YOUR TAXES: A SPECIAL REPORT : TAXING PROGRAMS : Software for Preparing Returns May Just Make the Job More Difficult

Analyzing this year’s crop of tax preparation software for personal computers turned out to be like the new tax law itself--difficult and confusing.

Tax preparation software ought to be more useful than ever because preparing the new tax forms has become more complicated. But using such programs may, in fact, make the chore more difficult.

Two popular programs actually produced erroneous returns. A third came with a physically flawed disk. A fourth got so bogged down during testing that it simply stopped working.

A fifth, aimed at taxpayers with complex business and investment income, forces some users to manually override its calculations to get one of the forms correct.

That leaves two programs that performed flawlessly. However, both are so limited that they are suitable only for people with the simplest of returns to prepare.

All of the tested programs run on IBM PC and compatible computers. Several are available in versions that run on Apple II series, Apple Macintosh, Amiga, Atari and Commodore computers. All of the programs can help with tax planning by using “what if” values to test effects of changes in your income, deductions and investments.

No computerized tax preparation program is a substitute for competent tax advice from a professional. All of their manuals contain disclaimers noting that you are responsible for making sure the right information is entered into your return.

Although many of the programs include two or three dozen tax forms, you should obtain from the Internal Revenue Service all of the actual forms you would need to do your taxes by hand--as well as instructions for using those forms. Then study the instructions and make sure you understand how your data should be entered before you use the program.

All programs were tested with the same sample return, that of a middle-class, two-salary family with a sideline consulting business, portfolio capital gains and two rental properties that generated net losses. Testing revealed that the programs fall into three general categories--suitable for complex returns, less complex returns and simple returns.

Complex Returns

Extensive investment gains and losses, business income and losses, rental and royalty gains and losses, and complex property depreciation scenarios.

TurboTax, $75.00, ChipSoft Inc., 5045 Shoreham Place, Suite 100, San Diego, Calif. 92122, (619) 453-8722. For IBM PC and compatibles only, floppy or hard drives, minimum of 256 kilobytes of random access memory (RAM), graphics monitor not required.

This is the fastest program and also relatively easy to use. It includes on-screen work sheets and close approximations of 32 tax forms and schedules. Line numbers of TurboTax forms correspond to those of the IRS form, and the wording is identical or a close approximation.

Navigating through the program is easy with a pop-up menu that overlays the form currently on your screen. Choices can be made by moving cursor keys or pressing an indicated letter. A pop-up calculator also is included.

Extra Schedule C, D and E forms are available for taxpayers with multiple business enterprises, lengthy lists of portfolio transactions or numerous property transactions to report. Any entry can be annotated to help you recall how it was derived if you are audited. Depreciation computations are automated, but the program does not match recovery periods to the year property was placed in service, so you can make erroneous entries.

“Passive” losses are automatically calculated on a Form 8582 when they occur, but the first version of the program that was tested did not properly limit those losses. As a result, the test return claimed a larger loss than allowed by the IRS this year and calculated too little tax. However, the return was accurately computed on a revised version of the program.

You should call the publisher to verify that the version you buy is the latest available. The company also maintains a computer bulletin board for its customers to receive information about updates, tax tips and other information.

The IRS is very picky about the look of the 1040 forms that it will accept. TurboTax prints an acceptable version on some dot-matrix printers but not on laser printers. It took 22 minutes for the sample two-page 1040 form to be printed on my Epson RX 80 printer.

You also can use the preprinted forms supplied with the program for use in your printer, or print the quick draft version of the 1040 and transfer the numbers by hand or typewriter to an actual 1040. All other forms in the return are printed properly on a dot-matrix, daisy-wheel or laser printer.

ChipSoft also offers TurboTax versions for the California state income tax return and those of 25 other states. It is the only program tested to offer more than two state returns. Each version costs $40.

A professional version of TurboTax--which contains more forms and stores data for more than one taxpayer, as well as supporting laser printers--is available for $295 in the federal version and $195 in state versions.

Tax Preparer, HowardSoft, 1224 Prospect St., Suite 150, La Jolla, Calif. 92037, (619) 454-0121. $250 for Apple II series with 64K of RAM. $295 for IBM PC and compatible computers with floppy or hard disks. IBM brand computers must have at least 128K of RAM and IBM compatibles must have at least 192K. Larger memory simplifies installation for both types. No graphics monitor required. Annual upgrades are $90. California state income tax version--the only state version available--is $95 for Apple and $125 for IBM.

This is the most expensive program of the group, with a superb manual and a clumsy installation process that is bound to baffle many computer users. Tax Preparer, which began in 1980 as an Apple II program, requires you to use the BASIC program language disk that came with your computer to make it work.

Tax Preparer lacks most of the visual finesse of the other programs reviewed here. Once installed, however, it is fairly easy to use and computations are fast.

HowardSoft uses a “road map” to complete a tax return. Your computer screen is split vertically down the middle, and on the left side you see where you’ve already been in the form, while you do all of your work on the right side.

Because of that design, Tax Preparer cannot display actual or approximate tax forms. Instead, you have a work sheet whose line numbers correspond to those on actual IRS forms.

Tax Preparer provides 24 forms and schedules. Its depreciation work sheet prevents you from entering improper combinations of recovery periods and in-service dates.

Mixtures of rental and royalty gains and losses are not accurately computed by the program, although the manual explains how to override the calculations to obtain accurate results. If you read carefully, you will get the right answer.

While Tax Preparer can store data for an unlimited number of taxpayers, it makes no attempt to print acceptable 1040 forms, nor does it supply you with preprinted forms.

Less Complex Returns

Simple investment gains and losses, simple business income and losses, simple rental and royalty gains and losses, and simple property depreciation.

PC/TaxCut, $75.00, Best Programs, 2700 S. Quincy St., Arlington, Va. 22206, (800) 368-2405, in Virginia, (703) 820-9300. For IBM PC and compatible computers with 320K of RAM and either floppy or hard disk.

PC/TaxCut is easy to install and easy to use for single returns, but it would be difficult to use for multiple returns.

Although it produces 23 forms and schedules, PC/TaxCut can produce only two Schedule C forms and limits you to reporting on a maximum of three rental properties. Schedule D reports are limited to 24 portfolio transactions.

On-screen instructions are available for each entry line in the program, but some were out of place in the version I tested, a bug that a spokesman for Best Programs acknowledged.

Like other publishers, Best offers technical support by long-distance telephone, but unlike the others, it wants your credit card number when you call because it charges $15 a call plus a dollar a minute for time beyond 15 minutes.

All data is entered into PC/TaxCut forms that bear no resemblance to IRS forms and don’t refer to line numbers on actual forms. That approach is likely to handicap those with complex returns.

Depreciation calculations are automated, and the program prevents you from entering improperly matched recovery periods and acquisition dates. Active and passive losses were properly accounted for, and Form 8582 was automatically completed if needed.

Even on a fast IBM PC-AT clone, PC/TaxCut was noticeably slow in making computations and moving from one data form to the next.

The program is designed to print entries in the appropriate blanks on preprinted 1040 forms shipped with the programs. Tax forms other than the 1040 are printed in an acceptable facsimile on dot-matrix and daisy-wheel printers.

J. K. Lasser’s Your Income Tax, $69.95, Simon & Shuster, 1 Gulf & Western Plaza, New York, N.Y. 10023, (212) 373-8500. For IBM PC and compatible computers with at least 256K of RAM and floppy or hard disk drives. Graphic monitor not required.

Your Income Tax is very easy to install and easy to operate. Data entry is particularly smooth. The program uses menus that drop down from the top of the screen to move among the major activities and subsidiary menus that pop up in the middle of the screen when you are using a form.

Computation is fast but less automated than in the programs reviewed above, so it is easier to create an erroneous return. For instance, other programs automatically use the alternate tax computation for capital gains, but Your Income Tax does not. You must invoke the alternate method manually, and if you don’t, you could pay too much tax.

If you have a passive loss, Your Income Tax will not automatically complete the required Form 8582 as the others do, although the form is available in the program.

Even with Form 8582 properly completed, the version tested contained a programming error causing it to drastically overstate the allowable loss. Had the return been filed, substantially less income would have been reported than was actually taxable, leading to big problems for the taxpayer.

Simon & Shuster hurriedly corrected the problem. The revised disks may be obtained by calling their product support center at (201) 592-2900.

The program produces 17 schedules and forms and comes with a copy of Lasser’s popular tax guide. On-screen help messages refer users to sections of the Lasser guide for detailed information. Preprinted 1040 forms are not included, nor is the program able to print acceptable facsimiles, so you’ll have to get your own forms to complete with the help of the program.

MacinTax and TaxView, $119, SoftView Inc., 4820 Adohr Lane, Suite F, Camarillo, Calif. 93010, (805) 388-2626. State versions for California and New York are available for $65. Subsequent annual updates are $55 for the federal version and $35 for the state version.

MacinTax runs on Apple Macintosh 512K or more powerful Macintoshes. TaxView is available for Apple IIGS with at least 512K of memory and for IBM PC and compatibles with at least 512K of RAM and a graphics monitor. Hard disk is preferred for the IBM version.

The MacinTax version of this program garnered a lot of praise last year, especially its exact facsimiles of IRS forms on the screen.

TaxView, the IBM version, is new this year and is a major disappointment. The test return could not be completed with TaxView; instead, the program ground to a halt in the middle of the job.

A spokesman for SoftView confirmed that TaxView has problems with memory management and that it had consumed all available memory on the fast, 640K-equipped IBM PC-AT compatible used for testing. The MacinTax version did not crash, but even on the speedy Macintosh SE, data entry is noticeably slow.

It is the graphic sophistication of MacinTax/TaxView that is its undoing. Not only must it compute the numerical data and shuffle it among the proper forms, the program also must move an enormous amount of graphic data every time you move to a different position on the form or to another form.

Both the Mac and IBM versions are meant to work with a mouse (although it is not required for the IBM edition), and the method of operation is fairly simple.

You use the mouse to point to the tax form line you want and type in the appropriate numbers. If the entry on that line comes from another line, another form or a work sheet, you double click the mouse button and the referenced line is displayed.

In a complex return, you may quickly find yourself three or four layers deep into interrelated forms. TaxView crashed while attempting to complete line 17 for rent and partnership income on Form 1040, which led to a Schedule E. That in turn led to Form 4562 for depreciation and Form 8582 for passive income. It was taking four to five minutes for the computer to redisplay the form each time the cursor moved to a new line, and finally it quit altogether.

If you have a Mac and patience, MacinTax will handle many kinds of returns and, with a LaserWriter, produce virtually perfect copies of the official IRS forms, the 1040 included.

Simple Returns

Very simple business income but no depreciation, rents and royalties, or passive losses.

The Tax Advantage, $59.95, Double Eagle Software Inc., 2210 Wilshire Blvd., Suite 875, Santa Monica, Calif. 90403, (800) 443-0100, ext. 315. California state tax edition costs $39.95. Versions of both are available for IBM PC and compatible with 256K of memory, Apple II series with 48K, Commodore 64 and 128, Atari 800, 800XL, 65XE and 130XE with 48K and Atari 520ST and 1040ST.

The Tax Advantage is notable for the broad range of computers on which it runs. Only Amiga and Macintosh are missing.

The program allows you to complete a dozen forms and schedules by working your way through a series of menu choices. The forms are not depicted on the screen, but the menus do refer to their line numbers.

Depreciation rates are not built into the program, nor does it include Form 8582 for rental or royalty income.

Acceptable forms can be printed on dot-matrix and daisy-wheel printers, except for the 1040.

Personal Tax Preparer, $32 including shipping, Parsons Technology, 373 Collins Road N.E., Cedar Rapids, Iowa 52402, (800) 223-6925. For IBM PC and compatibles in two versions. Small memory version requires 192K. Large memory version requires 512K and allows complete tax forms to be displayed on-screen.

Personal Tax Preparer produces only five forms, the most limited of the programs that were tested.

Data is entered at screen prompts rather than into depictions of actual forms. Some entries are automatically accepted, while others need a special keystroke.

Personal Tax Preparer comes with five preprinted 1040 forms for use in your printer. The other supported forms are printed directly on either a dot-matrix or daisy-wheel printer.