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Which version is right for your small business?

 

By Reed Richardson

 


For those small business owners who choose to do their own taxes this year, there are more software choices than ever to help them file. Indeed, tax prep software companies, like banks and credit card companies before them, are now increasingly targeting small businesses. And recognizing that many small business owners seamlessly blend their personal and professional lives, some software companies are now bundling their individual and small business tax return products together to save you time and money as well.

 


But sorting through the many different product tiers, price structures, and claims can be confusing, so here's a quick rundown of what three popular tax prep software companies are offering this year.

 


Lay of the land

Pricing for most tax prep software generally follows some tried and true conventions. For the most part, purchasing an online or downloadable product amounts to buying the ability to prepare and file a federal tax return. If you would like to electronically file that federal return-and shorten the turnaround on getting back an expected refund to as little as eight days-tax prep software companies now typically include one free efile as part of each version's standard price as well. However, if based on where your small business is located you are required to file a state tax return, you might be required to pay an additional flat fee of between $8 and $30 per state to file. And to electronically file those state tax returns you'll likely trigger yet another fee.

 


As pricing has become more competitive, tax prep software companies have tried to differentiate themselves by touting more qualitative benefits. One popular way involves offering maximum refund and/or accuracy guarantees. By now, though, almost all major tax prep software products come with one, if not both, of these guarantees, making them more like industry best practices than something that sets them apart from one another.

 

Likewise, when it comes to ease of use, nearly every tax prep software product now easily imports data from bookkeeping programs like QuickBooks and Microsoft Money, a handy feature that can significantly shorten time spent on tax preparation and avoid simple mistakes arising from data entry errors. Offering multiple platforms of customer support-phone, email, and live chat-and various kinds of after-you-file "audit support" have now become commonplace as well for most major tax prep software companies, although H&R Block, which allows its software customers to consult a dedicated tax preparer from one of the company's storefront locations for an additional price, can be an attractive choice for those looking for a more personal touch.

 


One final caveat: it's important to keep in mind that tax prep software has its limitations. Even TurboTax's top-tier Business version states quite plainly that it works best for a small business that "has revenue of less than $250,000 and fewer than five employees." More affordable but less well-known tax prep software companies tend to offer less comprehensive business platforms, if they offer one at all. As a result, entrepreneurs that experienced even modest growth this past year might find that their company has unexpectedly vaulted beyond the point where any level of do-it-yourself tax software makes sense.

 


Intuit's TurboTax

As the best-selling and most well-known tax prep software brand, Intuit's TurboTax products also come highly rated, with last year's versions having earned "Editor's Choice" awards from tech publications CNET and PC Magazine. This year, TurboTax rolls out five different software versions, two of which focus on small businesses. The first, TurboTax's Home & Business version, is, as it sounds, focused on those entrepreneurs who run a side business out of their home or are full-time sole proprietors or single-owner LLCs and would likely file their personal and business taxes together. The more robust Business version is TurboTax's top-of-the-line product and it includes a suite of corporate forms geared toward small businesses partnerships, multi-member LLCs, as well as S and C Corporations.

 


TurboTax's business software stands at the high end of the market, with costs ranging from $75 for a typical sole proprietorship up to $160 for a C Corporation that files at least one federal and state tax return electronically. Also of note, the latter scenario doesn't include the cost for the small business owner to file their personal federal and state taxes, which would necessitate buying an individual TurboTax suite like Premier, adding another $86 to the bill.

 


The higher cost of TurboTax software brings with it some greater flexibility, however. Along with free audit support for all products, with TurboTax Home & Business, for example, you can enjoy the freedom of preparing and filing your taxes completely online instead of having to use a downloadable or CD version. (TurboTax's Business edition is download or CD only, however.) In addition, all TurboTax business software packages let you file five different federal returns from just one software purchase, a big plus if you're an entrepreneur with multiple ventures.

 

 


TurboTax Home & Business version: http://turbotax.intuit.com/personal-taxes/online/home-and-business.jsp

 

TurboTax Business version: http://turbotax.intuit.com/small-business-taxes/business.jsp

 

 

H&R Block At Home

In an attempt to emphasize H&R Block's unique two-pronged approach to tax preparation, the company's previous "TaxCut" software products have been renamed "At Home" this year. (Its storefront operations were also rebranded, as H&R Block "Offices.") For the 2009 tax year, H&R Block offers four At Home software tiers, two of which, Premium and Premium & Business, would be of use to small business owners. Premium, which is offered in both online and downloadable versions, is limited to small rental property owners or the self-employed who don't file any business forms beyond a 1040 Schedule C, however. At Home Premium & Business, on the other hand, is only downloadable in a Windows version and encompasses all other small business structures from limited partnerships to multiple-owner LLCs to S and C Corporations. And to encourage established tax prep software users to switch H&R Block, the company claims its At Home platforms are now set up to quickly import previous tax year data from its rival TurboTax's programs.

 


Price shopping between TurboTax and At Home can be difficult, though. At $49.95, H&R Block's Premium version is more comparable in price and amenities to TurboTax's Premier version ($49.95) than it is to TurboTax's Home & Business suite ($74.95). The Premium & Business version, however, costs only five dollars more ($79.95) but offers small business owners the ability to efile up to five free federal business returns (even for C Corporations) as well as one federal and state 1040. The price difference becomes particularly stark for owners of C Corporations, who would pay only $120 when using At Home Premium & Business to file both their federal and state personal and business tax returns electronically, a price less than half of the $246 needed to accomplish the same tasks using comparable TurboTax products.

 


For self-employed entrepreneurs that would only file 1040s and Schedule Cs and who seek the security of having the critical eye of a tax professional on their side, H&R Block also offers its $99.95 "Best of Both" package. With this package, customers prepare their taxes using the company's software, but a dedicated H&R Block tax preparer is also available to answer questions during the process and review all tax forms before they're filed. State returns are extra, however, and run $29.95 each.

 


H&R Block Premium version: http://www.hrblock.com/taxes/products/32.html

 

H&R Block Premium & Business version: http://www.hrblock.com/taxes/products/38.html

 

H&R Block Best of Both program: http://www.hrblock.com/taxes/products/33n.html

 


TaxACT

Launched in 1998, TaxACT has grown to be the second most popular online tax prep software destination behind TurboTax. TaxACT, much like TurboTax and H&R Block's At Home, offers several tax prep software tiers ranging from a basic/free federal-only version for individuals to several business-specific federal and state software packages. TaxACT tends to fall at the more affordable end of the market price-wise, below even H&R Block, and offers a more á la carte product menu, letting small businesses separately purchase downloadable Business 1065, 1120, or 1120S software packages for $39.95 each, all of which include the filing of one federal business return either by mail or electronically. To file additional state 1065, 1120, and 1120S returns, however, you must pay an extra $14.95 per state and TaxACT charges another $7.95 apiece to efile each of those state tax returns. For companies with a wide geographical footprint, TaxACT also offers an All-States edition that lets you file in as many states as necessary for just $51.80.

 


For entrepreneurs looking to combine the preparation of their personal and business taxes, TaxACT does have a Home & Business package for $54.95 that bundles a Business 1065, 1120, or 1120S return (and free federal efiling) with free federal and state 1040 returns. But as with its other platforms, the filing of state business returns and efiling of state personal and business returns cost extra. As a result, the owner of a C Corporation that intends to efile both corporate and personal tax returns in at least one state would pay just over $85. This compares to the $120 price if one used H&R Block's At Home Premium & Business edition and the $246 price found by combining TurboTax's Premier and Business editions.

 


TaxACT Business Software Products: http://www.taxact.com/products/index_business.asp

 

TaxACT Home & Business Bundles: http://www.taxact.com/products/homebiz_overview.asp

SBC Team

Finding a Tax Professional

Posted by SBC Team Jan 4, 2010
What a small business should look for in a professional tax preparer

By Reed Richardson

 

Despite the seeming ubiquity of tax-prep software like TurboTax, using a paid professional remains the most popular form of tax preparation-roughly six in ten Americans are expected to use a local accounting firm or a nationwide franchise like H&R Block to prepare their individual tax returns this year. That number is even higher for businesses. For most, the choice to use a tax preparer is one based on convenience and peace of mind. Just as you wouldn't try to perform a root canal or bring a lawsuit by yourself, many entrepreneurs feel the same analogy applies to doing their taxes-let the pros handle it.

 


"If you have rental property or get a Schedule K-1 because of a business partnership or own a second home, it would probably pay to have a tax pro or C.P.A.," advises Tom Ochsenschlager, vice president of the American Institute of Certified Public Accountant's (AICPA) taxation division. Additionally, he suggests that anytime you experience what he calls a "major lifestyle change"-get married, move, have a child, get divorced, start a business-it is probably a good year to consider having a professional handle all your taxes. "They are going to suggest ways to structure your finances and minimize your taxes, such as setting up a 529 college savings plan for a new baby, that you're just not going to get to from a software program," he says.

 


Another reason to consider a tax preparer for 2009 specifically, involves the host of tax law changes that have occurred this past year. "The tax code becomes more complex every year-especially this year with so many new tax credits and other rules as the federal government attempts to provide some taxpayers with relief during the economic downturn," notes National Society of Accountants president Robert Cross. With all these constant changes and new provisions, Cross explains that it pays to have a professional tracking all the potential tax breaks for which you may qualify. "Even one extra deduction or tax credit can more than cover the fee paid to a professional tax preparer."

 


But what's the best way to find a reputable tax preparer? "Word of mouth," answers the AICPA's Ochsenschlager. "Talk to friends to see what their experiences have been like, or failing that, try contacting your state C.P.A. society to get some referrals." He adds that, if you are thinking about hiring an accountant, most C.P.A.s should agree to an initial interview free of charge so you can get a sense of whether or not their expertise matches your particular tax situation. " You'll get a real feel for what they know very quickly just by the questions they ask you," he says. "But, in the end, it comes down to comfort level. After all, if they prepare your taxes, they're going to find out a lot about you so you have to pick someone you're comfortable with." (To find a nearby C.P.A. or tax preparer, see the online search tools at the end of this article.)

 


So just how much can a small business owner expect in the way of costs if they choose to go with a tax professional? According to a biennial survey just completed by Cross's NSA this past December, the average fee charged by a C.P.A. to prepare a business tax return (1065, 1120, or 1120S) for the 2009 tax year will be between $142 and $148 an hour. According to the survey, most small business returns take four to five hours to complete, making the average total cost of preparing a 1065, 1120S, and 1120 tax return this year approximately $551, $665, and $692, respectively. These costs are relatively unchanged from what the same survey found in 2007.

 


And while tax professionals are typically the most expensive option for a small business owner, many feel it's the costs you don't see that make them worth it. Claiming a highly dubious deduction and risking an expensive audit, for example, is a trap that a C.P.A. is unlikely to fall into. "C.P.A.s have to go through 40 hours of continuing education every year," Ochenschlager points out, "and they also don't want be breaching the industry's ethical rules and earning a poor reputation with the IRS because that jeopardizes their livelihoods."

 


Tip: If you do end up using a storefront tax preparation service like Jackson-Hewitt or H&R Block rather than an accountant, you might consider requesting that your preparer be an "enrolled agent." They may cost a bit more, but they will have passed rigorous IRS exams and can represent you in the event you get audited later.

 

 

Try these online search tools o find an accountant or professional tax preparer: http://www.nsacct.org/professional.asp

 

http://www.cpadirectory.com/

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