Tax Software Buyers' Guide
Stearman, Sam W., Journal of Accountancy
The tax software industry is undergoing significant changes--affecting in both vendors and users. The biggest change is the accelerating swing from the DOS operating system to Windows. And several vendors have made the commitment to develop systems with integrated solutions--the so-called software suites--in which several accounting/tax packages are linked so they share a common database and users can navigate easily from one to the other.
While these changes are under way, the industry is going though a period of consolidation--buyouts and mergers--generating intense competition among the surviving vendors. Such moves generally are good news for users because they typically result in lower prices and better products.
THE HIGH PRICE OF CHANGE
However, mergers can cause problems. Prentice-Hall, which was acquired by CLR/Fast-Tax, is inviting its users to convert to CLR's GoSystem or Easy-Go. Tax Resources was purchased by Lacerte and FlashTax announced that it has quit the tax software business.
This consolidation trend alarms some users, especially those who use the smaller, lesser-known vendors that are more likely to be acquired or go out of business, leaving their customers as orphans. Small vendors face particularly difficult obstacles these days. First, in order to stay competitive they have to convert to Windows--and that's an expensive investment. On top of that, if Congress approves a major change in the tax law, they will have to revamp their software--adding another expensive burden.
Windows is now nearly universally accepted. In 1994, 5 of the 19 vendors we reviewed ("Spotlight on Tax Software," JofA, Oct. 94, page 49) offered Windows versions (Veritax, ProSeries, Tax Relief, ProSystem fx and GoSystem). This year, TaxWorks and Package EX have tentatively announced Windows versions for the 1995 tax year and eight additional vendors are committed to launch Windows versions next year.
Unlike other accounting software users, tax preparers generally have been less interested in switching to Windows tax packages. Yet despite the cool reception, vendors believe they see the handwriting on the wall: While many of these tax preparers may not want it now, they will be eager buyers soon.
Another factor is the drop in hardware prices. Many CPA firms have been hesitant to switch to Windows because some of their computers aren't able to handle the operating system's hardware needs. But that's changing: The continual drop in computer prices has led many to junk their 286 and 386 models and upgrade to 486s and Pentiums.
In addition, the introduction of Windows 95--the new Windows operating system--is luring more CPAs into the Windows camp. Because of this, few software packages, except for a handful of unique industry-specific applications, are committed to further enhancements of DOS applications.
The relatively high cost of tax software has long been a deterrent to tax preparers. In fact, some small CPA firms and those who prepare few returns often substitute inexpensive personal tax software. That may be changing this year as prices drop for the professional products. Of the 19 reviewed, 5 high-powered professional packages now carry renewal prices for 1040 software (including one state and laser-printing software) of less than $1,000. Most also offer attractive limited-use pricing for both 1040 and business returns.
THE SUITE SWING
Accounting software developers, recognizing that CPA firms provide many services in addition to tax preparation, are beginning to follow the lead of the major software vendors--Microsoft, Novell and Lotus--by working toward suites of integrated applications. The move makes sense. After all, CPA firms often use software from different vendors for tax preparation, planning and research, accounting, write-up, audit and time and billing. Since individual applications generally generate their own databases, staff members must learn how to use each--which makes for lots of extra training. …