Busy season signals an industrywide rush to work harder. But what opportunities can tax preparers find to work smarter?
Advancing artificial intelligence, or AI, and automated technology can help ease the burden of itemizing, monitoring, and reporting that accounting professionals feel year-round.
While firms globally are stepping up to test and build their own automated tools to deploy within their practices, our industry hasn’t yet reached the inflection point for significant adoption—but change is coming steadily. Here’s what tax preparers with any firm and scope should know about the growing shift toward automation.
Technology Offers More Than Just Ease and Speed
Automation can do more for accountants than make manual processes simpler to oversee and faster to complete. With machines taking over the timely manual tasks of the past, tax professionals can increase their client intake capacity dramatically. This ripple effect equally impacts professionals with any size scope, from the local small business bookkeeper to the big firm auditor. Top firms, including some of the Big Four, have dedicated millions of dollars into CPA up-skilling programs over the past several years. Where these firms saw future disruption, they responded by proactively preparing to give tax professionals adaptable and agile skills to leverage in a more digital future.
Digitalization also enables a mental wellness side benefit—firms that have automated systems in place ensure tax filing status updates are accessible anytime in real-time. Clients and tax preparers alike will have less room for guessing, with no lingering fear or procrastination about whether forms were filed.
Where Can Automation Streamline the Tax Process?
Strong one-on-one communication and thorough human review is necessary to a successful tax preparation process. Digital tools will never fully replace accountants, and they never should. However, a healthy balance of machine tabulation and human review can make for a much smoother process. Here are four areas where automation can help.
Categorization: The process of categorizing transactions is still very manual to the degree that it eats time. With accountants conducting line-by-line reviews of individual transactions, the probability of human error is high.
The small transaction-level differences between expenses for Uber (the ride-sharing service) and UberConference (the phone conferencing service), for instance, can get confused or overlooked throughout a tax process. With every categorization error, clients don’t receive the maximized tax credits or write-offs they should get; taken to the worst outcome, oversights could trigger an audit. AI can effectively learn to categorize each expense, and do it correctly each time, to remove the element of human error in categorization. In the future, this could even encompass intuitive, ever-learning AI/ML (machine learning) systems where the technology could apply categorization rules learned from one company’s tax process across an entire network of users.
Filing: The principles of fairness, efficiency, and enforceability make the tax system complicated, adding more layers, steps, and required forms with each degree of complexity. But not all businesses keep good records of their forms, nor can their bookkeepers possibly manage their part in real time.
Automation can help track tasks that must automatically get done at a rate that humans can’t replicate on their own. For example, businesses in the U.S. must issue 1099 forms to all vendors paid more than $600, but accountants are left to manage this process during tax preparation. Oftentimes, they end up doing extra work to backtrack through expenses and create a log of which vendors must receive forms. Many times, companies are out of compliance because accountants can’t keep track. Automation in an accounting process would help tax preparers stay on top of filing and regulatory details like 1099s and ensure clients are always in compliance.
Verification: Automation can help accountants see a fuller financial picture right away, with fewer questions asked.
Depending on how expenses are grouped on forms and within spreadsheets, CPAs often must ask clients for a more detailed view to ensure tax forms are categorized, calculated, and completed properly to verify the correct deduction. Drilling down into the details on these big-picture numbers can make a massive difference to a client’s bottom line. Automation could make this process much easier if intuitive, live tax software offered easier ways for accountants to back out and trace the breadcrumb trail to verify large lump expenses.
Referencing: Automation is especially useful for more advanced accounting techniques like deciding when to book certain expenses such as foreign expenses to minimize or maximize a client’s tax liability. Offsetting profit for the optimal tax outcome truly requires a strong look at a client’s business and expenses in real time. A living model can help accountants determine how to best position clients’ expenses and revenue, decide when to invoice, and look at the tax implications that come from deploying this tactic. Automation deployed to its fullest extent in an accounting process would give true vision into a company’s deficiencies and gains in both the short and the long term. Tax professionals could make strong, strategic decisions for clients with this level of insight.
The era of automation is the next big paradigm shift in business, and the financial services industry is building momentum and gaining new tools. Some practices already working with this kind of technology call themselves digital CPAs or tech-forward. These firms can see the inevitable future: that the shift toward automation will steadily grow. Those who don’t embrace technology will fall by the wayside.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Wayne Chang is an entrepreneur and investor and is the cofounder of Digits. He cofounded Crashlytics, cocreated Fabric, and was a producer on the environmental documentary Chasing Coral.
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