.
Ditching the accountant and doing it herself with tax prep software seems like a no-brainer, right? It could be, but not for her. Very possibly, it’s not for you either.
My sister is a doctor. She’s an excellent doctor, but she’s just not very good with her finances. Her accounting records are unorganized. Her billing system is old. Her knowledge of accounting is rudimentary. She’s an expert in medicine, not in taxes. The world is a specialized place. We all have our expertise in something. The trick is focusing on what you do best, and leaning on others to do the rest.
So wouldn’t a good tax preparation software application function as an “expert” for my sister – at a lower price than an accountant? That’s the one thing no one tells you about tax preparation software: It’s not a replacement for an expert; it’s a tool for one. Carpenters use hammers. Pilots use navigation systems. Baristas use espresso machines. Every professional has their tools. Tax preparation software is a tool. It’s best used by someone who already knows a good deal about taxes because it can only supplement their capabilities. It will most likely be wrongly used by someone who has no knowledge and thinks the software will do everything for them. It won’t.
If my sister chooses to ignore my advice (as she usually does) and fire her accountant, then I can only hope she devotes herself to learning more about taxes, taking better care of her books and records, and educating herself on accounting and financial matters so that her tax software can be the right tool for her. Otherwise she’ll be ill-equipped.