When California electronics engineer Jim Howard decided six years ago to create a program to prepare his tax return on his personal computer, little did he know it would change his life -- and that of thousands of Americans -- fighting the April 15 deadline.
"That first package contained only the forms and schedules that I used for my own individual taxes," says Howard, 43, who put a small ad about the homemade program in a computer magazine. He got 50 responses. A year later, requests for the updated and debugged program jumped to 1,000.
Today, Howard is president of Howardsoft, the La Jolla, Calif., firm he formed to produce and market his Tax Preparer program. "Every day," he says, "I go through an inch of product-comment forms from customers. We test and retest the program. We've got a dozen full-time tax practitioners on-site testing it from August through November."
So far, Howard's toying with taxes has set the standard in tax-preparation software for home computers: the latest trend in taking the burden out of figuring taxes.
Of the 134 million tax returns the Internal Revenue Service received last year, 7 million were computer-processed. Howard estimates that about 1 million were completed on Tax Preparer, rated tops by computer experts in both sales and quality among the dozens of tax programs available. "Thousands and thousands" of Tax Preparers ($295 each) were sold this year, he says, to a clientele evenly split between "high-end personal users" and tax professionals.
Simon and Schuster entered the market this year with its computerized version of the popular J.K. Lasser's Your Income Tax, a stripped-down model compared to Tax Preparer but reasonably priced at $79.95. At least two other major tax-guide publishers may produce their own versions next year.
The IRS, whose response to the trend is mostly positive, already accepts computer-printed facsimiles of its forms and schedules and is exploring future money-saving possibilities of accepting individual tax returns electronically.
Meanwhile, the ease of completing tax returns on a computer is creating a cottage industry. "Forty percent of our customers use it to do other people's returns professionally," says Jim Petersen, 41, president of Best Programs Inc., Alexandria, which markets PC-Tax Cut, a $199 program developed in 1983 by a Tucson CPA firm. "A larger percentage do their mothers' or brothers' taxes once they've done their own."
Petersen, a former personnel consultant who started Best Programs three years ago with his brother, Ken, says although the company has expanded to include personal finance and planning software, his most popular product is PC-Tax Cut, among the top-selling tax programs made for IBM-PCs.
"The math is done by the computer so you can focus on saving taxes," says Petersen in explaining the advantages of figuring taxes via computer. "And most customers report it helps them organize their finances and think ahead for next year's taxes."
What features do quality tax-preparation programs offer? Here are several built into Tax Preparer and PC-Tax Cut:
* Figures and information are entered on "input sheets" designed to correlate, but not resemble Form 1040 or other schedules. The program sorts data, computes and enters it on proper forms and lines.
* The computer -- doing what it does best -- handles all calculations. Manual override of calculations is possible.
* The programs can file multiple returns. The only restriction on the number for most programs is the storage space.
* Programs are "user friendly" and tax-deductible.
* "What-if" capabilities pose alternative return scenarios to see how they would affect taxes. Example: "What if I were to put $2,000 into an IRA at the last minute?" The program recalculates the change through the entire return, including all affected schedules and forms, to produce an answer and a totally revised return in minutes.
* Behind-the-line worksheets allow back-up documentation on each itemized deduction.
* Forms acceptable to the IRS can be completed, or official IRS forms fed individually through the printer, with the software instructed to deliver only the data and figures to the appropriate blanks.
* Planning and forecasting capabilities allow storage of detailed records, which can be used throughout the year to develop tax-saving strategies.
Tax-preparation computer programs, however, aren't for everyone.
If your tax return is straightforward and uncomplicated, it probably doesn't pay to spend $200 to $300 for computer software, despite their tax-planning capabilites.
Other drawbacks: Compared with some of today's rapid word-processing programs, tax-preparation by computer is still slower because of complicated behind-the-screen calculations. Updated programs must be purchased annually, although usually at a significant discount from the first-year price.
Finally, computer tax preparation won't solve the biggest problem for some taxpayers: As Howard says, "It's no substitute for thinking."