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by Michael Tannenbaum C.P.A.

by Michael Tannenbaum C.P.A.

"Not surprisingly, tax preparation software headed the list."

The year 1981 is fast coming to a close. For accountants this is especially significant: It is projection time. Needless to say, projection time is always quite valuable but this year the passage of the Tax Act of 1981 has created unique situations. The mechanics of the law and the effect of taxable income have received wide publicity. Woe to the accountant who fails to advise clients of possible benefits or pitfalls!

With our increased sensitivity to client needs we looked for tax projection software for our Model II. Our search was fruitless: We found only a package for the Apple prepared by our old friends Aardvark Technical Services. When we contacted them, they kindly sent us a well-written manual and indicated that in the future a CP/M compatible version might be available.

We could have used one of the tax preparation programs for projections, but these programs are oriented towards a final return. Accordingly they do not prepare the comparative projections offered by the Aardvark package. For this year, at least, we will use a combination of service bureau packages and the old pen and pencil. Hopefully next season Aardvark and others will provide tools for Model II users.

During our search for Model II tax software packages, we polled our professional staff about what software would be most valuable for their future desktop computers. Not surprisingly, tax preparation software headed the list. It seems that most dream of plugging in their client's data and having their micro pop the return out of a slot, ready to mail.

Also high on their lists was software to help assemble client tax data. Many complained that the hazards of data collection waste many valuable hours. All had "war stories" of completing a complex return only to find a small fact inadvertently omitted. The resulting recalculation and repeat preparation is doubly frustrating because the problem always happens when filing time is short.

From an economical point of view, software which reduces costly last minute preparation to an absolute minimum is worthwhile. The best approach to achieving this goal is to develop software accumulating the taxpayer's information during the year. Finalizing the return is then simple. The resulting data, summarized in machine-readable form, can be input directly into one of the more sophisticated tax preparation packages available from established service bureaus.

Because taxpayers will never get data to the accountant on time, we still have to process an enormous amount of information in a very short time. The best use of microcomputers in the tax preparation process is in the data entry phase. Of all data processing devices currently available, micros are least capable of handling large volumes of printing and processing. The average configuration is usually equipped with slow speed disk storage and character printers. Even a fast character printer has rates under 100 lines per minute.

"If something breaks (or Murphy joins your staff) you will have some reserve capacity."

If your firm is planning to prepare tax returns in-house on your microcomputer this season, plan to double up on your data processing equipment before the end of March. Rent or arrange for use of additional equipment. If something breaks (or Murphy joins your staff) you will have some reserve capacity. In addition, consider preventive maintenance for your present installation. Have your drives serviced now and lay in a good supply of printer ribbons and disks. Hang the cost and select a conservative approach—you will not be sorry.

Data Accumulation

Although current micro configurations are not well suited for volume tax preparation, they are ideally designed for data accumulation. The limited disk capacity so constrictive for general business applications is just right for accumulating data on a single client's financial activity. Unless the client is very unusual, 500K of disk storage is more than adequate. With the low cost of disks, devote a separate disk to each client, and store each client's activity disk in a loose-leaf binder. As you receive data, enter it into the appropriate file on the disk and retain it in the loose-leaf binder.

At some time during the year, run a projection program and compare the results to a summary of the previous year's actual and estimated tax activity. The source of the data for this projection can be the actual activity files and your best educated estimates. Discuss the results of this projection with your client; it can serve as a feedback loop to identify missing data. Then update the activity files and schedule the final touches to be applied at year's end.

A system with decentralized files such as this can be difficult to control. With each client's file maintained just in a notebook, management of a firm's tax practice is impossible. As growing firms acquire a large volume of returns to process, they find a "tax control" facility necessary to ensure that client returns do not "drop through the cracks."

Here's a Project For You!

To control the decentralized file structure, consider linking each desktop micro together in a network. In such a network each local unit communicates with a control program located in the tax controller's computer each time a local client file is opened. The control program indicates processing status and activity of client files to the tax controller. Absence of activity at a local unit is as significant as high volume. The same network transfers data to a larger facility for final processing.

The hardware required to implement this system is already available. Based on the current Radio Shack users' newsletter, Tandy is planning to offer ARCNET (Datapoint's attached resources network) compatibility to Model II users this year. In addition, the IBM/3270,3780 and ReFor-maTTer software permit the Model II to be used as an input device in many IBM mainframe systems. In short, the Model II is as close to being a universal input device as any piece of data processing equipment. Unfortunately the only missing links are the local microcomputer programs required to implement the system design.

If you plan to implement such a project, keep the following elements in mind: You should develop a taxpayer profile to maintain personal data about the taxpayer and his or her dependents; arrange the program so potentially taxable events relating to the taxpayer are highlighted whenever you execute the program. An extension to the personal data program should deal with your client's employment history and salaried earnings. Since most salaried individuals have an earning pattern, you could apply regression analysis techniques to project potential earnings even if you lack specific information.

Another important component of a micro tax data acquisition system is a securities trading analysis package. This program would maintain an inventory of capital assets and summarize transactions likely to appear on schedules B and D. Trading analysis packages are starting to appear for investors. In general these are difficult to apply to accounting needs; they are designed to evaluate portfolio performance and accordingly do not have the accounting detail required.

For other business activities usually listed on Schedule C, you can use current financial software. Even the least complicated general ledger system that I have seen maintains a listing of receipts and disbursements. You can use the resulting income statements as a summary for the return. You will need special software packages to manage tax shelter recordkeeping.These packages will vary depending on the nature of your firm's clientele.

In setting up system design parameters, make a provision for all software to have a VisiCalc interface. In addition, you should be able to link all data files into tax projection and tax preparation programs.

The Estate Planning Model

While tax data accumulation would be the primary mission of a desktop computer, you could use this resource for other client support tasks. For example, the new ERTA tax act provides opportunities for significant family tax savings through intelligent estate tax planning. Fortunately software has already been developed for this area.

The software, the Estate Planning Model (EPM), is available from the Beard Software Development Company, 59 Skyline Avenue, Canfield, OH. The proprieter, Ralph A. Beard, is an attorney. EPM, written in Radio Shack Compiler Basic, is supplied in compiled form.

Compiler Basic differs from the Basic supplied free with the Model II in several respects: It has a different syntax and can be compiled to operate more quickly than the normal Basic. The same software firm that supplied the Cobol Development system developed this version of Basic. Like the Cobol system it uses a run time module to execute the compiled source code.

If you already have Compiler Basic, you own the run time module. In this case, Beard Software Development will sell you the code alone for a license fee of $475. If you do not own Compiler Basic, the run time module is available from either Radio Shack or Beard for only $30.

.. apply regression analysis techniques to project potential earnings... "

The EPM system is supplied with an excellent manual. This manual provides a tutorial on the system use, and frankly discusses the assumptions made during the system design. Potential purchasers should read it. Beard offers a copy without the software, for $50. You can apply this cost to the purchase of the software.

It is apparent that the system's author is not only an experienced estate planner but a data processing professional. The documentation's clarity and the smoothness with which the software operates is a testimony to many hours of careful preparation and thought. The professional presentation of a complex subject (estate planning using a computer) is well expressed in the manual.

The manual is organized into four main chapters, a table of contents and an index. The first two short chapters are devoted to an overview and the mechanics of getting started. The third chapter, a familiarization tutorial, uses a test case as an example of the system's features.

The fourth chapter contains technical details such as program size, specifications, limitations and troubleshooting.

System operation is designed to be simple. You insert the disk and satisfy the normal Tandy initialization requests, and the system automatically calls up the Run-Basic module and executes the main menu. The system assumes no data processing expertise, but the user should have experience and estate tax planning. The manual, program menu captions and output reports refer to sections of the code and the estate tax return familiar to those specializing in this area.

Once in the system, you enterclient and spouse financial inventory data. If a computer is not available at the time of the client interview, an estate planning worksheet is provided. The system includes a special program to print as many pro forma copies of this worksheet as desired. The worksheet serves as an inventory of the client's assets: Use it to calculate a tentative gross estate.

In addition to a tentative gross estate, the worksheet provides for accumulation of additional data (such as Section 2039 benefits not included in the gross estate, joint property, life insurance and entered marital bequests). Because the planned-for event is, hopefully, some time in the future, a provision allows you to apply a growth rate to estate assets. The growth rate provision is an extremely important factor in establishing the estate plan. Even a modest potential estate can grow to taxable proportions in a very short time with today's high interest rates. Provisions are also made for charitable bequests, gifts after 1976 and the exemption used in the period 9/8 to 12/31/76. You complete the worksheet by entering a presumed date of death for the client and spouse.

After data entry, the program stores all variables on the disk. At this point, you can generate an estate tax projection, however, EPM makes several assumptions. These include an estimate of an expense factor of 5 percent of the gross estate and the use of Ohio estate tax rates in the state tax projection.

Alter these defaults to more nearly approximate the estate planner's local situation. The 5 percent expense figure was intended to apply only to attorney and executor's fees. This percentage was based on Beard's observations for estates in excess of $250,000. You should recognize the effect of debt by offsetting it against the assets scheduled in the inventory. To utilize a different state tax amount EPM offers two other alternatives: a state tax

Percom Disk Storage

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