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Using practice management tools within tax software.

Tax return preparation software involves firm management issues beyond technical tax return accuracy. Certainly, the bottom-line requirement for tax software is the ability to produce accurate Federal, state and local tax returns. But firms should expect more. Client service and professional productivity are now key issues for picking tax software. And, once the appropriate software is chosen, the management team needs to be involved in its implementation.

The return database

Tax return preparation databases have always contained information useful in managing a tax practice, but they could not be used without extensive programming. Now software vendors are using new underlying development languages that allow more flexibility. As a result, more information is available to those firms that know how to put it to work. Database capabilities help to manage the practice by --tracking tax returns by stage of process and due date; --eliminating redundant client lists and databases for marketing, mailings and due dates; --improving client service and quality control by identifying clients affected by new legislation or other planning opportunities; and --enhancing firm image with good-looking products.

Management teams may not be aware of the variety of information available from the tax software the firm already uses or understand its benefits. Although some management tools are geared to interactive professional use, others may be used by all firms. Investigating unused features should be part of the postbusy season's evaluation process.

Administrative tasks

Time, both administrative and professional, is the resource in shortest supply during t Many good stand-alone packages will handle administrative tasks, but they often require reentering information that already exists in the taxpayer's database. The best tax software will --give the current status and track returns. At a minimum, reports should be categorized by responsible person, stage of completion and activity. Ideally, the updates can be posted by the professional from within the tax software as soon as a task is completed. Look for flexibility in setting benchmarks. --monitor return due dates. Consider whether the package also tracks noncompliance projects for clients. --produce invoices. Instant invoice preparation may not be important to firms with newer practice management systems, but some firms can speed collections for individual tax preparation work (with little additional effort) by delivering invoices with returns during tax season. Look for an acceptable appearance and be certain that invoice information can be easily added to the firm's practice management software.

Value added features

Bonus products can increase the real, or at least the perceived, value individual clients receive from the firm's tax preparation services. Look for the following extras that can be produced by the software with minimal professional effort.

* Two-year comparisons, quickie projections under subsequent year law and next year's depreciation schedules.

* Professional-looking production pieces, such as customized client letters, invoices and mailing labels using the firm's logo. Look for features that reduce bottlenecks in the assembly process.

Marketing new services

Cost-effective marketing tools can help generate additional revenue from compliance-only 1040 clients. For example, financial planning for the newly "maturing" middle class seems to be a promising niche. While full-scale tax planning may not be affordable to this group, off-season work can be generated using some vendor products.

* Tax projection worksheets, current-year tax data formatted as a questionnaire, can be used in several ways. The worksheets can be an effective tool when delivered with the return, since clients are still focused on their financial positions. A cover memo suggesting a meeting to discuss financial planning strategies may lead to additional work. Alternatively, delaying the release of reports to periods that maximize executive follow-up and coincide with staff availability is an effective maneuver.

* Vendors may release tax planning packages late in the year to recompute these worksheets with expected 1993 legislative changes. Based on prior-year data, these worksheets cannot be as accurate or as detailed as a full projection. But they can be the basis for renewed discussion with clients for late-year planning.

* Database sorts may be used to identify client groups with common interests. Special mailings, seminars or breakfast focus groups can target these concerns. For example, all self-employed persons with health insurance adjustments that expired last July 1 can be identified and informed of legislative updates or suggestions for structuring their businesses to better handle their health care costs. Highly targeted marketing is much more effective than generic mailing.

Quality control

Tax preparation software should include good diagnostics and tools that help professionals prepare correct and accurate returns. Beyond these integral tasks, the software can provide a broader view of quality control.

* Tax return database searches: Identify any client vulnerable to new developments in the tax law. Also, quickly identify any client affected by a misinterpretation of tax law or programming error.

* Ties to research: Instant access to instructions and tables of rates encourages verification during return preparation. Easy look-ups from within the tax program to resources like Package X and master tax guides (e.g., Matthew Bender, Commerce Clearing House and Research Institute of America) can be time-savers.

* Self-review tools: Reports should provide data trails from raw tax data, as entered, to computed tax return numbers, after combinations and limitations are applied. These time-savers can quickly identify problems that may be missed in peak periods.

* Reports to assist reviewers: When reviewers work with paper copy, it is difficult to identify preparer overrides of the tax program's computations. Without an override report, the reviewer may incorrectly assume that the program had adequate data to correctly compute all loss limitations, etc.

* Activity reports: Client data privacy is improved if the software records who has accessed each tax client's tax data files and when.

* Disaster prevention: Most data losses are the result of human error or sabotage. The tax program should allow the firm to determine the activities allowable by each person accessing the program. Be certain that the security coding can be quickly updated and routine back-up activities can be run unattended in the middle of the night.


Professional productivity is the key to quick payback from the substantial investment in the hardware and software necessary to run a professional-based system. Past articles in this column have detailed the advantages and disadvantages of using professional-based, interactive tax software. See "Using Interactive Tax Software in Return Preparation," TTA, Dec. 1991, at 830, and "Tax Practice Management Computerized," TTA, Mar. 1990, at 182. See also Computers in Taxation, "Automating a Tax Practice," TTA, Apr. 1991, at 266.

Interactive tax software supplies tools that help preparers and reviewers prepare returns using less labor-intensive methods. When matched with appropriate manual procedures, interactive tax software can increase productivity substantially.

Advanced levels of interactive work, especially for business returns, deliver major productivity increases--once heavy learning curves are absorbed. The software should be able to --import data from trial balances of various formats, including leading audit and accounting packages. --export computed tax information (or the initial data) to spreadsheet, word processing or database applications. --access programs and client files from a client's office or from home. --provide short tutorials with basic navigational instructions to get new users started quickly and shorten learning curves. Tutorials with a quick review feature can help intermittent users, like some partners, feel confident. Some software even produces reports that monitor use of software tutorials, which may be used to guard against staff errors and the frustration of trying to learn to use new tax software on live returns.

Dealing with the import and export of data requires a strong commitment to the task, and generally requires a substantial learning curve that should not be attempted during the busy season.

Other considerations

If practice management tools are lacking in a firm's tax software, it is important to consider the advantages of making a change in the next year or two. implementing new tax software just before the busy season limits productivity gains in the first year. If the motivation for change is to increase management tools, early and carefully planned implementation is especially important to build confidence in the new tools before the stress of tax season hits. Old control systems, like due dates, should continue to be maintained until all data is converted and the new system is producing reliable results. (This could take several months.)

More practice management tools are included in high-end packages because of the extensive development effort required. These packages, like any sophisticated database application, generally require powerful local area networks and fast microcomputers.

Although most software offers standard reports, out of the box, that simplify implementation, those systems that allow customizing reports offer a bigger long-term payback. But the most expensive part of implementing the new systems, and the greatest payback, is management time to customize the systems to meet the needs of the practice. This investment will save all users time when it counts the most--during tax season.


Now is the time to explore these features and decide whether they can be effective. The timing of a change is important, as is building confidence before relying on a new system for critical tasks like due date control and returns-in-process listings during the next busy season.
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Article Details
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Author:McMillan, Mary Ellen
Publication:The Tax Adviser
Date:Jun 1, 1993
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