03/ 19/ 2007
by Kay Bell
Unless your business is an accounting firm, tax season creates a whole new set of concerns for your company. If you don't have an in-house accountant or an outside CPA on retainer, you must decide whether to hire tax help or tackle the task yourself.
Most small business tax do-it-yourselfers opt for tax software. Originally, the main appeal of these programs was the calculating capability, which figured amounts and transferred numbers from form to form. But as entrepreneurial endeavors have increased, these packaged tax programs have become more comprehensive.
Many programs now also walk you through the filing process, asking questions to ensure that you don't miss deductions or overlook Internal Revenue Service requirements. And they all allow e-filing, which is now required in many federal and state tax instances.
To help you decide which off-the-shelf business tax preparation package to pick, here are some general guidelines.
Figure out your filing needs
Your company's business entity is your major tax determinant, so don't just grab the first box that has the words "business taxes" on it.
Are you a sole proprietor, partnership, corporation or limited liability company? Most software manufacturers differentiate between businesses that file completely separately from the owner's personal returns.
In many packages, small- and home-based businesses filings are additions to the manufacturer's software program for individual filers. Others have separate software for home-based or smaller businesses. More sophisticated companies need business-specific software.
Do you have employees? Make sure the software package can facilitate required federal filings such as Form 940s and 941. Similarly, if you collect sales taxes or have a lot of equipment to depreciate, you'll want a program to assist with these tasks, too.
Don't forget state obligations. Make sure that the package also covers that tax aspect, ideally letting you easily transfer your federal data to the state portion of the program.
Determine how much help you need
Is your business so new that you're facing its tax implications for the first time? Then you'll probably want a software package that includes step-by-step guides as well as additional documents and references, such as common deductions for your particular industry or the best depreciation method for your business assets.
If, however, you're an old hand at doing your company taxes, but want the software calculators that double-check your math, look for a package that lets you easily skip over sections.
Regardless of your filing style, make sure that the program offers easy-to-use search and help options. Some companies, notably H&R Block's TaxCut. offer access to human help with your return. Others provide assistance either by phone, online chat or e-mail. Even if a company doesn't provide assistance with your actual return, it should provide easy-to-reach help in case you run into technical difficulties.
Speaking of technical, don't overlook the program's operational requirements. Make sure your computer can handle the software: that it has enough memory, uses the proper operating system, etc. Nothing's more frustrating than getting a product home and finding out that you can't use it.
Go beyond filing
While meeting your annual tax responsibilities is probably at the top of your business list right now, comprehensive filing software should also help you structure your overall corporate finances.
If you already use accounting software, look for a compatible tax program where you can transfer data at tax time rather than being forced to reenter the information.
Some programs also offer general financial tips to help you set up a system to ensure that next year's filing isn't as complication or costly.
Test-driving the software
Most companies offer online looks at their products. True, each is trying to get you to buy a product, but you can get a preview of the software. Plus, the clarity of the presentation can give you some idea of the approach that the software itself takes.
If you're a Schedule C filer, in many cases, you can try out the software without any obligation at the manufacturer's companion online software Web site. It will give you an idea of how the software is set up. You might find you like the online option better, where the software company stores your data so you don't have to download anything onto your own PC.
The best of both worlds
Many business owners view software as just one part of the tax equation. They use a software program to track filing needs, keep them apprised of specific tax considerations and help them organize their company's tax life. But when it's time to actually complete the form and send it to the IRS, they still dependent on a real-life accountant.
The best thing about this approach: Both the cost of the software and your CPA's fees are deductible on next year's return.
