Computer Chronicles Revisited 105 — Federal Tax Forms for AppleWorks and J.K. Lasser's Your Income Tax

Tax preparation software was always a favorite topic of Computer Chronicles. This next episode from March 1988 included some returning guests and updates to several products featured in prior shows. As I discussed in an episode of the Chronicles Revisited Podcast, this was a period when a number of small developers competed in the tax preparation software market. We would not start to see the industry consolidation towards TurboTax under Intuit for another 5 or 6 years.

Indeed, when Stewart Cheifet referenced TurboTax in the introduction to this episode, it was still published by its original developer, Chipsoft Inc. Cheifet noted that individuals looking for help with preparing their taxes could use books, such as the Price Waterhouse Personal Tax Adviser, or turn to a computer program like TurboTax. The advantage of software was that it included all of the rules, logic, and strategy contained in the books. For example, TurboTax could prepare amortization and depreciation schedules for you. The program could also move your calculations automatically from federal to state income tax returns.

But Cheifet wondered if these programs weren’t just a vertical application of a spreadsheet? Gary Kildall said it was in a sense. You took a general technique like spreadsheets and applied it to a specific problem. The benefit of dedicated tax software was that you could use the program to play “what if?” and see how different numbers affected the bottom line. Now you could just use a spreadsheet to do this, but then you’d have to pay a lot more attention to the tax guide. And by using the software, you might save enough money to actually pay for the program.

IRS Office Still Dependent on Paper Despite Computer Assistance

Wendy Woods presented her first remote segment from the Internal Revenue Service (IRS) western regional service center in Fresno, California. This was one of ten regional processing centers. Woods noted that the IRS handled over 100 million tax returns each year. Roughly 20 million of those returns passed through the Fresno center, and most of them were still handwritten. The single-level building at Fresno was as long as 18 football fields, and almost everywhere you looked there were mountains of paper.

To keep from being buried under stacks of forms, Woods said, Fresno had to adapt computers to the physical manipulation of paper returns. Barcode readers in the mailroom pre-sorted and classified envelopes. Checks were sorted automatically by bank name or location. But people still did most of the data entry. Optical character readers (OCRs) could handle some forms like single-page returns, but they still required human assistance to identify a scrawled “6” or a sloppy “7.”

Norman Clausen, the chief of computer services for the Fresno center, told Woods that about 95 percent of returns were transcribed using key-to-disk systems. The goal was to eventually get 50 percent of those returns filed electronically. Then, for the remaining 50 percent, the IRS wanted perfect the OCR technology to automatically transcribe half of those returns. Any remaining returns could then be placed scanned and the images stored on optical disc.

Woods said that although a great deal of computing went on at the Fresno center, it was not of the “number crunching” type. The computers were there mostly for data entry and retrieval. And in fact, the office literally produced tons of hardcopy. High-speed laser printers consumed about 2 million feet of paper per month. This paper was turned into notices, warnings, and other correspondence. Clausen said the real breakthrough would come when practitioners–i.e., professional tax preparers–started filing electronically. In California alone, about 50 to 55 percent of all returns were done by preparers.

Desktop PCs were uncommon at the Fresno office, Woods noted, and when they were visible, it was usually as terminals. In fact, the agency saw a limited role for the PC either inside or outside the center. Clausen said that right now, there was no plans to make it possible for an individual taxpayer to dial-in to the IRS and file a return electronically. There were still concerns about the reliability and security of transmitting that data online. Clausen said the IRS wasn’t about to let people just dial-in to the agency’s mainframe. There would need to be an electronic “brake” in the filing process.

Tax Preparation via Spreadsheet

Ed Tittel and Nicholas Cofsky Sky joined Cheifet and Kildall in the studio. Tittel was a technical writer and contributing editor with Macazine. Sky was president of Oregon-based Sky Computer Resources.

Kildall quipped that most people just took their W-2 forms and a stack of receipts down to their local tax preparer. Why would anyone use a computer instead? Tittel said there were a couple of reasons. First, a computer was more forgiving than a pencil and eraser. It was easier to do things over. And second, you could work through several different variations on your taxes and pick the one that came out best for you. Kildall asked if these programs came with updates, as the tax laws changed every year. Tittel said most vendors sold a standard program and then issued updates on a year-by-year basis.

Kildall turned to Sky and asked about his company’s software, Federal Tax Forms for AppleWorks. As the name suggested, this was a series of templates for AppleWorks, an office suite published by Apple Computer for the Apple II platform. Sky said the benefit of using AppleWorks was that it provided a standard interface that users already knew. It also made it quicker to create and ship the product, so users could receive Federal Tax Forms before they even got their W-2s.

Sky provided a demonstration of Federal Tax Forms on an Apple IIgs. He showed a sample Form 1040, which appeared as a spreadsheet within AppleWorks. Individual schedules were kept on separate spreadsheets. By using a keyboard shortcut, the user could pull up a menu to import data from a schedule to the main Form 1040 and vice versa. Once the user entered all of their data, they used another keyboard shortcut to perform the final tax calculations.

Cheifet asked if a user could print right onto the actual IRS Form 1040. Sky said yes, the software printed to the official forms and schedules. Cheifet asked about the cost of Federal Tax Forms. Sky said it was $39.95 for the basic packet, with additional forms available for $5 each. The program worked on any Apple II that used AppleWorks or an Apple III running III-EZ Pieces (the Apple III equivalent of AppleWorks.)

The Latest from MacInTax

Susan Morgan joined Cheifet, Kildall, and Tittel for the next segment. Morgan was president of SoftView, Inc., which published the Macintosh-based tax preparation software MacInTax. She also appeared in the previous Chronicles episode on tax software from February 1987.

Kildall asked how changes in federal tax laws for 1987 affected the use of tax preparation programs. Tittel said it made things a little more complicated, especially when it came to items like passive income. But he thought programs like MacInTax helped users deal with these new complications.

Turning to Morgan, Kildall noted that MacInTax had been out for quite awhile. What major changes had been made for this year’s taxes? Morgan said they added a number of forms and schedules. There were now about 50 schedules and worksheets available, which could calculate things like passive losses and depreciation.

Cheifet asked for a demonstration. Morgan pulled up MacInTax running on a Macintosh. The program showed a graphical recreation of an actual Form 1040. Morgan noted the user could point-and-click on individual items. Anytime you entered a dollar amount on a line and hit return, the software automatically recalculated all other lines on the form. Double-clicking on a line requiring itemization pulled up a separate data entry window.

All of the individual forms, schedules, worksheets, and statements could be accessed through the Macintosh menu, Morgan explained. She pulled up a sample schedule and entered some data. Once she was done with the schedule, the data automatically linked back to the Form 1040. Morgan then demonstrated a worksheet to calculate passive income and interest. She also showed off the on-line help feature. A user could double-click on any line of the Form 1040, which triggered a pop-up box containing the official IRS instructions corresponding to that line.

Once you were finished with the return, Morgan said you could print it out directly from MacInTax onto plain paper using either a dot-matrix or laser printer. This created an IRS-accepted form for the user to sign and mail.

Cheifet noted that MacInTax was now available for the IBM PC and Apple IIgs. Morgan said that was right. The software was marketed as TaxView on those machines.

Turning to Tittel, Cheifet said that he had referred to MacInTax as a “godsend.” Why? Tittel said because all you had to know was the numbers. The software knew all the rules.

Software for Professional Tax Preparers

Wendy Woods returned for her final remote segment, which profiled Bob Smith, a professional tax preparer with R.A. Planning. Woods said that for the first time this tax year, Smith was using a computerized program to do the planning and preparation of his client’s tax returns.

The system, PC/Professional Tax Partner, came with its own PC, hard disk, laser printer, and software, and was specifically designed for tax accountants. The software came with nearly all of the necessary tax forms. As the preparer filled out each form, the program automatically performed the necessary calculations.

Smith told Woods this was a very important tool, because he didn’t have to spend all his time going through calculations and forms manually. He simply had to input the information and get the results. Coupled with another program, he could then look at a client’s financial forecast all the way out to 1991.

Smith said this system allowed him to take on more clients since each return could be done faster. But Woods added that the computer would never be able to replace the planning and experience necessary to get you the fattest tax refund. So no matter how sophisticated the tax programs became, they were not expected to put people like Smith out of business anytime soon.

Do You Need a Pricier Tax Prep Package?

For the final segment, Dr. James E. Howard and Debra Miller joined Cheifet and Kildall in the studio. Howard was president of HowardSoft and another return guest, having previously appeared in a March 1985 episode on personal finance software. Miller was the marketing director with Simon & Schuster Software.

Kildall noted there were a wide range of prices when it came to tax preparation software. He asked Howard, who produced one of the pricier packages at around $300, what you got with the more expensive software as opposed to, say, a $40 program. Howard said what you got was tax depth and automation. The expensive packages were for the more “involved” return.

Cheifet asked Miller to demonstrate her company’s product, J.K. Lasser’s Your Income Tax, which was one of the lower-priced packages at around $69.95. (Existing users could update for just $39.95.) Miller said the Lasser program featured a unique “interview” section. The software asked the user a series of yes-or-no questions. Based on the answers, the program highlighted the necessary tax forms. Miller filled out a sample interview. Cheifet asked what a user did if they didn’t know the answer to a specific question. Miller said you could pull up on-line help by pressing F1, which brought up a reference to the corresponding section of the print version of J.K. Lasser’s tax guide.

Cheifet noted that the software also allowed you to compare two different alternative approaches. Miller said that was correct. This was a new feature for 1988. She pulled up a “1040 Analysis” screen that allowed a married taxpayer to compare their tax liability if they filed jointly versus separately. Cheifet said the Lasser program was only available for the IBM PC and compatibles. Miller said yes, it ran on any PC with at least 256KB of memory.

Turning back to Howard, Cheifet noted his company’s product, Tax Preparer by HowardSoft, was at the top end of the price spectrum Kildall referenced earlier. What were the “power features” that the user got for $295? Howard said that as opposed to filling out a lot of on-screen forms with references to IRS instructions, Tax Preparer implemented those instructions in the software itself. In many cases, the user wouldn’t even have to look at a form or schedule.

Cheifet asked for a demonstration of Tax Preparer on the IBM PC, noting that it looked different than the other programs seen so far on the program. Howard said the program asked for raw data as opposed to having the user fill out forms. He entered some income data into Tax Preparer and showed how it automatically produced a finished tax return.

Kildall asked if there was any potential liability issue with having the software select forms for the user. Howard said there hadn’t been any issues like that with Tax Preparer. And if there was a problem, that meant there was a need for further testing of the software. Cheifet followed-up: If a user did get audited, could they blame HowardSoft? Howard said no, the person who signed the tax return, either the taxpayer or their tax preparer, was ultimately responsible for the accuracy of the information. Howard emphasized it was his software’s reputation, rather than potential legal liability, that mattered.

Cheifet asked Howard what kind of user needed Tax Preparer. Howard said the the typical case would be a two-income family that had enough money to invest in a business or rental property. Individuals in these situations were subject to many of the new tax laws, which were much more complicated than last year.

HowardSoft Still Going Strong After 44 Years

I didn’t delve into HowardSoft and its Tax Preparer program in detail during Jim Howard’s prior Chronicles appearance, so let me rectify that now. Tax Preparer by HowardSoft has a few distinctions. It was probably the first commercially sold tax preparation software program for the Apple II. It was definitely the longest-supported tax package on that platform. And I suspect that Tax Preparer is the longest continuously-developed software application demonstrated on Computer Chronicles, as it is still being actively updated and sold today by HowardSoft.

Stewart Cheifet introduced Howard as “Dr. Jim Howard.” Howard earned that doctorate in electrical engineering from the University of California, Los Angeles (UCLA), in 1969. His first career was in radar design and research for Hughes Aircraft, where he worked from 1964 to 1976. When Howard’s bosses wanted him to earn an MBA and take a job in management, however, he decided to leave Hughes and join a small research and development consulting firm, Mark Resources, in Marina del Rey, California.

As described in an extensive profile of Howard and HowardSoft by David Hunter for the April 1982 issue of Softalk, Howard initially purchased an Apple II in 1979 for his children. But he ended using the microcomputer to write his own tax preparation program, initially just for personal use. Howard then decided to try his hand at selling the program locally–if for no other reason than to justify deducting the Apple II as a business expense. This first version of Tax Preparer only sold 50 copies, Howard recalled, and he continued to work full-time for Mark Resources while spending his nights and weekends continuing to refine Tax Preparer. The next year, 1980, he increased his sales fourfold to 200 copies. One of his customers, a professional accountant, then convinced Howard to pursue software development as a full-time business.

Howard quit his job to run HowardSoft full-time in March 1981, moving from Marina del Ray to La Jolla, California, where the company remains based today. He started building out his staff and developed two additional products, Creative Financing and Real Estate Analyzer. As far as I can tell, these programs and Tax Preparer constituted HowardSoft’s entire product line. The company dropped Creative Financing sometime in the 1980s and continued development on Real Estate Analyzer until around 2012.

But Tax Preparer endured. P.G. Torrez, writing for the San Bernadino County Sun in January 1988, cited one market analyst who estimated Tax Preparer had as much as 50 percent of the retail tax preparation software market. That figure was almost certainly too high. Indeed, in an article published a year later in the Los Angeles Times, another analyst told writer Elliot King that HowardSoft’s market share was closer to 10 percent. Obtaining actual figures was impossible, as all of the companies doing tax preparation software at the time were privately held, but Howard himself said they were selling “tens of thousands” of copies during tax season.

It’s also worth noting that Howard himself was not chasing growth. In contrast to ChipSoft, which grew TurboTax rapidly and found venture capital backing, Howard told King, “We purposely don’t get into products that will increase our value too high because then you lose the one-on-one contact with your customers.” Howard believed in the “small-is-beautiful” approach to business, and his goal was less about making money than “dealing with real people.” That’s why unlike TurboTax, HowardSoft didn’t offer state-specific income tax packages outside of the company’s home base of California. Howard said making packages for multiple other states simply wasn’t “fun.”

Howard’s dedication to his customer base, particularly on the Apple II, was nothing short of legendary. I found one review of TaxPreparer for the Apple II from May 1999, 20 years after the initial release and nearly 6 years after Apple finally discontinued production of the Apple IIe. HowardSoft’s own website from 2001 said the company would continue to provide annual updates of Tax Preparer for Apple II and MS-DOS systems “so long as there are still customers who want them.” Of course, today HowardSoft only produces Tax Preparer for Microsoft Windows. But I do wonder when the last Apple II update actually shipped.

J.K. Lasser Saves You Money from Beyond the Grave

While Tax Preparer by HowardSoft will soon reach its 45th anniversary, the history of J.K. Lasser’s Your Income Tax goes back even further. In fact, Mr. Lasser continues to advise people on the best tax strategies today in 2023 despite the notable handicap of having died in 1954.

Jacob K. “Yoc” Lasser was born in 1896. A first-generation American born to Austro-Hungarian parents, Lasser began his career working as a bookkeeper in a New Jersey factory. According to a 1952 profile in the Saturday Review by Bennett Cerf, Lasser also worked as a part-time sportswriter for the Newark Star covering high school football. One day, Cerf said, the sports editor asked Lasser to “compile some batting averages.” Impressed by Lasser’s work, the “startled editors wisely decreed that at an accounting course was what he needed, and packed him off” to New York University, where he took night classes.

After serving in the U.S. Navy during World War I, Lasser returned to school, earning bachelor’s and master’s degrees in electrical engineering at Penn State. (Is there something about studying electrical engineering that drives people to get into the tax preparation business?) In 1921, Lasser passed the examination to become a certified public accountant in New York, and he joined the staff of the New York-based accounting firm Touche, Niven & Co. According to a 2011 profile of Lasser, it was likely exposure to the work of John Niven, an expert on the Revenue Act of 1916, that led Lasser to focus on income tax as his specialty.

In 1923, Lasser left Deloitte to start his own accounting firm, J.K. Lasser and Co., and quickly emerged as the go-to guy when it came to saving money on your taxes legally. As Bennet Cerf recalled:

One of Lasser’s most celebrated tax victories was scored on behalf of a nurse named Helen Harasghy, who, in 1940, has been refused permission to deduct from her income the cost of supplying and laundering her uniforms. By the time Lasser was finished, the Government meekly admitted that not only nurses, but cops, firemen, doctors, trainmen, and uniformed workers in general were patently entitled to this write-off. If all the people who benefited from this ruling were to write in J.K. Lasser’s name for President, he’d be elected in a landslide.

Lasser authored the first edition of his tax guide, Your Income Tax, in 1939. Published by Simon & Schuster, it initially sold for one dollar and became a perennial fixture on the company’s best-seller lists. Cerf, himself the longtime publisher at Random House, estimated the guide averaged sales of 500,000 units per year by 1952.

Sadly, Lasser died just a couple of years later, suffering a fatal heart attack in May 1954 at the age of 57. Death, however, did not stop Simon & Schuster from continuing to use Lasser’s name to sell its tax guides. Even today, copies of J.K. Lasser’s Your Income Tax carry the formal byline of “the J.K. Lasser Institute.” But as Brendan Koerner explained in a 2005 article for Slate, the “Institute” initially consisted of one of Lasser’s proteges, Bernard Greisman, backed by members of Lasser’s accounting firm, which continued after his death. Ironically, Touche Ross & Co., the successor to Touche, Niven & Co., acquired J.K. Lasser and Co. in 1977, which at the time was considered the biggest merger in the history of the accounting profession.

Simon & Schuster retained the publishing rights to the J.K. Lasser name and guide until 1998. In the late 1980s, the publisher’s software unit started producing the companion program demonstrated in this episode. Annual updates to the software continued until approximately 1996. Two years later, Simon & Schuster sold the J.K. Lasser Your Income Tax rights to Pearson plc. John Wiley & Sons then purchased the brand from Pearson the next year. Wiley continues to publish J.K. Lasser’s Your Income Tax today under the J.K. Lasser Institute byline, which is now composed primarily of accountants J.T. Eagan and Jaclyn Barkow.

Notes from the Random Access File