Tax Software 2007

The face of professional tax preparation is changing and is likely to evolve significantly over the next five years as technology developments revolutionize some of the most basic processes in preparation and reviewing, outside of the already automated calculation itself.

The last few seasons have been dominated by vendors adding states, forms and incremental improvement in features. But the 2007 software is the beginning of a new era.

The trends raise the likelihood of the following:

* Data entry will be increasingly automated, although it's not clear which technology will win.

* Portals will become the preferred way tax and other confidential documents will be distributed.

* Outsourced tax preparation is getting an uptick because of the tight labor market, even if it's not the hot item many expected.

THOMSON'S BARCODING - A LONELY PIONEER

When Thomson Tax & Accounting developed barcoding for W-2s last year, it offered to share the technology with the industry to encourage the spread of automated data entry for these common forms.

So far, there have been no takers since the company made the offer in November, although it touted the use of barcoding as providing 100 percent data capture and 100 percent accuracy.

"I feel like we invented the telephone and this will be really cool when somebody else decides to buy one of these things," says Jack LaRue, SVP for the unit formerly known as Creative Solutions.

The problem in the industry is that there is no standard W-2 form, which makes capturing the data complicated. The other problem, LaRue says, is that there is no incentive for ADP and Paychex, the two major service bureaus that pump out the most W-2s and 1099s, to participate in standardization of forms or to adopt the barcoding technology.

Meanwhile, Thomson has decided to test optical character recognition, the technology for scanning forms that seems to be gaining momentum in the tax preparation market.

"We're going to pilot OCR this year," says LaRue. Details haven't been worked out, but the company is likely to offer the test at its user conference in Hawaii in early November to the first 100 firms interested in trying it.

"We are trying to see how much further this is going," says LaRue.

"What I'm seeing...