A Clear Look at Tax Software [CPA Journal, The]

(CPA Journal, The Via Acquire Media NewsEdge) 2012 Annual Survey of New York State Tax Professionals New York State tax professionals who responded to the 2012 annual survey continue to report utilizing the most popular tax software products, with some additional products from prior years. Overall ratings for tax compliance products were down slightly from 2011. Ratings for tax research resources remained close to those in the 201 1 survey, reflecting a mix of increases and decreases, as well as much closer overall ratings man last year. The authors express their appreciation to New York State CPAs for their willingness to contribute to this annual study.

Trends Although 201 1 was expected to be fairly quiet on the tax legislation front, tax professionals still faced their share of challenges for the 2012 filing season. The final rules for Foreign Bank Accounting Reporting (FBAR) were issued in 2011, along with extensions for filing deadlines. The three-year delay for broker information reporting of customers' adjusted basis in securities ended with securities purchased in years beginning in 201 1, creating additional information for tax professionals to reconcile to their clients' records. In addition, the new capital gain and loss reporting rules brought with them both complexity and tax software issues.

Beginning in January 2012, tax preparers who filed more than 10 tax returns were required to use electronic riling (e-filing), which created problems for some of the smallest firms responding to mis survey. One survey participant reported having to change software packages in order to e-file, raising the small firm's software cost by more man $650. Another respondent commented that the firm's software expense increased by 50% in both 201 1 and 2012 in order to meet e-filing requirements.

The IRS finalized initiatives on tax preparer oversight, including registration and competency testing for non-CPAs. One respondent expressed concerns about the registration costs for very small firms. Preparer Taxpayer Identification Numbers ( ) are now required for all tax preparers, including CPAs, but a slow start in the application process did not appear to create many concerns for survey participants.

The Survey The 2012 survey utilized an online questionnaire format, which allowed a broad range of respondents to participate. It included tax software ratings and familiar questions from previous years, as well as new questions regarding the frequency of backing up tax return data and respondents' experience with tax preparer registration and obtaining a PTIN. The survey also contained follow-up questions about the use of tax preparation software technical support, the loss of clients to do-it-yourself software or fiee e-filing, and the trend toward a paperless office environment Adjustments were made to certain questions and their wording, based on remarks received from respondents in 201 1; as a result, questions and comments from participants about the survey instrument were greatly reduced.

To solicit participants, the NYSSCPA e-mailed the 2012 tax software questionnaire to approximately 9,000 Society members who indicated an interest in tax in their membership information. The online survey tool has expanded the responses to include CPAs with a wider variety of roles and experiences; however, additional efforts were made this year to target responses from tax preparation firms, rather than general accounting practices. Although adjusting the timing of the survey to summer might have found potential respondents enjoying a much-needed vacation, the number of survey responses received (412) remains consistent with the responses garnered in previous years.

A profile of respondents in Exhibit 1 indicates that the 2012 survey participants were similar to those who answered the survey in previous years, with representation across small, midsized, and large practices. The 2012 respondents reported a higher average number of tax season professionals than in 2011, but the median number of tax professionals (three) remained unchanged. In addition, the 2012 respondents reported a slightly lower percentage of professional practice in tax. The overall demographics for 2012 indicated coverage of small to midsized firms, with more participation from midsized firms in 2012; however, the maximum number of individual and entity returns filed showed responses from some larger practices as well.

As in prior years, the most prominent tax software vendors were CCH, Intuit, and Thomson Reuters, each covering a range of user demographics with multiple tax preparation or tax research products. The 2012 ratings for these vendors' products represented 442 (92%) of the 482 tax preparation package ratings and 244 (60%) of the 404 tax research software package ratings submitted. CCH tax return software products were used by 37% of respondents, whereas Intuit packages were used by 33%. Thomson Reuters acquired TaxSimple in order to round out its small-firm reach, and its products were used by 22% of the respondents. For the first time in this survey, respondents also rated their use of the IRS website and other Internet sources as alternatives to tax research software.

Some 2012 respondents indicated that they had switched software to meet the new e-filing requirements, increasing their software costs. Notably, most of the tax preparation software cost ratings decreased from 2011, whereas the changes in the tax research cost ratings were mixed. In addition, the percentage of respondents indicating the use of pay-per-return pricing increased from 28% in 2011 to 32% in 2012.

Tax Preparation Software Based on a review of print and electronic media, the survey instrument usted 17 of the most commonly used commercial tax return software vendors. Approximately 95% of the 412 respondents indicated that they used at least one tax preparation software package, and 17% evaluated more than one product After 482 ratings were analyzed, results revealed that respondents used 13 of the listed 17 tax return software packages; the ratings for these 13 vendors are summarized in Exhibit 2.

Factors such as cost, ease of use, customer support, available features, timely updates, and user familiarity are important considerations in choosing a tax software package or an online service. Participants ranked the vendors on each factor using a scale from 1 (very dissatisfied) to 5 (very satisfied). The weighted-average ratings across most vendors with 10 or more responses for their tax preparation software were favorable, which is consistent with previous years. Respondents were generally satisfied with the tax preparation software that they have been using. The mean overall satisfaction rating for the 13 software packages for 2012 was 3.83, down from the 2011 weightedaverage rating of 3.90. The overall ratings for most factors decreased slightly in 2012, with the exception of available features (with no significant change) and familiarity (with an increase). Ratings of each feature averaged above the midpoint for all factors except cost, which has been the lowest-rated feature of tax preparation software since mis survey was first conducted.

In contrast with prior years, the direction of the ratings changes for individual products was not consistent with the overall totals. Among the nine software products with 10 or more ratings, the ratings for five packages reflected a mix of increases and decreases on various factors, whereas two products saw across-the-board increases, and two different products witnessed across-the-board decreases.

As noted above, cost continues to be the least satisfactory feature, both overall and for many of the individual tax preparation software packages. The 2012 weighted-average rating for cost decreased from 2011, affected by declines in the ratings for all but three of the products: ATX and TaxSimple saw increases in their cost ratings and Drake Software's cost ratings held steady, but these three products were generally used by fewer participants than those packages whose cost ratings decreased. ATX and Drake Software have consistently shown increases in cost ratings; on the other hand, UltraTax CS, which had previously seen improvements in its cost ratings, witnessed a significant decline in 2012.

More than half of the ratings received were for CCH ProSystem fx and Lacerto Tax, two of the higher-priced providers. Of the nine vendors with 10 or more ratings, Drake Software (20 ratings) was rated highest overall (4.35 average) for the second year in a row. TaxWorks/Red Gear (10 ratings), which had not received enough responses to be analyzed in prior years, claimed second place (4.10 average) in 2012. Last year's second-place product, UltraTax CS (78 ratings), followed at a very close third place (4.08 average) in 2012. Fourni place resulted in a tie between CCH Prosystem fx (142 ratings) and ATX (24 ratings), which moved up from last year's sixth place; both products had an average of 3.91 in 2012.

Lacerte Tax (106 ratings) appeared in sixth place (3.75 average) and its sister company, Intuit ProSeries (55 ratings), continued its previous-year decline into seventh place (3.58 average). GoSystem Tax RS (23 ratings) saw a substantial decrease in its overall ratings (3.18 average) and dropped from sixth to eighth place. TaxWise (11 ratings) had the lowest overall rating (2.82 average), but it still showed substantial improvement from last year's ratings. The discussion below of specific ratings and features will focus on these nine packages with 10 or more responses. Abacus Software, TaxACT/2nd Story, TaxSimple, and TaxSlayer Pro were each evaluated by fewer than 10 users; the ratings for these vendors are presented for completeness, but should be interpreted with caution.

Looking at the overall ratings, Drake Software and TaxWorks/Red Gear were the most highly rated of the packages with more than 10 users. Drake Software showed the highest ratings for cost, customer support, and timely updates. TaxWorks/Red Gear showed decreases in ratings for cost, ease of use, available features, and timely updates, but showed increases in ratings for customer support and familiarity. UltraTax CS showed decreases in all factors except familiarity. Both CCH ProSystem fx and ATX experienced a mix of increases and decreases in ratings for individual factors.

Lacerte Tax was rated first for ease of use and second for familiarity, but it still showed a decrease in its overall rating from 2011, likely because the product experienced decreases in ratings for all factors except familiarity. Intuit ProSeries declined across all factors, and Go System Tax RS showed decreases in all individual factors except timely updates. TaxWise - the only package with an overall rating that fell below 3.0 - actually saw increases in most of its ratings for individual factors. In summary, ATX, TaxWise, and TaxWorks/Red Gear were the only packages to show increases in their overall ratings, while CCH ProSystem fx and Drake Software held onto ratings similar to those they received last year. GoSystem Tax RS, Intuit ProSeries, Lacerte Tax, and UltraTax CS experienced decreases in overall ratings from 2011.

The weighted-average ratings on all features across all tax preparation software products reflected a mix of increases and decreases. With the exception of CCH ProSystem fx, the packages with the most ratings showed decreasing patterns, possibly contributing to lower overall ratings. The average ratings of most of the features - except cost - for most software packages were higher than 3.0 (out of 5). ATX, Drake Software, and TaxWise reported improvements in ease of use, whereas Go System RS, Intuit ProSeries, Lacerte Tax, and UltraTax CS showed declines. Customer support presented an increase in ratings for CCH ProSystem fx, Drake Software, TaxWise, and TaxWorks/Red Gear, and a decrease for ATX, GoSystem Tax RS, Intuit ProSeries, Lacerte Tax, and UltraTax CS. The ratings for available features and timely updates generally decreased. The familiarity rating has shown an apparent influence on the overall rating in previous years; the general increase in familiarity in 2012, paired with the overall decline in ratings, provided an unexpected contrast to the results in previous years.

Exhibit 3 provides descriptive information about the tax preparation software users for the packages rated by 10 or more participants. Respondents rating CCH ProSystem fx, Go System RS, Lacerte Software, and - to some extent- TaxWorks/Red Gear and UltraTax CS were used by a broad cross-section of firms, including larger practices and midsized firms. UltraTax CS and TaxWorks/Red Gear were used slightly more by small firms. ATX, Drake Software, Intuit ProSeries, and TaxWise were used primarily by firms preparing fewer returns, with fewer full-time tax preparers and with more than half of their practice in tax.

Tax Research Software Respondents also rated the nine most commonly used tax research software packages (selected based on a review of print and electronic media, as well as free resources, such as the IRS website) that they had used recently. Survey participants were more likely to use multiple tax research products than to use multiple tax preparation packages, and many respondents rated several tax research vendors. More than 77% of respondents indicated that they used at least one tax research software package or resource, and many used more than one package; the ratings for these products are summarized in Exhibit 4.

For the nine tax research software packages, 404 ratings were received. An additional 300 ratings were received for the IRS website, state tax department websites, and other Internet searches. Of the products with at least 10 ratings, CCH and RIA Checkpoint had the most users (122 each); these were followed by BNA (69 users), PPC (45 users), Kleinrock (20 users), and Intuit Lacerte (16 users). LexisNexis, Tax Analysts, and Westlaw were rated by fewer than 10 respondents; although their ratings are presented for completeness, they should be interpreted with caution. Of the free tax research resources, the IRS website had the most users, at 158, followed by state tax department websites (112 users), and other Internet searches (30 users). The tax research software ratings reflected a mix of increases and decreases from last year, similar to the tax preparation software ratings; however, weighted-average overall ratings on the tax research software are more consistent with the 2011 ratings and do not report across-the-board decreases. The ratings for CCH and PPC reflected mostly increases, while the ratings for BNA and Kleinrock reported mostly decreases. RIA Checkpoint showed mixed changes.

Respondents ranked the software packages on a scale from 1 (very dissatisfied) to 5 (very satisfied). The weighted-average overall rating for all nine products was 3.60, similar to the overall rating in 2011. The overall ratings for the packages used by 10 or more respondents ranged from the highest-rated PPC (3.86 average), which moved up to first from its usual third place, to the lowest-rated Kleinrock (3.50 average). BNA held second place, with an overall rating of 3.65. RIA Checkpoint came in at third place (3.59 average), newcomer Intuit Lacerte claimed fourth place (3.56 average), and CCH fell to fifth place (3.52 average). CCH, Kleinrock, and PPC showed improvement in their overall ratings, whereas RIA Checkpoint's ratings declined. The familiarity rating increased or remained constant from 201 1 for all products with 10 or more ratings, and mis appears to have influenced the overall ratings. There were only minor changes in the order of the overall ratings for the tax research software from prior years.

The free tax research resources were rated lower than the commercial products, with other Internet searches at 3.43, the IRS website at 3.40, and state tax department websites at 3.15. The customer support ratings were low, as expected, because customer support is generally not provided on these websites. Familiarity and easeof-use ratings were similar to the commercial tax research products, while the cost ratings were higher - but not as high as expected, given that the IRS and state tax department websites are free.

Participants seemed generally satisfied with all individual factors, and most of the weighted-average ratings remained consistent with the prior year. The overall ratings for cost (3.02 average), ease of use (3.35 average), and customer support (3.35 average) were less than 3.50, but were at levels similar to 2011. Timely updates (3.98 average) and familiarity (3.81 average) showed increases from 2011, while company reliability (4.23 average) remained similar to ratings in 2011. PPC was rated first on ease of use; when combined with a substantial increase in its cost rating, this helped to move the product into first place overall. BNA saw decreases in three feature ratings but still came in at second place. Kleinrock' s ratings reflected decreases in all individual feature ratings except cost, on which it still ranked first.

Exhibit 5 provides descriptive detail on the users of tax research software. BNA CCH, PPC, and RIA Checkpoint were represented across all firm sizes, but are used by more midsized to larger firms. Intuit Lacerte and Kleinrock appear to be attracting their targeted audience of smaller firms. The IRS website, state tax department websites, and other Internet resources were generally used across all firm sizes, but had a greater appeal to smaller firms. One respondent stated that "the availability of tax research software online versus a CD makes research incredibly easier than in the past." Other Technology Issues The changes in overall ratings for tax research software generally ran in the same direction as changes in familiarity, although the tax preparation software results were mixed. Exhibit 6 reports the providers with the highest ratings for each feature. For tax preparation software, Drake Software had the highest ratings for cost, customer support, and timely updates, and it ultimately had the highest overall rating, for tax research software, PPC had the highest ratings for ease of use and familiarity, as well as the highest overall rating.

Exhibit 7 indicates that ease of use was rated as the most important feature for both tax preparation and tax research software. Consistent with prior years, survey respondents wanted software that was easy to use without substantial training. For tax preparation software, the second and third most important features were company reliability and timely updates. For tax research software, the order was reversed, with timely updates and company reliability in second and third place, consistent with the prior year. Familiarity appeared to be an important factor in the overall ratings; however, participants rated the importance of familiarity next to last for tax preparation software. Practitioners might value other features as more important in order to provide high quality sendee to their clients. Interestingly, for tax preparation software, cost was least likely to be rated as very important, although it was more important than customer support for tax research software.

Customer support was rated as the third most important feature for tax preparation software, along with the availability of coverage for more states. The most popular form of technical support for tax preparation software among survey participants was telephone assistance, with 54% of participants using the service often to frequently, and only 3% indicating that they never used it Over 60% of respondents made use of e-mail and online contact at least occasionally. live chat was the least popular help method, with 59% indicating that they never used it.

As reported in Exhibit 8, respondents' use of e-filing increased substantially (to 97%) in 2012, driven by new requirements for firms preparing more than 10 tax returns. Given the mix of small, medium, and large firms responding to the survey, it is interesting to note the e-filing characteristics of participants. More than 89% indicated that they e-filed at least 90% of their individual tax returns, while only 3% e-filed 10% or fewer of their individual tax returns. Some participants mentioned having to switch software providers due to e-filing requirements. As detailed in Exhibit 9, the majority of respondents indicated that they had no problems with the 2012 tax season's mandatory e-filing requirements or e-filing procedures; however, more than 40% reported minor to significant problems with these requirements.

The safety of client data is a high priority for tax professionals; however, as technology security improves and CPAs acquire more experience with it, they gain confidence in their ability to ensure the safety of tax records when using electronic resources. According to an article in Accounting Today, high-performing firms are more likely to regard the adoption of technology as a competitive advantage, to become early adopters of new technology, and to encourage employees to explore new ways of doing things (Michael Conn, "Successful Accounting Firms Share Tech Strategies," Oct. 24, 2011).

The progressive use of technology can be seen in respondents' use of online software, electronic data transmission, and paperless office technology. The percentage of respondents using online tax return software increased to 27% in 2012, with another 6% indicating that they are considering it for the future. Almost 85% of survey participants reported that they send at least some tax returns electronically to clients, with an average of 31% of returns transmitted in this fashion. Approximately 16% send at least 90% of clients' returns to them electronically.

Accounting and tax software providers continue to promote resources for automating the tax preparation process. CPAs can purchase stand-alone tools to digitize any individual steps or alternatively can acquire sophisticated document management systems to convert the entire process into a paperless one. Only 19% of survey respondents indicated the use of scanning software to reduce data entry time and input errors, but another 21% are considering it. In contrast, many respondents use portals for clients to upload tax data documents, with 27% currently doing so and 15% considering it for the future. Furthermore, 47% of respondents had already implemented a paperless office environment, suggesting that many CPAs are moving in this direction.

The existence of client data in electronic format creates new priorities and responsibilities for securing and accessing this information. Most participants (59%) reported that they back up tax return data on a daily basis. More than 8% create backups on a weekly basis, and another 12% do so periodically, but not on a regular schedule. Approximately 20% of respondents indicated that their software automatically backs up their tax data.

The websites for the tax software vendors utilized by 2012 survey participants are listed in Exhibit 10.

Analysis and Summary The 2012 tax season presented new challenges, including changes in e-filing requirements, tax preparer registration for non-CPAs, and the requirement for all tax preparers to obtain PTTNs. The majority of respondents (55%) were able to handle the e-filing issues, but a substantial number (43%) did experience at least minor difficulties. More than 80% of participants experienced no problems with registration or PTTNs. A large percentage of respondents indicated that filing delays caused by late tax law changes created minor (60%) or significant (7%) problems. Late Form 1099 deliveries and error correction issues created minor problems for 53% of survey participants and significant problems for another 22%.

Survey respondents indicated continued satisfaction with bom tax preparation and tax research software, although the tax preparation software ratings were more mixed. Ease of use was rated as the most important feature for both tax preparation and tax research software. Company reliability and timely updates were also very important. Respondents indicating future plans to switch tax preparation software remained at 9% in 2012, while those reporting intentions to change tax research tools decreased to 2% and those planning to switch both programs dropped to 4%. Almost 12% of respondents indicated that they had changed tax preparation software within the past five years and 10% had changed their tax research software during this period. Commonly cited reasons for making changes included lowering costs and overcoming e-filing issues for tax preparation software; however, the potential loss of prior-year client data is a deterrent to switching tax preparation software vendors.

Respondents' use of e-filing increased from 2011, and further analysis revealed that there were really two distinct populations of practitioners - those that e-filed a very high percentage of returns versus those that did not utilize e-filing to any great extent The percentage of respondents e-filing 10% or less of returns declined from 7% in 2011 to 3% in 2012. Some firms had to switch tax preparation software in order to meet the new e-filing requirements, increasing their technology costs and possibly affecting the somewhat mixed ratings for tax preparation software. A larger percentage of respondents used pay-per-return pricing to keep their costs down in 2012.

Tax software providers continue to try to provide products mat appeal to firms of all sizes. Interestingly, not all respondents agree that the small-firm environment has been appropriately served; one participant said, "Software packages are not made for small CPA practices. This is a niche mat can be good for a new software company or a new series from the big ones." Small firms face unique issues; problems mat would be relatively minor for larger firms, such as the e-filing mandate and charges for additional users and special forms, are magnified for small firms.

Software vendors are also attracting business from the general public with do-it-yourself or free-file options mat are not supposed to reduce the number of professionally prepared tax returns; however, when 2012 survey respondents were asked if they had lost clients who started preparing their own returns, 47% indicated mat they had lost a small number of clients. Most respondents (52%) had lost no clients, and 1% had lost a large enough number to cause concern.

Many respondents are taking advantage of improvements in technology. The percentage of firms adopting a paperless office environment and utilizing scanning technology increased to 47% and 17%, respectively, from 201 1 . The use of online software increased more dramatically, from 14% in 2011 to 27% in 2012. New York State tax professionals continue to rely on technology to meet the demands of their professional practices, adopting innovative techniques to better serve their clients and stay current with new technologies.

Susan B. Anders, PhD, CPA, and Carol M. Fischer, PhD, CPA, are professors of accounting at St. Bonaventure University, N.Y.

(c) 2012 New York State Society of Certified Public Accountants

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