Once upon a time, doing taxes required sifting through a shoebox full of physical receipts, then driving miles to a tax preparer’s office in order to drop off paper records for them to frantically scrutinize and organize then in order to file them before Tax Day. Today it’s more common to file taxes by pointing and clicking with a computer instead of sorting a shoebox of receipts.
The financial services industry is experiencing a digital transformation. Tax preparers have been behind the curve of adopting new technologies, but the COVID-19 pandemic pushed many into the digital age.
Well before the pandemic, millions of taxpayers were turning to cloud-based DIY solutions like TurboTax or H&R Block, whose software uses IBM’s cloud-based Watson to answer taxpayers’ questions when they’re filing their taxes. In fact, taxpayers today are more than two times as likely to use software to file their taxes as they are to hire an accountant, according to a 2019 survey by Canopy, whose cloud-based software supports tax and accounting professionals.
Demand for flexible tax preparation services is forcing tax preparers to digitize their businesses. Many are turning to cloud-based professional tax preparation software and finding new efficiencies and new ways to stay competitive in a world where consumers expect everything to be as fast and easy as shopping with Amazon Prime.
From ADP to IRS
Tax preparers began taking baby steps away from paper records nearly 20 years ago. That’s when payroll service provider ADP made W2s available digitally for the first time, according to Richard Barnes, a visiting assistant professor of business administration and accounting at Meredith College in Raleigh, North Caroline.
“It worked one-third of the time,” said Barnes, who also is managing partner of Carolina Tax and Accounting Pros in Florence, South Carolina. “But when it worked, it was really interesting.”
Fetching W2s digitally allowed tax preparers to address two common challenges, according to Barnes. First, they could pull up the document more quickly than it took employers to pass out the paper versions to their employees. And second, when those documents ended up crumpled and lost at the bottom of a briefcase, tax preparers could retrieve them, saving workers the extra step of going back to their employer for help.
Today, digitization is about more than downloadable forms. It’s about a whole new way of working. Like banks and other companies across the financial services industry, tax preparers are therefore embracing the cloud. In fact, so is the Internal Revenue Service (IRS), which is adopting cloud computing with the goal of reducing its manual, paper-based processes, according to the Federal News Network reported in 2021.
Providing Financial Clarity
There are many reasons that taxpayers have been migrating to DIY software. Perhaps the biggest, however, is perceived time savings, Canopy found in its aforementioned survey. That’s because working with a tax preparer traditionally was time-consuming. When accountants dealt with paper, it required searching for all the right documents, organizing them, then meeting in-person to answer questions and address issues.
Thanks to the cloud, however, submitting tax documents to a professional can be just as fast and easy as inputting your information into a piece of software.
“The bulk of my clients today, I’ve never met in person,” Barnes says. “We send them a cloud-based link where they can securely upload their documents.”
It’s not just documentation that’s faster. It’s also communication, as face-to-face meetings in many cases have been replaced by virtual portals where taxpayers and tax preparers can touch base to quickly identify missing documents, answer outstanding questions or flag urgent concerns.
Work can be done from anywhere. Instead of waiting for a physical office to open for the day, taxpayers can upload documents, answer questions and review their tax returns on their own time and with their own devices.
Cloud-based technology doesn’t just save time for the taxpayer. It also saves time for the tax preparer. With fewer administrative tasks, tax professionals have more time to offer their clients value-added services that DIY software can’t – such as expert knowledge of the tax code. That’s important because of how dynamic and complex tax law is.
Although modern tax software is extremely sophisticated, the tax code can sometimes change so quickly that software can’t keep up, Barnes said. What’s more, software is written for the masses, whereas professional advice can be tailored to your unique circumstances.
With more time, tax preparers also can offer more forward-looking advice to help clients prepare proactively for the next tax year.
“Our mission is to deliver financial clarity,” Kauffman said. “In order to do that, the historical stuff has to be up-to-date, accurate and available. If we’re able to do all that effectively and efficiently in the cloud, it sets us up to have those much more strategic conversations.”
‘Every Corner of the Globe’
As it turns out, expert guidance might be what more taxpayers need going forward. In its survey, for example, Canopy found that the top two reasons consumers switched from DIY software to an accountant were: Their tax situation became more complicated and they needed more personalized service.
If that was true in 2019, when Canopy conducted its survey, it’s even more true now. Because of the COVID-19 pandemic, people have left their jobs at historic rates, are living and working remotely across state lines, have launched their own businesses and have started working in the gig economy – all things that can make tax filings more nuanced and complicated.
At Bright!Tax, an online U.S. tax service provider for Americans living abroad, CEO Katelynn Minott sees every day the complex lives that people are living. One time, she even helped a client solve – using cloud computing – tax issues when she was in the middle of a cross-Atlantic sailboat voyage with her family.
Indeed, the cloud allows Bright!Tax to serve clients in 200 different countries. It also makes it possible for Minott’s own team members, who also live across the globe, to work collaboratively across borders and time zones.
“Because of the ability to work remotely, our talent pool has increased tremendously, which has allowed for faster growth,” says Minott, whose work supporting clients wouldn’t be possible without the cloud.
“The fact that our clients come to us in a cloud-based platform means they're interested in connecting to us using email, phone calls and Zoom calls,” she continued. “We’re able to share updates and information, and reach out to our clients in a very quick and proactive manner, as a result of their comfort level with those cloud-based systems.”
For taxpayers and tax professionals alike, the name of the game is “convenience.”
Concludes Minott, “It’s so much easier for people because they can participate in the tax filing process when it’s convenient for them, wherever they are, in every corner of the globe.”
Sarah Lindenfeld Hall is a longtime journalist and freelance writer who writes regularly about the future of work and technology. You can find her on Twitter and LinkedIn.
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