Is Business Tax Filing Software the Way to Go?

It is not difficult to find online ads and resources for business tax filing software. So much of our personal and business activities are now either done online or in some way researched or reported online. Software implies a product installed on a computer that stands alone and allows the user to keep business records and complete tax returns on their computer. However, the overall concept with the word “filing” implies all or part of the process completed online rather than just on the computer.

For this article, assume that the process is either totally online or partially so. The topic here is the recordkeeping and filing of tax returns using a computer, either wholly or partially online. The idea most business owners have about online and software for business taxes is that they will save money, have more control, or both.

Addressing the control part first, think of comparing driving your car to flying an airplane. For a long trip, you can drive and enjoy the scenery and a more leisurely pace. If you have some urgency and need to travel a great distance you can fly. However, if you are not a trained pilot, it would not be advisable. Even if you have some flight training, the type of airplane, weather conditions, and other factors can make the flight inadvisable. You would buy a ticket and let someone else do the pilot stuff.

As for the cost of hiring a business tax filing service versus using business tax filing software, it is almost always going to appear less expensive to take the online path. On the surface, it is a lower base cost for components of the process, such as the bookkeeping and the tax return preparation. However, it is not the components that make the difference; it is the outcome. If you are growing a successful business, that is where your time is best spent, not doing the tasks involved in bookkeeping and tax preparation. That is true even if the online or software resource makes it seem relatively easy.

While the software or online solution may prompt you to look for tax advantaged strategies, they almost always fall short of helping you to recognize which of several strategies will have the best current tax year or future tax year advantages. Questions you may not even recognize may not be prompts in the technology solution, such as:

• Is there an advantage this year to accelerate income, defer expenses, or the opposite strategy?
• Is the timing right for a major purchase that will require depreciation?
• Which depreciation method is best for the current tax year and the next few years?
• Are your expense category totals in line with IRS experience data, or are there expense categories that will be flagged in IRS computers for exceeding the norm?
• Should you be contacted by the IRS with questions, or worse an audit notice, will your software or online solution help in representing your case?

These questions are just a few that could lead you to recognize the value of a suite of tax and accounting services over the business tax filing software solution.