Piloting Your Project

Terms Sheet Tactics

PCs Beat Pencils In Tax Preparation

Corrections or additions?

These articles by Kathleen McGinn Spring, Catherine Barrier,

Barbara Fox, and Bart Jackson were prepared for the February

18, 2004 issue of U.S. 1 Newspaper. All rights reserved.

Weighing the Choices In Business Formation

America is famous for its entrepreneurial spirit. Every year thousands

of people decide to set up their own shops. Many start doing business

almost immediately – often with little understanding of certain things

of vital importance to the success of their business ventures, things

such as liability, taxes, legal formation of the business, and exit

strategies. "These are essential issues that come up in everyday

business life for owners of businesses," says Darren M. Baldo, an

attorney with offices on Quakerbridge Road. "So the best time to

address them is at the beginning; because if you don’t address them at

the beginning, it’s likely that you will not address them until it’s

too late."

On Saturday, February 21, at 9 a.m. Baldo offers his expertise in

these and other related areas in a course entitled "Choices in Legal

Formation." The course discusses the differences between sole

proprietorships and partnerships, focuses on S and C Corporations and

Limited Liability Companies, and touches on the topic of mergers and

acquisitions. It takes place at Mercer County College. Cost: $51. For

more information, call 609-586-9446.

Baldo, a graduate of Kean University, received his accounting degree

and passed his CPA exam in 1993. He earned his law degree in 1997 from

Seton Hall and is now a member of the New York, New Jersey, and

Washington, D.C., bars.

Between 1997 and 1998 Baldo worked for Deloitte & Touche in

Parsippany, focusing on tax work. He moved to the mergers and

acquisitions tax department of PricewaterhouseCoopers in Philadelphia

in 1998, and while there, did over 75 deals, ranging from $1 million

to $400 million, performing due diligence, structuring the deals, and

helping clients to choose the best alternatives to ensure that they

left their options open and prioritized their business issues.

In 2001 Baldo went to work for the Regency Group in Ardmore as vice

president of strategic investments. Later, back in New Jersey, Baldo

practiced business and tax law with Stark & Stark, but left after a

year to set up his own practice. For the past two years, Baldo has

focused on small businesses and their owners, mostly doing contract

work and negotiating for his approximately 80 clients. He facilitates

about 20 to 25 business formations per year.

"I think part of the reason why I got involved with this is because

when I was doing mergers and acquisitions work, I saw that businesses

could save potentially hundreds of thousands of dollars in structuring

transactions in one way versus another. In some cases it was millions

– that’s exciting! Better to keep the money in the client’s pocket

than to just throw it away," says Baldo.

"The advantages and disadvantages of each legal business formation

really depend upon the objectives of the business owners and the

assets that the owners are contributing to the business," says Baldo.

With each choice of a legal formation, there are various qualifying

requirements, degrees of liability, tax consequences, and

possibilities for pulling out of the business.

Sole proprietorships and partnerships. The sole proprietorship

contains the most risk because there is no limited liability

protection inherent in this legal business form. The business owner in

this case is personally liable for any claims against his company that

are not covered by some form of business insurance. The business

owner’s personal assets are not protected.

There are several kinds of partnerships, including general

partnership, limited partnership, and limited-liability partnership.

Each is somewhat different, and has different levels of liability for

different classes of partners.

The C Corporation. The C Corporation is the "default corporation." All

corporations are automatically C Corporations, unless they are set up

to be S Corporations. The C Corporation is so named because it is

governed under subchapter "C" of the Internal Revenue Code of 1986.

The general recommendation is that a C Corporation is used to take

advantage of significant and material employee benefits for the owner

and for his employees.

The S Corporation. In a like manner, the S Corporation, known as "the

Small Business Corporation," derives its name from the fact that it is

governed by subchapter "S" of the IRS Code of 1986. To qualify, a

business must meet certain strict eligibility requirements with

regards to the number and type of shareholders. A shareholder can’t

generally be anything but an individual or a certain kind of trust,

and the "single class of stock" rule applies; the business can only

deal with one kind of stock. To have the S-Corporation status granted,

an application containing the signatures of the shareholders needs to

be filed with the IRS, and assuming all the requirements are met, the

S-Corporation status is granted.

The LLC. The popular Limited-Liability Company, or LLC, is the most

flexible of the business legal forms, and it provides a considerable

amount of liability protection. As with any business legal form, it

has some distinct advantages and disadvantages.

The number and type of owners is not restricted in an LLC. Legally,

the LLC is an entity onto itself, and it provides liability protection

to its owners, so long as there is no fraudulent activity. The rules

for administering an LLC are not as strict as are those for

administering a C or an S Corporation.

The single-member LLC. An individual in business by himself, with no

employees, can make his company an LLC. It is treated as a disregarded

entity for tax purposes, so there’s one less tax return that needs to

be filed. In addition, as a single-member LLC, a business person can

treat the business like a sole proprietorship and only needs to file a

Schedule C.

There is the option to "check the box", which would allow, at tax

filing time, for a business owner to actually choose what kind of

entity he or she would like to be considered as. So a single-member

LLC could "check the box" and then be treated as a corporation if it

were advantageous, perhaps as part of an exit strategy. Of course,

there are rules governing the possibility of switching back and forth.

Even though it’s rare to make this change, says Baldo, "it’s nice to

have the option."

There are a few disadvantages to forming an LLC. Upon sale, the LLC

would likely have some ordinary income component that would be taxed

at a higher rate than if a business were to end up selling its stock

in an S or a C Corporation, where it would receive capital gains

treatment.

Losses from single-member LLC’s flow through automatically when filed

on the Schedule C. In fact, from a tax perspective, there’s no

difference between a sole proprietorship and a single-member LLC. Says

Baldo: "You get the benefit of limited liability protection without

having the additional administrative burden of filing an additional

tax return. It can’t hurt you from a tax perspective to form a limited

liability company."

– Catherine J. Barrier

Top Of Page
Piloting Your Project

The boss charges into your cubicle and flops a thick file on your

desk. The firm’s top client needs a new inventory tracking system, he

announces, and you will lead the project development team. Leaning

over your desk and glaring, he says "take all the time you need. This

has got to be absolutely top quality. Just have it on my desk no later

than next Thursday." He exits. His mentoring is done here. You stare

open-mouthed.

What’s a fellow to do? Veteran executive James Moore provides answers

in his five-session "Successful Project Management," which begins on

Tuesday, February 24, at 6:30 p.m. at Mercer Community College. Cost:

$270. Call 609-586-9446.

Moore’s course outlines the project process from initial analysis and

staff selection through politics and right down to the final

debriefing.

Moore sees himself as guide to "help businesses fill that terrible

void between data and decision making." A Manhattan native, Moore

attended Iona College in New Rochelle, New York, earning a B.A. in

sociology. He has worked for a number of companies, most recently

Xerox, where he spent a dozen years acting as project manager of the

company’s education courses and headed various sales systems. He is

the principal of a consulting firm that helps both individuals and

businesses with project design.

Typically, most project managers respond to deadline threats by

buckling down and working frantically, without a word. They take it on

faith that enough long night labor will make the impossible happen.

"The trouble is, you’re banking on hope," laughs Moore. "Hope is a

religion – not a method."

Be realistic. Supervisors will always, always insist that you can do

it cheaper, faster, and with higher quality. That’s what they do. But

before you panic and plunge into work, stop a minute. Your first task

is to assess the job and determine realistic needs for time,

personnel, and materials.

Flip open that file folder, and write up a list of necessary staff and

equipment, and the time it will take to assemble them. Then work out a

creation timeline, factoring in what Moore calls "the threshold of

work." Of the 168 hours in a week humans typically can only achieve

top quality production 60 to 70. After that, work quality plummets and

requires re-working. So instead of counting on wasteful all-nighters,

determine your staff’s maximum number of efficient working hours.

Clarify with management. Armed with your own exhaustive job

assessment, return to the manager and lay out the schedule. Even if

the manager’s original costs and deadlines are in line with those the

you have computed, you should keep him in the loop. He will sleep

better knowing that a thorough team leader has confirmed his

estimates.

In the more likely event that your costs and timelines disagree with

your manager’s, you can shout at each other. Or you can lay out your

schedule, backed up by hard numbers, and work through it. With this

task analysis, you are giving him a formal and informal warning. The

manager may listen politely, sweep your schedule aside, and still

hammer on the old deadline. Here is where Moore pulls out his

negotiating ace.

The one fudge factor most any project has is quality. Comparing your

own timelines with the manager’s due date, present estimates of what

levels of quality can be achieved within each time frame. Deal in

reality, but offer the boss some specific options. Offer to take these

options over to the customer and allow him to choose which level of

quality, delivered by what time, he prefers.

If all else fails, and the boss is still ramming his schedule down

your throat, Moore suggests this diplomatic response, "OK, I’ll work

my hardest and do my very best, but I think both you and I know that I

cannot achieve that level of quality in this time."

Find out where your puzzle piece fits. Throughout your initial

analysis, and as you begin work, you must figure out exactly how this

particular task fits in with the company’s overall strategic mission.

How does it increase profitability? How important is it to upper

management? If your project is merely a test-the-waters effort for

perhaps expanding into a new area, the slightest financial downturn

will drop you and your task to the bottom of the ladder. Your supplies

will be the last shipped, and your funding the first squeezed out.

At the same time, knowing your project’s purpose and importance can

prevent the gold-plating syndrome. Moore recalls that when he working

for the Hughes Aircraft Company, the firm won a contract to build the

circuitry for the space shuttle’s booster rockets. "Now this was a

highly valued NASA contract," he says, "so our engineers wanted

everything to be the ultimate quality." Quite naturally they sought

out gold-plated circuits as the most durable connectors available.

They were wildly expensive, but worth it, they felt. "What they never

stopped to think through," says Moore, "was that the life of a booster

rocket is approximately 15 seconds. And all that valuable gold was

unnecessarily blasted off into space."

Get input from your staff. Resist the temptation to call in the full

crew for an initial team building meeting. Whether you are selecting

them or they have been assigned to you, first visit with each member

individually and discuss the project. Listen. Get their ideas and

write them down. This is a major part of your preliminary assessment,

which you will clarify with your boss.

When you have been saddled with a team member who is the wrong person

for the slot, represent the personnel change to your manager in terms

of cost and time savings. Avoid discussing personalities, even if they

are the actual reason for the misfit. Instead, suggest that the time

spent training this individual for his specific task would prove

costly and counter productive.

Learn from history. You cannot learn from the past if you don’t record

it. Yet one of Moore’s main complaints about most task forces is that

they are rarely debriefed.

Turning in the final product without comment leads to what Moore calls

organizational stupidity – a company making the same mistakes over and

over. If the next leader knows which suppliers tend to be late, where

outsourcing could save costs, and what communication techniques kept

the wheels humming, he can hit the ground running, with better odds of

winning.

Everyone wants to complete his task ahead of time and to look like

hero. And certainly hard work remains one of the hero’s sharpest

weapons. But with preliminary planning and a continuing line of

strategy added to his arsenal, he can depend more on his strength and

less on the whimsy of the gods.

– Bart Jackson

Top Of Page
Terms Sheet Tactics

Attorney Rick Pinto believes that the business outlook changes on a

five-year cycle. "Every five years," says Pinto, "there seems to be a

reinvention of what’s important in the marketplace." At age 50, Pinto

is himself undergoing some reinvention. He is moving from a white-shoe

Princeton firm, Smith Stratton Wise Heher and Brennan, where he has

been since law school, to a much larger Pennsylvania based firm,

Stevens & Lee (www.stevenslee.com), and is taking 14 attorneys with

him.

With West Orange-based A. Jared Silverman, Pinto has put together a

mock negotiating session for a term sheet for a venture deal, called

"Term Sheets & Contracts – Successful Negotiating Tactics." Over the

past few years this program has proved very popular, and they will

present it as part of the New Jersey Entrepreneurs Forum lunch on

Wednesday, February 25, at 11:30 a.m. at the New Brunswick Hyatt.

Cost: $45. Call 908-789-3424.

The program was snowed out in January and rescheduled for February, so

it will be a full day. Dan Conley of Silicon Garden + Angels hosts a

coffee reception for Biocapitalists@NJ Angels – for entrepreneurs,

angels, and VCs – at 9 a.m. (Register by E-mail: NJAngelsnet@aol.com

or call 732-873-1955.) After the lunch will be the regularly scheduled

NJEF program for that day, a coaching session for companies entering

spring venture fairs.

Pinto’s departure from Smith Stratton might have been predicted. It is

not uncommon for Princeton law firms to be courted by larger

out-of-state practices eager to enter a lucrative market. Another old

line Princeton law firm, Smith Lambert et al, turned into Drinker

Biddle & Reath (now Drinker Biddle & Shanley) and lawyers from

Katzenbach Gildea & Rudner went to Fox Rothschild O’Brien & Frankel.

But the prime example is David Sorin, who until 1993 had been a Smith

Stratton partner. He left to open an office of Pittsburgh-based

Buchanan Ingersoll, and when he was hired away in 2001 by Boston-based

Hale & Dorr, he took 32 attorneys with him.

Now, as announced on February 2, Pinto will manage the Princeton

office of Stevens & Lee and will head the life science, emerging

technology, and venture capital practices. The son of a serial

entrepreneur, he went to Yale, Class of 1975, and to the University of

Virginia law school. Christopher S. Tarr (Lafayette, Class of 1970,

and Cornell) heads the real estate business in New Jersey, and Ann

Reichelderfer (Swarthmore, Class of 1972, and NYU) is in charge of the

New Jersey estates group. For now, at least, everyone will keep their

same physical offices on the fourth floor at 600 College Road, with

their former firm, Smith Stratton Wise Heher and Brennan (U.S. 1,

February 4).

Pinto says he chose the new firm partly because it does its own

business well. "One of the things they’ve discovered is that business

clients resonate with lawyers who are also good business people. Their

motto is ‘Understanding your business is our business.’" Stevens & Lee

employs more than 200 people in 11 offices in the tristate area, which

is important to Pinto. "This is the equivalent of having several

hundred people available within a day’s drive, as opposed to having to

travel to Chicago." And in the last five years Stevens & Lee had a

higher dollar volume in transactions in public markets than most if

not all of the major firms outside Wall Street.

Pinto denies that he is having a "turning 50" crisis. "It’s not so

much my age, but that I am one who embraces novelty and change," he

says. "Twenty years ago when I was working with emerging technology

companies there was no one else doing it. There were very few

healthcare lawyers, and very few venture capital lawyers."

Two of the hundreds of deals he has done in 25 years are touted on the

Stevens & Lee website. One was a biotech, Alteon, which did a major

deal with Hoechst Marion Russel, and the other was close to home,

Princeton Video Image, or PVI, which has not seen economic success.

This is the company responsible for the technology that generates the

"yellow line" on football turf and the now-you-see-them, now-you-don’t

virtual advertisements behind batters’ boxes and on soccer fields

during televised sporting events.

Everyone had high expectations for Princeton Video Image’s success,

and indeed in 2002 it claimed the number 15 spot on the Fast 50 list,

showing five-year revenue growth of 2,100 percent. But the same year

that PVI’s fast growth was being touted, PricewaterhouseCoopers was

forecasting big financial problems.

Sure enough, just one year later, PVI was delisted from Nasdaq, filed

for Chapter 11 bankruptcy, and was taken over by its secured

creditors, an entity formed by Cablevision Systems and Presencia en

Medios. Now it does business under the name PVI Virtual Media Services

(www.pvi-inc.com).

How can this financially struggling company burnish its attorney’s

resume? Is it a case of "the operation was successful but the patient

died?" No, says Pinto, who insists that, like many pioneering

technologies, this one is catching on more slowly than expected –

United States broadcasters being unexpectedly cautious – but that it

will eventually prevail. Broadcasters in other countries, such as

Mexico, have far fewer scruples about plastering advertising in new

places. When an extra point is kicked, they put an ad between the goal

posts.

"The people who manage PVI changed the business model several times

trying to figure out how the service could best be used. It was just

an unfortunate interplay of incredible inertia of many major players

that could not have been anticipated by the best of managers," he

says.

In the meantime, the attorneys concentrate on doing good licensing

deals. "For an attorney, this is particularly interesting technology,"

says Pinto. "It travels the air waves and crosses borders, and when

one designs a licensing scheme for international partners, that makes

it exciting."

PVI is also a good example of how the venture capital market can

fluctuate. When public markets are good, and IPOs are popular,

entrepreneurs aren’t chasing venture capitalists. Now that IPOs are

next to impossible, VCs are in the limelight. "It’s a fascinating

trend of which PVI is a perfect example," he says, pointing to how PVI

is getting new money.

"Not only is smart money going into new innovation but a lot of money

is going into innovations that have taken a stutter step, and are

getting a re-do." These companies may have been funded during the boom

times with the proverbial business plan on a napkin. The companies may

have been under managed, under funded, or misplaced in the market.

Says Pinto: "There is a lot of interest in resurrecting the better

ones."

"What I like doing is helping companies get big, whether taking them

public or doing joint venture deals," says Pinto. "As a lawyer who

represents emerging businesses, nothing pleases me more than to help

foster the creation of new ones."

– Barbara Fox

Fishing for Work-Life Balance

The Fish! philosophy was born at Seattle’s Pike Place Fish market,

turned into a trio of books on energizing the workplace, and is now

following workers home. Just published, "Fish! For Life" (Hyperion,

$19.95), extends the Fish! principles to family, extended as well as

nuclear, friends, leisure, community involvement, and even weight

loss.

Harry Paul, a co-author of the Fish! books, speaks on "Fish! A

Remarkable Way to Boost Morale, Improve Customer Satisfaction, and

Impact Results" on Thursday, February 26, at 8 a.m. at the Conference

Center at Mercer County Community College. The all-day event includes

breakfast, lunch, and a panel discussion on customer service. Panel

members are Barbara Mealmaker, senior vice president and service

director for Wachovia’s South Jersey region; Tim Lockwood, store

manager for Wegman’s Woodbridge store; Dr. Stephen Harrison, emergency

room physician at Princeton Healthcare System; Donna Disbrow of

Bristol-Myers Squibb; and Bill Stecklein, service manager at Precision

Acura in Princeton. Cost: $195. Call 609-586-4800, ext. 3856 for more

information.

The Fish! books came from a casual observation. John Christensen, a

co-author of the series, dropped by the Pike Place Fish market, a

Seattle landmark, and was taken by the energy and enthusiasm of the

fishmongers. Working long hours with odiferous, slimy fish – a

grueling, physically demanding job by any standards – they nonetheless

appeared to be having great fun. Christensen, a film maker, shot a

documentary about the market’s unique work ethic. Stephen Lundin, the

third Fish! principal, distilled the ingredients into the first book.

The main tenets of the Fish! philosophy are Play, which is described

as fun and lightheartedness; Make Their Day, a focus on engaging

others in ways that lift their spirits; Be There, living in the

present moment and giving others our full attention; and Choose Your

Attitude, understanding that whatever attitude you are carrying with

you right now, it is the one you are choosing.

Previous books demonstrate how these tenets can transform a workplace.

In going about the country giving Fish! seminars, Paul and his

co-authors heard stories of how the Fish! keystones were making the

trip from office to home. The new book uses the story of one family to

demonstrate Fish! at work in everyday life.

The family is that of a fishmonger, Lonnie, and his wife, Mary Jane.

He has taught her the lessons of the Pike Place Fish market, and she

has used them to tame her cantankerous underlings at the bank where

she has just been promoted. Then, one day, as the story goes, she

discovers that, while work is going along beautifully for her and for

her husband, things are not as rosy at home. Quality time with family

and friends is suffering, in large part because of the demands of

work.

"What has happened to fun time," Mary Jane asks? Echoing the thoughts

of many overworked managers, she wants to know, "when is the last time

I went to the gym, spent time with friends, or read a book?" Work was

dominating her life.

Soon the picture becomes even more complicated, as the stresses pile

on. Lonnie leaves the fish market to go back to school. Mary Jane’s

mother, her health deteriorating, moves in, and Mary Jane, busy with

two young children, work, and increased responsibilities at home,

realizes that she has become completely out of shape. Money becomes an

issue, too, as the couple struggles with a decision on whether to take

on more debt.

Then there is the matter of time. Is Mary Jane involved in too many

volunteer activities? Should Lonnie work part-time on weekends to

supplement the family’s income? Using Fish! as their framework, the

couple decides to formulate a join vision. They decide to call it

"IT," but do not divulge the reasoning behind the label, which,

apparently, has nothing to do with information technology, a science

that frequently goes by the "IT" moniker. These are the key elements

of the couple’s IT plan:

Communication. We will be a couple that errs on the side of too much

communication. Communication about our finances, financial priorities,

and spending plans will be an area where we take the time to make sure

we are clear. We will never sacrifice time together or family time for

money without a discussion, and we will never assume we know what the

other wants and desires.

Fun. We will bring Fish! into our life so that even a busy schedule

has an element of fun; and when we are together, we will be there for

each other.

Example. We will model in our relationship the things we want our

children to learn.

Extended family. We will cherish the time with Grandma Ida as a

special gift and an opportunity to serve another. We will be aware of

the many life lessons our children can learn from our extended family.

Mutual support. We will support one another’s learning, growth, and

creativity.

Legacy. We will leave a legacy in the way we raise our children.

Over-riding guidelines. Our guiding questions will be: Are we having

fun? Are we serving others? Are we fully present for life’s blessings,

living in the now? Do our lives serve as an example of the power we

all have to live in the now?

401(k) guidelines. While we understand, and will teach our children,

the importance of planning for the future, we will emphasize the

importance of living each moment fully. We will teach by example that

happiness does not come from having things, but from giving things to

others. Happiness is not a function of the size of one’s 401(k), but

the size of one’s heart.

At the end of the book Mary Jane receives a partial explanation for

the weight gain that is weighing on her mind: She and Lonnie are soon

to add a child to their family. But, her doctor adds, that explains

only a portion of her recent weight gain. It’s time to diet, and the

Fish! editors, latching onto a national obsession, include several

diet chapters toward the end of their new book.

The advice includes a list of specific food suggestions – give money

to the Girl Scouts, but don’t accept the cookies; avoid bad fats; buy

fresh foods. It also leans on the Fish! fun credo, and has Mary Jane,

pregnant though she is, excited about giving rollerblading a try.

The book’s ultimate lesson for those struggling with work/life balance

is summed up on one of the PowerPoint-like pages that appear toward

the end of the book. "Contrary to popular belief we can’t have it

all," it reads. "At least not all at the same time."

Top Of Page
PCs Beat Pencils In Tax Preparation

Joel May used to be an April 15 filer, but now his income tax return

is on its way to the IRS on February 1. The difference? Turbo Tax.

Sold on using software to dispatch one of the most onerous annual

tasks on every American’s calendar, May now donates time to spreading

the gospel. He led the Princeton PC Users Group through the

ins-and-outs of Turbo Tax during its latest meeting, and helps seniors

get onboard with electronic age tax filing during classes he teaches

at Ewing SeniorNet (www.ewingsnet.com).

May is not a professional tax preparer, and in fact he emphasizes that

he provides no tax advice during his Turbo Tax workshops. He instructs

students on how to find and use help features of Turbo Tax, and leaves

them to proceed on their own.

A resident of Titusville, he is retired from a teaching career. Most

recently, he taught medical economics and health administration at the

University of Medicine and Dentistry of New Jersey. A graduate of

Albright College, he holds an MBA and a Ph.D. from the University of

Chicago.

He has been a volunteer at Ewing SeniorNet, where he teaches other

computer courses in addition to Turbo Tax, for 11 years. The minimum

age requirement for course enrollment is 55, and May says some

students are "into their 90s." A big motivation for learning computers

for most of them, he says, is a desire to keep in touch with

grandchildren. Learning to work with digital photographs is another

draw.

Turbo Tax is a snap for seniors – or for anyone – to master, he says.

If you can operate a mouse, you are almost there.

While May’s workshops are on mastering Turbo Tax (www.turbotax.com),

he hastens to point out that there are other tax preparation software

packages. Tax Cut (www.taxcut.com) and Tax Act (www.taxact.com) are

two of the big ones. "I’ve used all three," says May. "They’re very

similar."

Each package does has advantages, though. A selling point for Tax Cut

and Tax Act is price. Tax Cut costs about $10 less than Turbo Tax,

which sells for about $40, and the basic Tax Act software package is

free. May generally buys Turbo Tax at Staples or a similar office

supply store, but it is also available online, as are the other tax

preparation programs.

May has settled on Turbo Tax, despite its somewhat higher cost,

because he finds that it has substantially more features. Those filing

complicated returns would do well to spring for Turbo Tax, in May’s

opinion, while those with simple returns might well be fine with a

less expensive program. Turbo Tax won May’s allegiance for a number of

reasons:

Time. It takes May about half a day to file his taxes with Turbo Tax.

That is less than half the time he estimates that he would spend

without the software help.

Money. When you go to a tax preparer, he has Turbo Tax, or something

very much like it, up on the screen. "He asks you some questions, and

fills in the blanks," says May. The service generally costs $200. But

do the professional preparers use more powerful software? May doesn’t

think so. He does say that H&R Block uses a proprietary program.

Efficiency. Turbo Tax tells users what documents they need to have in

front of them to complete each section. "Each screen says ‘go to file

cabinet and get documents,’" says May. "You get them and start. It’s

very, very orderly."

Connectivity. A nifty feature of Turbo Tax is that it will import

information from a previous year. There is no need to type in the

children’s Social Security numbers, the mutual fund numbers, or the

day care provider’s information. Pieces of the return that have not

changed will be entered automatically.

In addition, Turbo Tax links to Quicken and to Microsoft Money. Tax

information found on either of those programs also goes in

automatically. May does find a minor flaw with this convenience,

however. He has had situations where he has not bothered to enter a

small dividend payment – 69 cents is the example he gives – on

Quicken. The omission results in a small discrepancy between his tax

return and forms he receives from his brokerage. This being the case,

he is cautious about relying on data imported from Quicken.

But anyone who logs charitable giving, medical expenses, and interest

payments on Quicken or Microsoft Money might find this a most helpful

feature.

Accuracy. May, an economics Ph.D, used to worry that his tax return

addition and subtraction might be off. Tax advisers warn every year

that simple math mistakes can flag a return for further scrutiny –

something even the most honest tax payer is loathe to invite. With

Turbo Tax, says May, all computational worries are gone. There is no

chance that the math will be off.

Cross checking. Turbo Tax checks this year’s return against last

year’s return. This is an excellent way of catching missed deductions,

and of comparing the success of tax planning strategies. It also

compares the return against national averages, and against the IRS’s

standard deviation test. This lets tax payers know whether the

deductions they are claiming are about what tax payers with similar

incomes are claiming. The IRS may flag a return in which a deduction

in a certain category – perhaps charitable giving – is considerably

above what a tax payer in a given income group would be likely to

claim.

This doesn’t mean that the deduction shouldn’t be taken, but it gives

the tax payer one more chance to go over the items he has claimed, to

make sure they are legitimate, and to get his receipts in order – just

in case.

Speedy refunds – and peace of mind. Turbo Tax makes it easy to file

returns electronically. The first time May did so he was "nervous as a

cat." After a lifetime of carrying a fat tax return envelope down to

the Post Office, and sending it certified mail, return receipt

requested, it is hard to let go, push the "enter" key, and believe

that somehow the return will make it into the right hands.

That first year, May received his refund in 10 days. His mind has been

at ease ever since.

Permanent records. When May has finished preparing his tax return, he

saves it to a CD and files it away along with the software. The backup

is important, and could be a lifesaver should a computer crash.

The software is unique in that it really is good for only one year.

The inevitability of yearly changes in tax tables, laws, and even

forms ensures that it will become obsolete before the next tax

deadline rolls around.


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