Tax Software 2007

ith the passing of the 2005 tax season and summer vacations, tax practitioners are gearing up for their annual shopping ritual—deciding what brand of tax-preparation software to purchase for tax year 2006. As the latest Journal of Accountancy annual tax-preparation software survey shows, 6% of CPAs switched brands last year, and this year at least another 4% will definitely chuck their current brand (see exhibit 3 ). The turnover might be accelerated by the additional 9% who were considering a change, but remained unsure of what product they would buy next year.

This article details the responses of 2,248 members of the AICPA’s Tax Section who were asked to assess various aspects of the tax software product they used, technical and price information about each product and the special services they provided to tax preparers.

As you check out this year’s software choices, you’ll immediately see that the variety of products has narrowed. This consolidation process has been going on for several years. Most recently Dunphy Systems and Accountware were absorbed by software giant Thomson Tax & Accounting; Accountware was folded after tax season last year and Dunphy this year.

Further evidence of the narrowing market was apparent by the decline in the number of products that generated sufficient responses to make it into the survey results. This year only 10 products generated enough responses, down from 13 last year (see exhibit 1 and exhibit 2 ).

BETTER AND FASTER
Despite some isolated pockets of dissatisfaction, accountants in general found this year’s tax software worked better and faster, as vendors continued to tweak their products, upgrading the code and filtering out bugs and other irritations. Because of a change in the way the JofA measured the satisfaction index this year, we couldn’t precisely quantify how much happier CPAs were with their current products. However, one very unscientific—but probably very accurate—indicator of user satisfaction was the sharp decline in the number and exasperation levels of reports we received from CPAs frustrated with the way the software performed or their vendor’s tech support.

The most widely used product according to our survey was ProSystem fx Tax, with 27% of the survey responses (see exhibit 3 ). Lacerte Tax was hard on its heels with 24.9%.

The software product that scored the highest overall satisfaction rating ( exhibit 2 ) was TaxACT Preparer’s Edition, with a rating of 1.30 (where 1=very satisfied and 4=very dissatisfied), followed by Lacerte and UltraTax CS, each with 1.31. TaxACT also scored highest for its ease of installation (1.07), learning (1.11) and use (1.22) and the way it ran on a network (1.00).

Some of the most significant information in this survey details the brands users abandoned last year, the reasons they switched and the products they planned to purchase this year ( exhibit 3 ). TaxWise appears to have won the highest percentage of converts this year with 12.5%. And the products with the highest loyalty rating—that is, the ones users planned to stick with—were UltraTax, with 94.3%, and Lacerte, with 91.8%. However, be aware that TaxWise’s rating was based on the judgment of only 24 reviewers (see “ Use Caution in Interpreting These Data ”).

One statistic that surprised us was how important a role price played in the decision to switch brands; we would have thought that for such an important product, price would have been a more minor factor.

SIZE DOES MATTER
In exhibit 3 we correlated firm size with product choices and found that size certainly did matter. With few exceptions, the Big Four and national firms relied on GoSystem Tax RS . ProSystem fx made a small showing among national firms; among regional firms the favorites were GoSystem (22.5%) and ProSystem fx (14.7%).

Among local firms, the distribution pattern looks like this: UltraTax (64.5%), ProSystem fx (62.0%) and TaxWorks (61.8%). Sole proprietors favored TaxACT (100%) and ATX Max (85.6%). Of all the products, only ProSystem fx , TaxWorks and UltraTax made a showing in all the size categories.

From the users’ point of view, one of the most critical assessment areas was technical support. After all, when the software fails on April 14, a tax preparer expects the vendor’s tech desk to answer the phone—and the question—immediately. The help desks that responded to users’ calls the fastest were Drake Software and TaxWise, each with a 1.2 rating ( exhibit 4 ). Close behind were TaxACT and UltraTax, with 1.3. When scored for how satisfied CPAs were with the support, TaxACT led with 1.1, followed by UltraTax with 1.3. GoSystem was last with 2.0. But considering it’s one of the most complex products, used heavily by the Big Four and national firms, that’s understandable. Given the choice between receiving support via telephone or e-mails, CPAs clearly preferred the phone.

SPECIAL CLIENT SERVICES
This year fewer firms in the survey offered tax-refund advances as part of their special services ( exhibit 5 )—just 4.5%, down from 5.7% last year. The biggest changes: 11.1% of Drake users provided the service this year, off from 21% last year. But TaxWise customers offered it more frequently—16.7% this year, up from 10.5% last year.

Meanwhile, the percentage of customers who used the tax-refund-advance service more than doubled, to 13.9% from 6.5% last year. TaxACT users said 45% of their customers sought the service; ATX customer use rose sharply to 20% from 7.1% and ProSeries users posted a gain to 12.8% from 7.5%. Despite the customer demand, the percentage of firms that planned to offer the service next year remained unchanged, at about 5%.

Online organizers presented a different picture. The number of firms planning to promote them next year climbed, to 19.9% from 13.2% last year. The biggest change: 26.5% of TaxWorks users offered organizers this year compared with only 6.3% last year. Even more important, the number of customers who used the organizers doubled, to 18.6% from only 9.2% last year—a testament to the growing sophistication of taxpayers. As a result more vendors likely will promote their organizers more vigorously this year.

Each year, as users become more technologically sophisticated, more of them file tax returns electronically. This year 55.5% of federal returns were e-filed, up from 43.3% last year ( exhibit 6 ). The percentage of state e-files also rose, to 48.3% from 38.6%.

SELECTING A NEW PRODUCT
While this article provides a useful tool for deciding whether to renew your tax software contract or shop for a new one, we caution readers against basing your purchasing decision fully on these data or even on the judgment of a trusted colleague. The fact that a product is an excellent fit for others does not mean it’s the right one for you. It all depends on the unique profiles of your clients and how you operate your tax-preparation business.

The only way to ensure that a product fits your needs is to download an evaluation copy and put the product through its paces using live data. This does require a major investment of time. But it’s better to make that investment now than to wait until tax season and discover the product is ill-suited for your needs.

To see a comparison of the software product details, please see exhibit 7 .

We wish you success in finding the best software to fit your requirements.

Stanley Zarowin, a former JofA senior editor, is now a contributing editor to the magazine. His e-mail address is stanley@zarowin.com .