If you own a personal computer, chances are there is a program you can buy for it that will help you prepare your income tax returns.
In fact, tax preparation software is right up there alongside electronic spreadsheets and home finance programs as good sellers. And for the same reasons: It can make a toilsome task a lot easier.
In the past five years, more than a dozen small companies specializing in tax preparation programs for desktop computers have sprung up. The capabilities of their offerings range from simple packages that sell for around $40 and perform basic 1040 form work to super programs designed for CPAs that cost as much as $3,000 and can prepare most state as well as virtually all federal tax forms.
About the only thing none of the software packages can do is offer tax advice. You still have to talk to an accountant or professional tax preparer if you have questions about what deductions are proper and so on.
Essentially, this is how a good tax preparations software package works:
After the program is loaded into your computer's memory, you might be asked a series of general questions about your financial experience for the past year. Based on your answers, the computer may select which tax forms you will need to fill out (many do not, however, leaving that task up to you). Then you are asked more specific income questions that enable the computer to fill out the appropriate tax form line with the exact information needed.
When all that is completed, the computer performs the necessary calculations and finally prints out (provided you have a printer) the results exactly as they would appear on IRS forms.
Therein lies one of the major difficulties the tax software industry has to overcome each year. For not only do tax laws frequently change from year to year--necessitating changes in the program--but the IRS just as frequently redesigns its forms, mandating still more changes.
IRS is very, very particular about its forms. The top form, for instance, must be an exact copy of the one mailed out to all taxpayers. And while the IRS will permit users of tax preparation packages to use computer-prepared facsimiles on all other forms, they must be as exact as possible, right down to spacing and punctuation. If you use a software package that isn't guaranteed to pass muster with IRS, you risk having your tax returns kicked back or audited.
To overcome this annual revamping of tax laws and forms, most companies have designed their products so that they are easily updated. For a fee--it should be substantially less than the original cost of the software--the company will provide you with a software update for your old package each year. The new programs generally start appearing in the marketplace in late January and early February.
Also consider whether the company that produces the software package has someone reachable by telephone who can answer questions about the program.
This is a list of the better-known computer software companies that offer tax preparation packages for less than $500. Be sure the package you buy will run on your computer: *Howard Software Services, La Jolla, Calif., about $250 *Micro Lab, Highland Park, Ill., about $250 *Eagle Software Pub. Inc., Wayne, Pa., about $300 *Rockware Data Corp., Dallas, about $40 *Aardvark Software, Milwaukee, about $350 *Century Software Ltd., Phoenix, about $50 *Business Planning Sytems, Dover, Del., about $500 *Micromatic Programming Co., Georgetown, Conn., about $150.