The trend toward do-it-yourself tax preparation continued to expand during this past filing season. Returns filed professionally saw a 0.1 percent increase as of May 10, 2013, over the previous year, while self-prepared returns grew by 4.4 percent. Overall, 43,574,000, or 38 percent, of the total of 134,349,000 e-filed returns were filed by taxpayers who prepared the returns themselves. Yet the complexity of the Tax Code continues to drive taxpayers to preparers for help, allowing the industry to thrive.
The number of software manufacturers has been on the decline for several years, with the acquisition of a number of smaller companies by the dominant manufacturers - with some acquirers discontinuing the purchased solutions, and others giving them new life. The recent purchases of ATX and TaxWise by CCH, for instance, and of TaxSimple (now renamed Agile Tax) by Thomson Reuters, have assured these companies' survival.
As we approach the 2014 filing season, the regulatory framework surrounding the registration of return preparers is still up in the air. The Court of Appeals for the District of Columbia heard oral arguments on the IRS appeal in Loving v. IRS in late September, with the decision possibly impacting the number of available preparers.
"There's been some consolidation, but at the same time there are new product offerings, so the tax industry is alive and well," said Timur Taluy, chief executive of FileYour Taxes.com and ProTaxPro professional software, and a member of the statutorily created Electronic Tax Administration Advisory Committee. "Innovation is king," said Taluy. "As the Tax Code becomes more complex, and return preparers are being expected to do more for their clients, they are looking to their tax software to provide additional services. Having technology and the innovation to provide those services is vitally important."
HEALTH AND TAXES
The advent of the Affordable Care Act has accelerated the trend, according to Taluy. "Tax software manufacturers need to integrate the new forms and forward-think to what some of the high-end and low-end taxpayers are going to need from an ACA perspective," he said.
One of the biggest challenges for software manufactures is late legislation and late forms, Taluy indicated. "On a positive note, the IRS is getting some of the forms out early, but the challenge this year is the instructions. This year they've done a good job of getting the forms out, but we need the instructions and the worksheets and underlying calculations," he said.
The forms for the ACA are already out, but the instructions are not available yet. "However, this year there will be no late legislation, which should benefit both the software manufacturers and the preparers. The software offerings will be able to come out a little earlier and be a little more robust."
Teresa Mackintosh, president of U.S. software at CCH, maker of ProSystem fx, agreed. "Coming off the compressed season we had last filing season, this next one should be relatively smooth," she said. "We don't expect a lot of changes, so that will aid software manufacturers with a very stable code to work with."
"At the higher level in the tax space, we continue to see a shift along the spectrum of firms adopting cloud technology, and migrating workflows to take advantage of the technology and efficiency gains that they're getting from working with cloud-based applications," she said. CCH Axcess, a modular, cloud-based tax preparation, compliance and firm management solution, exemplifies this, she observed.
"There's a very fundamental shift," she said. "We're starting to see firms increase efficiency with their access to the cloud, but there's also a core database of information that is shared between what previously would have been separate applications, so all of the client information is there, whether in tax or practice management or document or portal."
"Firms are telling us that they're getting efficiency gains between ten and 30 percent by shifting to CCH Axcess," she added.
FINDING A WAY TO STAND OUT
The tax software industry is a mature market, indicated Scott Fleszar, vice president of product management and emerging businesses at Thomson Reuters, makers of Ultra Tax, GoSystem and Agile Tax. "Most products will do a correct return. The differentiation is in how efficient do we make the staff in the firm, and to what level do we increase and improve client service, for example, delivering information to a portal, and enabling mobile functionality, so that firm clients can use mobile apps to get updates on whether the return has been accepted for e-file."
"Our focus is to make the staff of an accounting firm as productive as possible and give them the opportunity to have a completely paperless tax workflow, end to end," he said. "We're giving them the tools to elevate client service not only in speed but deliverables that the firm can provide in value-added propositions. We're not only providing mobile apps for the firms but for the end clients of the firms."
CCH Small Firm Services, makers of ATX and Tax Wise, definitely sees itself as impacted by the growing number of do-it-yourself taxpayers, according to product manager Kerri Gibson. "That speaks to the fact that accountants have to do a good job of establishing their value proposition with customers," she said. "They can't just be record-keepers anymore; they have to be more proactive in helping clients be forward-thinking. This has always been true for businesses, and now with the complexity of tax law and the Affordable Care Act, it's becoming true for individual taxpayers as well. They need to move from their historical space as record-keepers, to things that are more red-meat-generating."
"From a technical perspective, taxpayers have so much more access to information," observed Shannon Bond, director of product management for TaxWise. "So for preparers to stay relevant, they have to articulate a good story to clients, and show them how they provide value. They need to be better marketers, and they're not traditionally strong in that area."
"Our No. 1 goal is improving platform performance," said CCH SFS director of marketing Sandy Zussman. "Along with that, we're continuing to focus on workflow and efficiency. Portal space integration is part of that. Our partnership with eFileCabinet will enable our customers to change the way they interact with clients, to be more efficient from the clients' perspectives, as well as within their own workspace."
Earlier this year, CCH Small Firm Services and eFileCabinet announced a partnership to offer integrated portal/file-sharing services to tax and accounting professionals. Their first product, PortalSafe, is a Web-based portal product that enables the secure transmission and storage of tax and accounting documents between tax and accounting professionals and their clients.
INTO THE CLOUD
"The Affordable Care Act will be one of the most impactful socio-economic policies ever implemented and enforced by our federal government, and tax professionals will face many new challenges and opportunities," observed James Stork, senior vice president at Drake Software. "It's a game-changer for sure, and we are working on initiatives to educate tax professionals and provide them ways to help their clients navigate the complexities of the new health care laws and insurance requirements. A component of these initiatives is our health care calculator Web site, which provides taxpayers and employers a to-the-point layman's overview of the ACA's tax implications, along with free penalty and credit calculators."
Although Drake has had cloud-based products for a number of years, this coming season the entire Drake application will be available in the cloud, according to Stork. "It's not our first step into the cloud, but this is our first release of an application hosting solution where the entire Drake application -- all features and all return types -- is hosted by us in the cloud," he said.
"Drake Hosted will make the full Drake desktop application suite accessible from anywhere via the cloud and provide seamless integrate with local peripherals, such as dual-monitor configurations, scanners and printers," he said. "Other benefits include security and protection of data, daily backups, and enterprise-class network infrastructure."
Workflow is a primary focus at Drake, Stork said, and the company has made a commitment to provide efficient workflow solutions, not just new software. Stork sees each professional adapting at a different pace with different expectations. "Our solutions, such as Gruntworx, SecureFilePro Portals, e-Sign, Drake Hosted and the Drake Document Manager, are designed to be flexible, efficient and cost-effective," he explained.
Intuit, maker of Lacerte, ProSeries, and Intuit Tax Online, sees a number of trends on the horizon for tax software, according to a company representative. These include never entering data, the virtual office, and open platforms. "Never entering data" entails the seamless integration between accounting and tax, with information flowing from one to another, so users don't have to enter data. "Currently, Intuit offers integration between QuickBooks Online Accountant and Intuit Tax Online, so some data transfer is already occurring, but more can be done, and will be done in the coming years," the representative said.
Intuit continues to develop ITO as a solution to handle everything from the simplest to the most complex of returns, the representative indicated: "ITO integrates with Lacerte and QuickBooks, and bringing Intuit Practice management into the fold will create even better efficiencies."
Intuit is also focusing on developing an open platform, which will enable third parties to add value by providing additional solutions to the accountant. "This will lead to a more customizable offering set that works seamlessly together and allows the accountant to leverage solutions that are right for their firm," the representative added.
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