Key Podcast Highlights

5 Things You Should Know About Tax Preparation Software

1. The out-of-pocket cost is pretty low for these applications. Typically they cost about $50 to a hundred dollars, putting aside any filing fees. However, it’s important to remember that you are going to have to spend a significant amount of time working with the software and understanding how it works.

2. The more complex your situation, the more you should avoid tax preparation software. It’s a good idea to ask a professional tax preparer questions and to go over certain things. There’s nuances, anomalies and other things involved. The more complex the rules are, the more complex your transactions are. Sometimes the software itself might not step up to answer the questions or perform the tasks needed.

3. Software applications still make mistakes. It’s important to scrutinize for accuracy and any potential problems. Software can leave out certain things.

4. The more you integrate your tax software with your accounting software the better. This way you can move the numbers over quickly.

5. Engage a tax professional or a CPA. While you might be able to be doing 90 to 95% of the work with software, it’s still worthwhile spending a couple hundred bucks to have a professional take a look at the results, give you any comments and any thoughts. They might have some tax planning ideas or strategies they can add.

Transcript

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Gene (00:02):

Hey everybody, it’s Gene Marks and welcome to another episode of the Hartford Small Biz Ahead podcast. Thank you so much for joining me this week. Listen, we’re in the middle of tax season. I know that you’re all about doing taxes not only individually, but for your business as well. And you probably think about tax software. Tax software has been a very topical topic. A lot of people are interested in and questioning me as a Certified Public Accountant. Does it make sense? Can I get away with using tax software? And in many cases you might be able to. So let me give you my five things that you should know about tax preparation software. Are you ready? So for starters, number one, the actual out-of-pocket cost for these software packages are pretty low. I mean, the most popular ones that are out there.

Gene (00:52):

H&R Block has a very nice application. So does a Intuit TurboTax. I also like TaxSlayer and another product called TaxAct. The cost of these applications, putting aside any filing fees are about $50 to a hundred dollars, which is not, not bad at all to be honest. So, really consider that and keep in mind that you really can get a good tax preparation software for both individual and your business for a relatively small cost. However, the intangible cost can be much higher. I mean, still remember that even if you’re putting in software, it’s not gonna do this all for you. You are gonna have to spend a significant amount of time working with the software and understanding, how it works and inputting the data that it’s needed. And looking into any specific questions.

Gene (01:45):

So, people think like, oh, well I can save a lot of money by having tax preparation software and you definitely can from the tangible cost. But if your time is valuable, you’re gonna still be spending time. And how much time, I have people that are spending 20, 30 hours, preparing their taxes, even using tax prep software. It depends on how complex your business is. So just keep that in mind that whatever costs you might be saving, you think for an outside preparer, you might be spending too much time on your own doing it. So just keep that in mind. So number one, out-of-pocket cost is pretty low, but the intangible cost can be a lot higher. Number two, the more complex your situation, the more you should avoid tax preparation software.

Gene (02:31):

I’m not saying that they can’t handle most of the issues, but it is really, really good to deal with a professional tax preparer to ask questions, to go over certain things. There’s nuances, there’s anomalies, there’s things involved. And the more complex the rules are, the more complex your transactions are. Sometimes the software itself might not step up to answer the questions or perform the tasks that adequately. So again, if you’ve got a standard business, if you’re a Schedule C provider, a little proprietorship or you’ve got a side gig, I’m betting your TurboTax software or any of the other ones I mentioned will be fine for you. But once you start hiring employees, maybe having research and development costs, maybe having capital equipment costs, things like that, now you’re getting into some more complexities that your typical over the counter tax prep software probably won’t be able to handle.

Gene (03:23):

And so you might want to consider having a professional preparer at that time. Number three, software applications still make mistakes. So you wanna make sure you scrutinize for accuracy and any potential problems as good as the software might be. Oftentimes they leave out certain things. Oftentimes they don’t know all the rules. They might not know, specific things in your locality as well. Local taxes can really be complicated. Sometimes they make basic math errors or don’t carry over numbers. I mean, software applications are written by humans and we all know that software has bugs. So regardless of whether or not you’re using a tax prep software, check the math, verify it, read through it, make sure you understand it. It’s very important. Number four, the more you integrate, the better.

Gene (04:15):

So the tax prep software packages that you really wanna look for are the ones that work well and play nicely with your accounting software. So, I don’t know if you’ve got QuickBooks or Sage or Xero or any of the other popular FreshBooks, any other popular accounting softwares out there, that’s great. I would be zeroing in on those, tax prep softwares that work well with your accounting system. That way you can move the numbers over quickly. You still need to check, by the way, because like I said earlier, it’s not always perfect, but it’ll save you a lot of time, keying in a lot of information or importing information if you’ve got something that integrates well. So that was number four. Number five is, I still think even if you’re using a tax prep software, that it’s a good idea to engage a tax professional or a CPA. Software is a productivity tool.

Gene (05:10):

Whereas you might have been paying a CPA a couple grand to do your taxes, depending on your situation and if you have the right software, you might be able to be doing 90, 95% of the work with that software. But I still think it’s worthwhile spending a couple hundred bucks to have a professional take a look at the results, give you any comments, any thoughts. They might have some tax planning ideas, things that are sort of outside of the realm of preparation, more like consulting and strategy they can add to you. So I really think a tax professional, if they’re good, can give you a value add. So sure, have the tax prep software do the work, that’s great. But I think having another set of eyes from a tax professional I think is really important as well.

Gene (05:53):

So here are my five things again. Number one, remember there’s some great applications out there, TurboTax, H&R Block, TaxSlayer, TaxAct. They will cost you the cost of these are pretty low between $50 and a hundred bucks on average, but the intangible cost might be higher. You’re going to have to invest time. Number two, the more complex your situation, the more you should avoid the software because they’re not gonna take into account everything and local issues, state issues, city issues may be a problem. Number three, software applications still make mistakes. So make sure you’re scrutinizing for accuracy. Number four, the better your software integrates with your accounting system, the better off you’ll be. So go to your accounting system, find out what integrates well with tax software, which tax packages make the most sense. Get those ’cause it’ll save you a lot of time.

Gene (06:44):

And finally, I still think as good as tax prep software is, you should most likely engage a tax professional or a CPA to take a look at what you’ve done. I do think that for a few hundred bucks, they’ll charge you. They’ll be not only a another set of eyes to check on the numbers, but can provide you with a value add. One final thought on tax prep software. I will tell you this much as a CPA, AI is gonna change the game for all of this stuff. It’s gonna get better and better and better. It is nowhere near ready for primetime yet. So don’t rely on any AI solutions in 2024. Maybe not even in 2025, but I know it’s coming in the next few years, the next three, four years, I believe that AI software will become so good, that it will really be able to be asking you questions, interviewing you like a person, and then preparing your returns as good as a tax preparer. So watch how these tax software packages evolve with AI. It’s gonna add a huge level of better and more accurate returns for you. Along with advice. My name is Gene Marks and you have been listening to the Hartford Small Biz Ahead podcast. Hey, if you need any advice or tips or help in running your business, visit us at Small Biz Ahead or SBA.TheHartford.com. Hope you have a good tax season. I hope this information helps you just a little bit. We will see you again next week. Take care.

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