Continued growth in the do-it-yourself tax prep market, ongoing federal and state e-filing mandates and the Internal Revenue Service's discontinuation of a debt indicator to facilitate refund anticipation loans will affect both preparers and their software providers during next year's filing season.
"Last filing season the growth in the DIY market was 10 to 12 percent, while the year before it was 20 percent," noted Gene Goldenberg, vice president of marketing for CCH Small Firm Services.
"Our research indicates that people who are doing their own returns are moving back and forth between DIY and using a paid preparer," he added. "The percent of taxpayers using a paid preparer held steady this past season at 62 percent. The demographics of the do-it-yourself market remain pretty much the same taxpayers who are confident that their tax situation is not that complicated. As they move toward middle age, their taxes get more complicated and they tend to use paid preparers."
The strength of the DIY market was indicated in the recent purchases by H&R Block of TaxAct and by Thomson Reuters of TaxSimple. While both of the purchased companies produce professional editions, their purchase was motivated by the desire for a presence in the DIY market. "Thomson Reuters does not have a DIY program, and Block's version has been losing ground every year to Intuit in that market," said an industry insider. "This was a way for Block to double their share of the do-it-yourself market and put it in the hands of a very competent management team."
Most tax prep software providers are addressing the e-filing requirements at both the state and federal levels. The federal e-file mandate requires preparers who file more than 100 returns to e-file 2010 returns, and will require those who prepare more than 10 returns to e-file 2011 returns.
"We're providing more robust tools to monitor the status of e-filed returns," reported Scott Fleszar, vice president of strategic marketing for the Tax & Accounting business of Thomson Reuters. "Optimally, the preparer can choose to turn on an automatic e-mail alert to a client when the e-filed return has been accepted. ... Our feedback indicates that when clients have their returns e-filed, they're on the phone two days later asking about the status of the return."
Thomson Reuters' Ultra Tax CS has added a client complexity factor, which assigns a value to each client based on the types of forms and schedules required by the return. "The principal or partner will understand the relative complexity of each return and can assign the work accordingly," Fleszar said.
Also new is a key values indicator in each return, which displays items such as adjusted gross income and the Alternative Minimum Tax. "It gives five values three years back, plus the current year, plus a projection for next year," said Fleszar.
Ultra Tax has also added to its ability to run across dual monitors, Fleszar noted: "It will sense the monitor configuration of the preparer, and will optimize usage."
Meanwhile, Thomson Reuters' GoSystem has built integration with NetClient CS, and a new print system for partnership returns, according to Fleszar. "GoSystem handles very large partnership returns, some with thousands of partners," he noted. "There is more flexibility and power in assigning for 1065 returns and customers."
The trend toward e-filing, the paperless office and integration will continue, echoed Jo Ann Cummings, CPA and product manager for CCH ProSystem fx Tax. "More types of returns are being e-filed," she said. "This will continue with states offering multiple types of returns that can be e-filed. Going paperless and integration between a firm's tax software with document management, practice, and engagement software is continuing" as preparers and their clients become more focused on saving time and money.
For example, she noted that CCH's Tax Preparation Partner Series integrates a complex tax compliance library with tools and practice aids that link directly from the tax form to explanatory content. Its Web-based Electronic Filing Status can customize columns and add columns for year end and amount due. It allows the preparer to view and check the status of all returns, release returns to taxing authorities, stop the processing of a return in its early stages, and view separate statuses for federal and multiple-state e-filings. Integration is built into its Global Integrator, a new Web-based solution that provides a single platform for data collection, analysis and tax reporting for corporate returns doing business across a network of taxing jurisdictions.
CCH Small Firm Services has improved and expanded its Scan & Fill feature for both ATX and TaxWise, according to product managers Bo Brown and Shannon Bond. "It has the ability to read more and more forms, with integration into all of our non-tax applications," said Bond. A Web-based management tool, Central Office Management, simplifies multiple-office management and allows management, monitoring and support from one Web site.
In addition to offering customers a cost-saving program for office supplies through Staples Advantage, CCH SFS's software also integrates with the Western Union MoneyWise card, so that clients can receive their refunds on a reloadable prepaid card, and also have their paychecks direct-deposited onto the card, and add money at any Western Union location.
Intuit's ProSeries, Lacerte and ProLine Tax Online Editions have aimed at streamlining workflow and expanding e-file offerings for state returns, according to product managers Julie Kozloski, Mary Kroenung and Jorge Olavarrieta.
The IRS's new Modernized e-File system, or MeF, went live last year and was supported by Intuit primarily in its TurboTax products, according to Kroenung. "It had some growing pains. At times, some returns had to be resubmitted through the legacy system, but all in all it was a successful launch. The goal this year is to get more transmitters," she said. "Our software has the ability to send the return to either system, so if there is a problem with MeF, it will get sent through the legacy system."
"We've added numerous forms as they become available from the states," noted Kozloski. "E-filing will have a big impact on offices that haven't already adopted it into their workflow processes."
With its scan-and-populate and digital download from financial institutions, Intuit is evolving its NED2 ("Never enter data twice") concept to plain NED ("Never enter data at all"), according to ProLine Tax Online product manager Olavarrieta.
For next year, ProLine Tax Online will be available for all Form 1040 states, as well as Forms 1065, 1120 and 1120S, according to Olavarrieta. "ProLine Tax Online is completely new," he said. "We took a lot of what we learned from ProSeries and Lacerte and incorporated the best of the best. We made an investment in making the navigation a lot more efficient, to align it with how the preparer works. And the Tax Import integrates not only scan-and-populate, but will do a direct download from Form 1099s."
Drake Software hasn't yet seen a huge demand for scan features among its clients, said vice president of sales and marketing John Sapp. "Some mention it, but it's not currently on most preparers' radar," he said. "Unless it's a time-saver, it serves no benefit. We do see direct import as a time-saver, and will continue to add to our direct-import feature. We will provide almost any tool within reason if it saves time for our clients."
Sapp sees changes coming in RALs. "It's not necessarily based on the debt indicator," he said. The IRS announced in August that it would no longer provide a debt indicator a note in the acknowledgement of an e-filed return that indicated whether a taxpayer will have any portion of the refund offset for delinquent tax or other debts, such as unpaid child support or delinquent student loans, and which was used to facilitate RALs.
"Many people have a need to get their taxes done and the refund in their hands as quickly as possible," he said. "The RAL does this in an efficient manner, but consumer groups don't like it and the market will move to a less efficient way over the next few years."
"There is always going to be a demand for a financial product of some sort," noted Chuck Petz, chief financial officer of Petz Enterprises, makers of CrossLink 1040 and CrossLink Multi-Site Online. "The financial products will change based on regulations. But every time over the last 20 years when regulations try to protect the consumer, all they did was make it more expensive."
For next year, Petz offers an application that gives the multi-office owner the ability to manage remote offices from their iPhone. In addition, both CrossLink products will support 2D barcode scanning. "CrossLink customers can start a return and capture all of the data on the Form W-2 or Schedule K-1 by scanning the 2D barcode on those forms with a hand-held scanner," he said.
RedGear Technologies' TaxWorks, owned by H&R Block, has added several new enhancements for the tax season ahead, including an enhanced audit trail that allows the user to track multiple items, such as W-2s.
"Our focus this year has been on speeding up the program throughout all phases," said Kelly Peterson, director of technology for RedGear Technologies.
Weeding them out
Tax preparer registration, as well as the e-filing mandates, are causing some older people or smaller operations to back out of the market, according to Kyle Janssens and Ryan Bohs, managers at Greatland. "The registration process is confusing to some preparers, but the government wants to make sure that preparers are compliant and representing individuals as best they could," said Janssens.
"A large segment of the preparer population is nervous about registration," said Drake's Sapp. "Simply figuring out who is a preparer and how much input they need to have to need a PTIN and be registered is a gray area. Over the next three years, the preparers who have a real tax business and are doing it the right way will benefit from this. It will get rid of the fly-by-night preparers."
"We think it will drive out a bunch of older sole practitioners," said CCH's Goldenberg. "They may decide that it's time to ride off into the sunset. The bottom line is that it will raise costs, and it's the nature of business to pass on those additional costs to clients."
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