H.C. Sharp Software — 1040 Review

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From the June/July 2006 Review of Specialty Tax Compliance & 1040 Enhancer Products

The 1040 Review program from H.C. Sharp Software is in a category of its own, which is one of the reasons this review section is called “Specialty Tax Compliance and 1040 Enhancer Products.” 1040 Review is not a tax compliance program; rather, it is an advanced diagnostics and tax planning system specially designed to help tax professionals ensure that clients are taking advantage of deductions that they might be missing, and to make sure that their returns avoid compliance issues and IRS flags. Having a third-party solution do this, in addition to whatever diagnostics capabilities are included in a tax preparation system, gives tax professionals added assurance that returns are accurate and don’t trigger an automatic audit. In addition to these valuable benchmarking and diagnostics, the system includes an excellent Due Diligence Checklist for internal review processes. The program costs $249 per year for a site license that allows it to be used on all computers within an office.

Learning Curve -- 5 Stars
The program takes just a couple of minutes to install. In fact, the full program can be downloaded in just a few minutes from the H.C. Sharp website, allowing users to demo it or purchase it and be up and running immediately. 1040 Review opens to a master screen that offers the main work area across most of the window that gives options for opening or creating a client. It also offers a panel on the left that, at startup, is vacant, but when working within a client’s records shows a menu tree that shows the forms, schedules and worksheets for that client. This allows users to see what documents are attached to that client return and to jump easily between forms and schedules. The master screen also provides icons and pull-down menus across the top of the window, providing access to the primary features and functions within the program.

The system’s client selection screen doesn’t provide much in the way of filters but is searchable by client file name, which can accommodate any naming scheme. Data entry is a key aspect of this system since it works independently of the professional’s tax preparation system. Of course, nobody wants to have to re-enter all of the same data, and, fortunately, 1040 Review’s import capabilities eliminate that concern for users of most programs. Users can simply use the One Button Import function, which retrieves the data from the other system. Data can also be entered manually (or experimented with manually), with traditional data-entry fields that automatically calculate but allow overriding of calculated amounts. Color coding of the entry fields shows which fields have been manually entered, imported, calculated or overridden. Over-all, the system offers excellent navigation features and an intuitive workflow process, and keeps primary functions easily accessible.

Use/Workflow & Productivity Tools -- 5 Stars
The most valuable features within the program are its analytical and reporting tools, and the Due Diligence Checklist. 1040 Review’s analysis functions compare a client’s return information with that of taxpayers with similar criteria, using this statistical data to benchmark AGI, rental income, average deductions based on SIC, gross income, and specific itemized deductions. After this information has been imported or entered, selecting the Report icon brings up the Analysis Report, with tabs for comparing the return to benchmark data or viewing/printing the Review Checklist.

The Analysis Report, which can be opened in MS Word, identifies areas where the client may be missing opportunities for further deductions. This includes recommended actions, as well as checking that charitable giving or other claimed deductions are not out of line with the income range of the client so much that it might get flagged by the IRS. The software developer has also recently strengthened the analysis capabilities of the program, nearly doubling the tasks it can perform, including increased industry-specific analysis procedures taken from audit guides and IRS Market Segment Specialization Papers for analyzing Schedule C. The report is provided in narrative form, and can be “livened up” with full-color graphs for client presentation. Currently, Schedules A, C, D and E have benchmark comparisons to client data with color graphs based on various criteria such as AGI, business code and gross income on Schedule C, gross rent, etc. The primary form 1040 also has benchmark comparisons, but these are performed internally and used in the analysis report (not graphed).

1040 Review’s Due Diligence Checklist provides an automated method of ensuring internal review processes, letting users replace their old spreadsheet or paper-based checklists with an automated system that includes user identification sign-offs to maintain compliance. The checklist can be customized to meet the specific workflow practices of any firm, individual or role within a practice, and can be filtered by users to show only items for which they are responsible. An electronic copy of the automated, on-screen checklist stays with the client’s records into the coming years. It can also be printed.

Another very significant enhancement to the system is an IRA determination function that can easily determine the optimum deduction for each type of IRA (or combination of types) for each spouse, which can often be different than the maximum. For instance, an accountant would not likely recommend a deductible IRA when the tax savings are low, preferring either a Roth or non-deductible IRA instead. The system takes into account multiple credit calculations, numerous phase outs, AMT, capital gain computations, sliding deduction floors and other factors. The program’s ability to sift through all of these variables instantly and find the most advantageous IRA scenario for a client is a stunning achievement, and one that can directly contribute to a client’s tax savings.