Tax Prep Software

[paulcpa]

I am starting a tax prep service as a sole proprietorship in January 2021. As I evaluate software, the Intuit products (Lacerte and ProSeries) appear good but expensive. Drake has more reasonable pricing. However, the best price is not necessarily the best product. Does anyone have any advice on software packages?

[Brian EA]

I have been using Drake Software for the last 17 years. It's a great software and their customer service is second to none
Thanks
Brian

[Lion]

Use all the demos out there to see which ones work the way you work. Test out their tech support with questions; a very important consideration for a sole proprietor. Which software will help you service your expected clientele, plus the type of tax prep service you expect to be five/ten years from now. When you get your short list, then put your reps to work to get you their best prices. Don't scrimp on software, because it's a valuable tool, along with your knowledge/continuing education.

[rbynaker]

I'm a current Drake customer and former Intuit ProSeries customer. It's really going to depend on what you want to do with your practice. If you plan to remain a small practice, I would definitely recommend Drake. If you're looking to be the next Big-4 (-6, -8?) accounting firm in 20 years, or if you expect your customer base to be lawyers with K-1s from 17 states, you're going to want something more robust (probably more like CCH or UltraTax).

Customer service: Drake wins hands down. They answer the phone quickly with a human being in the U.S. who can either answer your question or escalate you to a supervisor. My understanding is that ProSeries has outsourced their support overseas and during peak season they have a history of 45+ minute wait times before you even get connected to a human, and often that human can't help you.

That said, in 15+ years as a customer, I never actually had to call ProSeries support (but a whole lot of people complain during busy season on their public forum). ProSeries uses a forms-based data entry system so if you know what form/schedule you want your number to appear on, you go there and either enter data directly or Quickzoom to data entry worksheets. They also have a "Where Do I Enter" button that's quite helpful. Drake uses screen numbers and it's not always intuitive (pun intended) where you're supposed to enter things (but it's really easy to call support and the front line people can answer my stupid "where do I enter" questions quickly.)

Bugs--er, "unexpected behaviors": Let's face it, the tax code is pretty complicated and seems to get even more complicated every year. Every piece of software has bugs in it. Congress and the state legislatures have a habit of passing tax laws retroactively. So even if the software was programmed correctly on January 25th, it might not be programmed correctly on March 1st if Congress or a state passes a retroactive change (in VA we're always waiting for the annual "tax conformity" bill to pass and it's a "good year" if that happens in February instead of April!) So the point I'm trying to make, things are going to get screwed up no matter who you go with. Drake has been very responsive and usually has a patch out within a week (and more often just a couple days). ProSeries takes a lot longer, if you can find someone to acknowledge that there's even a problem (I'm confident that TaxGuyBill will back me up on this too!)

Programming: ProSeries generally does a much better job at multi-state returns. A lot of times with Drake when I have a multi-state return, I feel like it's a glorified typewriter. I have to do a bunch of math outside the software and tell it what number to appear in which box on the state returns. I find multi-state data entry to be pretty clunky with Drake. ProSeries (for better or worse) uses the same calculation engine as TurboTax. So there are lots of worksheets that are designed to help TT users get the right tax result. They have extensive employer stock option worksheets, sale of home worksheets, really just about any Sch D situation you can imagine. A lot of that stuff in Drake I'm doing now in Excel. But the good news, Drake will import from Excel into Sch D/8949. To my knowledge, ProSeries does not have that function. So ProSeries assumes you're an idiot and have no idea how to complete a tax return. Drake assumes you're a competent professional tax preparer. Also, ProSeries calculates automatically as you enter data. Drake has an independent calculation process. So there's a lot of jumping back and forth in Drake between data entry and viewing the calculated return. I prefer the instant gratification of ProSeries but I've gotten used to jumping back and forth in Drake and it's not as horrible as it was when I first evaluated it.

Practice management: While both have tools in this area, I found ProSeries is more likely to nickle-and-dime you with extra charges. Drake has a lot of features included with either no charge or at least a more reasonable pricing structure than Intuit. If I were starting a new practice, I would go with Drake and jump in with both feet for all of their bells & whistles.

If you wait until after 10/15, I suspect you can contact Drake, ProSeries and Lacerte and convince them to give you copies of the 2019 software for you to evaluate. In a non-COVID year, most would have seminars at various locations across the country where you can go for free and see the software in action demonstrated by someone who knows how to use it. Not sure what they're planning for this year. Maybe there's a video you can stream or a webinar you can attend. Don't commit to anything sight-unseen! And I'd personally avoid any sort of multi-year contracts.

This is purely my own opinion, they're a dime a dozen. Really you need to figure out what's best for you based on what you expect will be the needs of your firm and your client base.

Rick

[TAXNJ]

LION’s reply post provides some valuable suggestions/recommendations.

Also, some Professional Organizations (think AICPA might - but check with them) conduct annual independent surveys regarding tax software companies.

And as LION says “Use all the demos out there to see which ones work the way you work.”

Good luck

[Lion]

Yes, TaxNJ, either NATP or NAEA publish an annual survey of tax prep software, rated by tax preparers; probably other trade organizations do, too. It'll give you some info about what's out there and provide contact info to get demos.

I use a lot of pay-per-return to keep the cost down on expensive ProSystem fx.

[ATSMAN]

I echo what Lion said. If paulcpa does not have a client base of returns that he prepared on another software it makes it a bit difficult to do actual test runs on actual returns with various software to compare.

The demos that software companies provide to prospects don't do justice IMHO.

[Lion]

Sometimes the demos are the actual software, but not available to e-file and probably not to print unless you buy and get a code. Sometimes the demos include sample returns of all types to explore. At the very least, you have your own tax info for 2019 to work with.

Who will you be marketing to? Investors? Then explore Schedule D/8949; can you import transactions, for instance. Small businesses/Schedule C? How intuitive TO YOU are all the parts from income/expense to depreciation to OIH to 199A to...? I found some software great for 1040s but clunky for entity returns, which I have in my clientele. I found some software lacking for Kiddy Tax and a couple of other situations that are common in my clientele.

Try out everything. Don't forget to call tech support to see how that works for you. Can you email or chat or ask for a callback at a convenient time? Do they have a knowledgebase you can search? A virtual "chat" to lead you TO KB articles? Which software works the way you work? Will work for the type of clientele you expect to build? Will save you time in your own practice?

[dtlee]

One thing that I will add to Rick's highly accurate comments about Drake is that you need to become accustomed to the inconsistencies of a product that has a very long history of development.

Some things are well thought-out and complete and others are more do-it-yourself. Even simple things can exhibit this behavior. For example, a lot of the complex ACA computations are handled quite well, but you may be baffled if you want the software to figure out what the limitation is on a deductible IRA for a married couple. The evolution of the software is evident in the handling of certain Box 7 distribution codes on the 1099-R form. Whereas at one time nothing was automatically handled by the software in this regard, over the years, a few select ones (such as a Code 1) became handled automatically. A new user, seeing this, might expect all such codes to be handled automatically, which just isn't true.

Long-time users learn the workarounds so well that they use them even when the software changes so that they are no longer needed. New users need to push a lot of test returns through the software to learn what is and is not automatic.

[TAXNJ]

ddtlee

are you saying that a user would need to realize that they would have to do "calculations" outside of the software and then populate the correct amount and form and line number?

Whereas if one purchases a tax software that may cost more but the software does the "calculations" and populates the correct amount and form and line number?

thanks

[Uncle Sam]

Yes taxnj - that's what he's saying about Drake. For example - in New York, there is a city tax that nonresidents pay to NYC if they are employed by NYC government after a certain date in 1973. Even though Drake correctly calculates the itemized deduction schedule for NYS return properly - the corresponding calculation on that NYC return must manually be calculated in order to properly calculate the NYC tax liability.

[dtlee]

ddtlee

are you saying that a user would need to realize that they would have to do "calculations" outside of the software and then populate the correct amount and form and line number?

Whereas if one purchases a tax software that may cost more but the software does the "calculations" and populates the correct amount and form and line number?

thanks

Not exactly.

In the situations like I was alluding to, a code 1 would automatically impose a 10% Federal (and 5% California if applicable) penalty. Likewise, some codes may indicate that the amount is not taxable and the software will not include it. (Both of these scenarios able to be overridden if the circumstances so dictate.) However, in other situations, an amount on that form may be generally nontaxable, but the software does not automatically exclude it, so the preparer, knowing this, would need to check a box indicating how the software should handle the distribution. It appears inconsistent that if several codes generally imply the same thing, that the software would not have the same default behavior for all of them.

Other software may pop up a set of questions in these scenarios to precisely determine for the preparer how it should be handled. Drake often assumes that you know these rules and can decide for yourself what and does not need to be included and generally will not drag you through such questionnaires.

[dtlee]

U.S. brings up a good point.

Certain states are better supported than others within the software. I forget which state it was (I think it was Arizona) where I had indicated that the taxpayer was a part-year resident of multiple states (in my case, part-year in California and part-year in Oregon) where the taxpayer was a full year nonresident of Arizona with Arizona source income for the time living in California. The Arizona software (if I remembered the state correctly) insisted that if someone was not a full year resident of one specific state, they had to either be moving into or out of Arizona and could not be an Arizona non-resident. I was able to ultimately get the returns prepared properly, but it was not straightforward.

New York, New Jersey, and California are pretty good. In a test I did a number of years ago, I caught errors in several other vendors' software by putting the North Carolina returns through Drake (they seem to know their home state quite well). The form U.S. describes is the New York City Form 1127 which Drake should handle well, but, since they rely on government documentation for their interpretations, have not figured out yet.

[TAXNJ]

Uncle Sam and dtlee

thanks for the education. Heard many good comments about Drake concerning price and functionality.

Would Drake show an "error" so to inform the user would need to do "calculations" outside of the software and then populate the correct amount and form and line number?

Realizing that not all software programs are perfect, but for some the less "outside" calculations one must perform the better it is to pay for a more expensive software especially during tax season to avoid time lost and having to educate one on the outside calculation? No?

[dtlee]

Drake does supply two levels of messages which are basically errors and warnings (though I think they call them messages and notes). The warnings will generally tell you where the tax software has made an assumption (note that it is not an assumption that a code 1 is subject to the penalty, that is by definition). However, it has shown an increase in the number of warnings that "newcomers" seem to need. For example, one of the things I saw in UltraTax is that when you leave box 2a of the 1099-R blank, it assumes that the taxable amount is zero unless you tell it otherwise. Drake assumes that this blank means that the issuer did not know the taxable amount and will default to all of box 1 unless you tell it to do the calculation for its taxability. They warn you that they did this.

They also warn that some amounts may need additional input to determine impact on the return. Long-time users complain about the number of messages (e.g., it may tell you that the 91 year-old dependent is not eligible for the Child Tax Credit under certain circumstances....seriously, you could have entered the birth date incorrectly, but after the first few years, you start ignoring some messages).

Personally, I like the software and have used it for over 20 years. I have used other packages, but in a straightforward situation where the individuals and jobs were on the return in the prior year, I have seen no software which is faster for inputting a return. I find it lets me concentrate on the issues the taxpayer may be facing or planning discussions in these situations.

One feature that they rarely emphasize in their literature is their "macro" capability. This is definitely not the first thing you want to investigate, but it can make up for some of the quirkiness of the software. For example, while some details are drawn from setup information, I use a macro to check my favorite boxes or input the periods I usually want to include when I prepare Form 2848. I also use it to get a return ready for Federal and New York extensions; one keystroke combination and the result is a return that is ready for an extension without a payment. Other software packages have features built-in to make that process easier, but with the macro capability in Drake, you can almost duplicate that ability.

Another feature that is useful (though, of course, quirky) is the ability to split a Joint Return into two separate returns. For New York and Ohio, the savings often comes from the state return, so the fact that this feature creates a full return including the state (that you can review and tweak as you desire) gives you the ability to truly evaluate (along with the client) which filing status is more desirable. The function is not 100% perfect and relies on how diligently you identified joint versus individual items of income and deduction, but in its raw form can be very useful as a starting point.

I have left out some of the gotchas I have learned over the years, but most of them are well-documented in posts in their private forum, which Drake customers are invited to join.

A suggestion might be to try Drake with some simple and more complex returns in their trial version and perhaps purchase a more "complete" package in a pay per return mode as a safety net for your first season with it.

The software is quirky, but their support staff is remarkably good considering how many individuals they have added over the years. One thing that no one has mentioned is that the support team that answers the phone (first level) is both knowledgeable about the product and tax law. Many of their employees in tech support are actually Enrolled Agents and they also have both EAs and CPAs supporting the support teams. The biggest benefit is that you don't have to explain what a capital gain is or what an installment sale is when you call and want to ask how to input something.

Not a perfect product by any means. Quirky with a capital Q, but generally quite competent.