Using Online Tax Organizers in Your Tax Practice, with Tim Lenneman

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AccountingWEB Workshop: December 14, 2000
Presenter: Tim Lenneman, of Global Tax Network

Session Moderator: Today we are pleased to welcome Tim Lenneman to the AccountingWEB workshop room. Tim is a native of Lansing, Michigan and a graduate of Texas Tech University with a degree in Accounting. Tim is the founder of Global Tax Network, a company that provides a web-based tax organizer so that clients can input their individual tax information. The tax firm can then download the information into their tax software. Also, individuals can find tax professionals using the GTN web site.

Welcome Tim!

Tim Lenneman: Good afternoon everyone!

Online tax organizers are an exciting new development for tax practitioners and are certain to change the way we provide tax services in the future.

We are going to cover 5 topics today:

1. What are online tax organizers?
2. Functionality that is important when using online tax organizers.
3. Security/Privacy matters
4. Benefits of using online tax organizers
5. How to use online tax organizers within your tax practice?

What are online tax organizers?

Online tax organizers are Internet browser-based tax organizers. Your individual tax clients may setup a secure account on an Internet site to input their tax return information. The client data is stored on the servers of the online organizer provider and the online account may be accessed at any time. Essentially, online organizers are very similar to online brokerage accounts. The online tax organizer replaces or is an alternative to the standard paper organizers that we send our clients.

Online tax organizers are generally interactive and tailor themselves to the situation of your client. As such, your clients don't have to browse through a lot of information that doesn't apply. Also, client information is rolled-over to the next year so that basic information only has to be input once. Sometimes the best explanation is just a demonstration of how something works.

Functionality that is important when using online tax organizers

Other than the attributes that you would like to see in any tax organizer, the following functionality is important in online tax organizers:

1. Security/Privacy: this attribute is so important we will discuss this matter more later.
2. Linking to your web site: you should be able to create a button on your web site that takes your clients to the online tax organizer for your firm. If you don't have a web site, then your clients should be able to access the online tax organizers via the web site of the online tax organizer provider.
3. Simple Navigation: Since not all clients have high-speed Internet connections (DSL, etc.) it is important that the organizer be laid-out in a way that keeps the number of clicks to a minimum. Some online organizers do this better than others.
4. Firm Access: Firms must be able to view client status, print data reports, and download client information into their tax software.
5. Reports/Edits: It is important that both the client and the firm can print data reports for their files and for review purposes. If there are errors, the client should be able to edit the information easily.
6. Help: the online organizer should have instructions for the client and the firm on how to use the site. Also, it should have definitions of key terms to help taxpayers through the process.
7. Information Gathered: The quality of information gathered is important. The organizer should be clear for all types of taxpayers including expatriates, foreign nationals, and individuals with multiple activities such as rentals, partnerships, etc. This is an area that we have spent a lot of time with in our 2000 online tax organizer.
8. Proforma Information: I realize that this is an important item for many of you: you like to keep your clients input to a minimum. My experience is that this is not that big of an issue with clients. Most firms that use online organizers use online organizers as an alternative. Firms still send paper organizers (that contain proforma information) with a choice of completing an online organizer. Clients use the online organizers because they like to use their computers, not necessarily to save time. Once they have completed the online organizer the first year, the information is easily rolled-over to the next year.
9. Download of Client Data: The information input by the client should be able to be downloaded into your tax software to save you time. We offer download capability to GoSystem, Lacerte and Prosystem fx. Other online organizers offer downloads only into one tax software.
10. Client Appearance: Does the organizer look professional? Can you add your logo to the organizer? Can you add special instructions for your clients? Do you want to change this important client interface if you change tax software?
11. Can the online organizer be used with several of the major browsers (Microsoft, Netscape, and AOL)?
12. Does the online tax organizer company provide any other services as part of the online tax organizer? At GTN, we market the services of our member firms to the general public. These additional benefits may help you justify providing online tax organizers or they may be the primary reason to use online tax organizers in your practice.

Session Moderator: Does anyone have any experiences - good or bad - with using online organizers?

Jim Payne: No experience

Ron Benfield: Not at the moment

Edward Sassor: No experience we were considering developing our own.

Tim Lenneman: Online organizers are new to just about everyone. There were probably only 50 firms that used online organizers last year.

It is a big task to develop your own - that is how GTN was started. I will move on to security/privacy matters.

Security and privacy are complicated matters. Most tax practitioners don't deal with Internet security and privacy matters often, but here are some things you should look for when investigating these matters:

1. The online tax organizer provider has written policies regarding both security and privacy.
2. The site uses Secure Sockets Layer (SSL) encryption (128 bit or higher). This is a well-established Internet security standard.
3. Use of firewalls and other security measures.
4. A well-defined data back-up plan.
5. Login and Password protection.
6. No use of Common Gateway Interface (CGI) scripts within the site as this is the cause for many breaches.
7. Verisign/TRUSTee designation of security practices.
8. No sharing of client data or client IP information.

Unfortunately, no Internet site can guarantee absolute security and privacy because there are factors that are out of their control. Users may not protect their logins and passwords and assorted other problems. However, if the online tax organizer provides the basic security/privacy model described above, your client data is probably safer than the files in your office.

Has anyone had problems with security on other types of web sites? Is this a concern for anyone?

I will move on to the benefits of using online tax organizers.

There are many benefits that can be derived by using online tax organizers, but the importance of the benefits changes from firm to firm. Here are some of the benefits:

1. A large percentage of any firm's client base enjoys using their computers. An online tax organizer provides clients with an easy-to-use interface with your firm and it increases their perception of your firm that you are on the cutting-edge.
2. Online tax organizers are convenient for the client to access and clients can easily print a copy of their input for their records.
3. Online tax organizers are generally less expensive than paper organizers. The average cost per client is anywhere from $2 to $10 depending on the software that you use and quantity.
4. The download of information into your tax software should save you data input time. This is especially nice around extension time! Firms can also print data reports for your files.
5. Online tax organizers tend to be more thorough than paper organizers. They ask more questions and the format is generally easier for most clients to understand.

Are there any questions on the benefits of using online tax organizers?

Session Moderator: Are there limitations with online organizers relating to more complicated tax returns?

Tim Lenneman: No. All the organizers that I have seen cover even the most complicated situations. The real limitation to me is the client.

Tommy Dies: Are electronic organizers compatible with most tax software, or is it limited?

Tim Lenneman: At this time, online tax organizers are available for GoSystem, Lacerte, and Prosystem fx.

Jim Payne: Any plans to expand to other programs in the future?

Tim Lenneman: GTN doesn't have any plans to expand in the future (at present), but I expect the tax software companies create their own.

Edward Sassor: What do you mean the real limitation is the client? Acceptability? training/usage?

Tim Lenneman: In regard to client limitations, I mean that some tax matters are difficult for clients to understand and then input. This is the same issue as with paper organizers.

I will move on to "How to Use Online Tax Organizers Within Your Tax Practice?"

The most common approach to using online tax organizers within tax practices is to offer the online tax organizer as an option to the paper organizer. Firms do this by alerting clients to the online organizers and their ease of use when you send out the paper organizers. This approach ensures you that only clients that want to use technology are using online tax organizers.

Based on 2 years of data, we have found that generally 20% of any client base will use online tax organizers when solicited in this manner. One of our member firms has 70% of their clients use online tax organizers, but they are well ahead of most other firms.

We have also found that tax firms with special types of taxpayers (such as expatriate or foreign national groups) can mandate (or come close to mandating) the use of online tax organizers with these groups of taxpayers.

Finally, some firms like to use online tax organizers only for their new clients (who want to use online tax organizers).

One key point is that no firm that uses online tax organizers has abandoned the use of paper organizers or other alternatives for gathering client data. You have to stay flexible. If you are unsure about how you and your clients will like online tax organizers, then ease into it. Try it out with a few clients and build from there.

At this point, online tax organizers are not going to be the default way for firms to gather client data. However, in time, it will be very common to work over the Internet with your clients. I look for online tax organizers to add many new features in the coming years that will help firms with many of the inefficiencies of preparing tax returns and communicating with clients.

I have finished the part of the presentation that I have prepared and I now open things up for any and all questions.

Jim Payne: What does the client see after he/she clicks the link button on my web site?

Tim Lenneman: With most online tax organizers, they will go to a welcome page that is tailored to your firm. From there they enter their login and password

Jim Payne: How do I know if a client has made a correction?

Tim Lenneman: When someone completes the online organizer, they are locked out of making additional changes unless you alerted.

Tommy Dies: What is the cost of a tax organizer and how much maintenance is required on an ongoing basis?

Tim Lenneman: Online tax organizers cost $2 to $10 per use. Very little maintenance is needed.

Tommy Dies: When you say "per use" is that each time a client accesses the organizer, each time I download their information, or on a per client basis?

Tim Lenneman: Generally, this just means each time an organizer is completed or downloaded. You are not charged when a client does not complete an organizer.

Tommy Dies: Can the client complete the organizer in stages, or do they have to complete it in one sitting. That is, can they save their place and come back to it at a later time?

Tim Lenneman: They can complete an organizer in stages. They can access the organizer at any time to input data and all changes are saved.

Session Moderator: Can the client page through the organizer, viewing what has already been entered?

Tim Lenneman: The client can page through the organizer and view all data that has been input. Alternatively, they can print a data report to review.

Session Moderator: Typically (and I know this varies with every situation), how long does it take for a client with little tax knowledge to fill out an organizer?

Tim Lenneman: Based on my experience, it takes about the same amount of time as a paper organizer.

Session Moderator: With your service, is there an on-line help feature to answer basic input questions?

Tim Lenneman: Yes, we will answer all systems questions. If a tax question is asked, we refer these to the tax firm.

Do you think online organizers are of interest to your clients?

Session Moderator: I think I would have this concern.

Session Moderator: Do CPAs fear they are losing a certain part of the client/accountant relationship by sending their client to an online source for assembling data?

Tim Lenneman: That is a good question. I think this is a concern, but the online organizer should not change your client relationships. CPAs should still continue speaking with their clients, meeting with their clients, and developing relationships regardless of how their tax data is gathered.

Session Moderator: If an accountant tries your service, can he try with one or two clients, or must he commit to a larger number?

Tim Lenneman: You can use the service for one or two clients. The price per use is higher in this case ($10 per use).

Session Moderator: So you offer volume discounts?

Tim Lenneman: Absolutely. We try to encourage use of online organizers as much as possible. Your price goes down to $2 per use if you have 100 clients using the online organizers. We have some firms that only join GTN to obtain new clients - so this is an option.

Session Moderator: We're nearly out of time - are there any other comments, or questions for Tim?

Tim Lenneman: I appreciate the opportunity to speak with you today. Happy Holidays!

Session Moderator: If anyone wants additional information about the Global Tax Network, you can click on the banner below, or you can contact Tim at his email address, will you provide that, Tim?

Tim Lenneman: [email protected]

Session Moderator: Thank you all for joining us, and thank you Tim for an extremely informative and timely workshop!

Tim Lenneman: You are welcome. Good-bye everyone.

Workshop sponsored by: Global Tax Network

Global Tax Network

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