6 Common Tax Season Challenges During Tax Season: Solutions and Tips

Last updated on April 17th, 2023

“Accounting firms are facing challenges more formidable than those faced in the past. The contingency approach to running CPA firms is hindering growth and innovation. The capabilities they adopt should be responsive and scale as per the industrial & evolving requirements of accounting.”

— Randy Jhonston, Technologist, CPA & Prominent Accounting Influencer

Summary: Several big to small factors cascade challenges in the official tax filing process. Surmounting those pitfalls can help accountants to stay on top of their best game.

Tax season is the time when most accountants need help to scale their response to the growing workload. Parallel to the heavy filing work comes the fear of missing out on deadlines. Moreover, several big to small factors create performance-sapping errors and slow down the filing process. Smarter accounting professionals know that the easiest path to ROI and value is a well-rounded strategy.

Table of Contents

Tax Season: In a Nutshell

The tax filing season in the US spans between Ist January and 15th April of each year. The window lets individual tax players and businesses submit their financial statements. Tax filings submitted after the season are subjected to penalties and interest charges.

Personal Tax Season: The individual filers get the opportunity to file taxes in the month of Mid-April each year officially. A mini-season for personal filers takes place at the end of October. In mid-September and October, extended returns are filed. Personal tax preparation, as compared to partnership tax is less complicated. However, the barrage of workload gives accountants a sinking feeling.
Business Tax Season: Business owners pay taxes every quarter in the US. For them, the middle weeks of January, April, June, and September are the deadlines. Generally, the periods between February and Mid-April and August to October are busy for accountant

6 Most Pressing Tax Season Challenges Facing the Accountants & CPAs

Copious Amounts of Workload and a Small Window

Tax season triggers a flash flood of workload. And the time frame to complete this workload is approximately two and a half months. According to Bloomberg Tax Accounting Survey, many accountants struggle to scale their practice as per the barrage of work. In other cases, they struggle as they are under-resourced.

They face greater challenges in balancing compliance activities and workflow management. Another relevant challenge is that all 52 states have their own tax preparation rules. Most businesses have multi-state transactions that make tax preparation treacherously difficult.

Electronic Data Interchange Issues

Success in the accounting realm comes from tighter data integration. Most accounting firms have a complex IT ecosystem where multiple technologies and applications co-exist. They form a hybrid IT where some software is on-premise, and the rest of the systems are on the cloud.

However, most of these applications have different configurations, hardware, and language. Many data errors surface on the ground because of connectivity issues. IT teams use API-led connections to integrate each system to overcome this issue. Each API configuration entails a hidden cost.

Cybersecurity Issues

Accounting firms are always on the radar of threat actors who continuously prowl on data from different networks. And tax season provides weak surface areas to steal funds or collect protected data and personally identifiable information. According to Consumer Sentinel Network’s report of the Federal Trade Commission, nearly 2.4 million cases of fraud were reported in 2022, leading to an $8.8 billion loss.

“Entreprises need to be more aware of security issues, when they connect to cloud services from anywhere.”

— Randy Jhonston, Technologist

It is quintessential for accounting firms to maintain critical security policies and a response plan for business continuity. Experts recommend them to get their plans audited at frequent intervals.

Onboarding Clients

Smoother onboarding from the time of first interaction at the first touchpoint adds the wow element for customers who look for value. On the flip side, poor onboarding creates the opposite effect. Accounting firms that don’t prioritize omnichannel communication, and streamline billing & invoicing are left behind in dust by their competitors. In the long run, they also fall behind in acquiring new clients.

Economic Crisis

The banking crisis further roiled the US economy as businesses were still settling with the realities of Covid. The economic crisis has ramifications for businesses as well. Companies are prioritizing liquidity by chartering cost containment measures and deferring investments.

McKinsey believes that the boardroom agenda is now cash instead of earnings before interest and taxes (EBIT). The circumference of the accountants’ role is also expected to expand as they now have to closely monitor previous expenses, all past invoices, and cash flow.

Finance leaders are concerned about complying with reporting requirements from COVID-19-related government stimulus programs and ensuring proper documentation, recording, and reporting for audits. Moreover, finance and accounts professionals must comply with the Covid-19 stimulus programs and maintain clear reports.

Dwindling Tax Rules is not a new thing. Every year, accountants have to keep up with a barrage of tax rule changes. However, the changes that the 2023 tax season brought are unprecedented. Neil Fishman, President of the National Conference of CPA Practitioners, points out that accounts professionals must comprehend 5,593 pages of the Consolidated Appropriations Act, more popularly known as the Covid Stimulus Program.

This also means that accounting professionals will be navigating a labyrinth of tax extenders, deductibility clauses, and tax credit rules. Comprehending several tax rule amendments are going to be a painful process for tax professionals.

Surmounting the Tax Season Challenges

These problems are not insurmountable. However, solving this riddle requires a well-rounded strategy that aligns people, processes, and technologies in the right order.

Modern-day accountants who have built this capacity are successfully crossing the tax season challenges and reaching many tangible benefits downstream. We have summoned those best practices and surefire ways that can help tax professionals, CPAs, and accountants in entering the future state of accounting:

“Technology holds the promise to defy and smackdown tax season throes facing CPAs and accountants. They can solve these problems and further embolden their practice. The easiest path to ROI in tax season goes though re-engineering and improvement of processes for greater capacity and momentum.”

Brian Tankersley, CPA, CITP, CGMA

Building Workflows

A recent survey from Bloomberg Tax & Accounting found that complex workflows are the greatest blocker to faster tax filing. This problem is particularly bigger in firms with smaller workflows. Most CPAs use point solutions for workflow management.

However, these solutions don’t scale as per different requirements. Accounting firms should re-engineer their service-oriented processes as per the distinct filing requirements of clients.

They should have the process flows for specific big-ticket items like Advance child tax credits, refunds or other carryover information, cryptocurrency transactions, IRS service issues, etc. The workflows let them get the maximum information from their clients for financial reporting.

Gather Financial Information –> Consolidate –> Preparation –> Review –> Digital Signature of Client –> Invoicing

Process Flow

The service-oriented flows should swiftly connect accountants with other professionals when they face any roadblock. Agile and nimble workflows help in moving the work & communication in a straight and horizontal manner. This unique ability helps in improving inter-departmental coordination and communication.

Improving Data Exchange

Covid-19 comes as a reckoning that smoother data exchange is now the need of tax accountants. CPAs and accountants should especially get the ability to work from anywhere without disruption. Smoother data exchange also bolsters support remote workplace needs as employees get the ability to work from any place and anywhere.

That’s why accounting firms should prioritize electronic data exchange between departments and different IT applications within the system.

The key to improved data exchange is start-to-end integration between the accounting applications and tax return software. Data integration fast-forwards things as it helps in disruption-free data exchange. It accelerates tax filing as the same input need not be entered again in any system. Accounting teams get the ability to bring documents anywhere and at any time.

Moreover, teams come on one single page to access documents easily and streamline collaboration. It becomes easy for employees to store & securely exchange data and reach the benefits of business continuity, even during hardware or software loss.

The stored data can be fed into AI/ ML systems for illuminating insights and automating repetitive tasks.

Enabling Secure Data Exchange

Tax and accounting firms are potentially vulnerable to cyber threats. Endpoints provide weak surface areas to threat actors for attackers. A resilient cybersecurity framework is critical to running accounting operations while protecting against enterprise cybersecurity threats.

Therefore, accounting firms should ruggedize their IT ecosystem with strong security layers and arrangements — deploy strong security, instance response, disaster recovery, and business continuity plans. Experts recommend an actionable framework to counteract cybersecurity threats:

Step 1– Build Business Case: In this stage, it is important to outline the strategic business operations and map the security needs. They should define program mission, value, and key stakeholders
Step 2 – Charter Action Plan: Next, accounting firms should prepare a risk framework after vulnerability assessment and penetration testing.
Step 3 — Initiate Execution: After this, the accounting firms should define capabilities and competencies.
Step 4 — Build and Mature Program: In the next stage, accounting professionals must develop critical incident response capability and an action plan for breaches.
Step 5 – Reassess and Improve: The most important block is communicating the value to the management. Security is a continuous and ongoing effort, so accounting professionals must prepare metrics for optimization.

After implementing security measures, accounting firms should benchmark their performance targets and analyze where they lack. Benchmarking helps in taking more informed decisions for cyber security. It also helps in aligning resources for the maximum impact.

Implementing cyber-security measures is easy. However, updating it is another thing. The security posture should be updated from time to time as threat actors relentlessly try to find ways for breach into the network.

Training internal employees and stakeholders against emerging threats is also mandatory in this case.

Prioritize Smoother Onboarding of Client Data

Smoother data onboarding has an inverse relationship with customer experience. Fluid onboarding gives a greater chance to improve customer retention. The best way to improve data onboarding is automation. Automation is a unique differentiator and critical block for disruption-free data onboarding.

It delivers the ability to get data at their fingertips and update all forms for reporting.

Automated bookkeeping programs leveraging machine learning can connect data systems and processes and inject data into a tax or audit program for analysis. It becomes easy to replace old data, reuse data, consolidate data from multiple systems, and improve product support and reporting.

Implementing technology for onboarding client data is only one thing. Parallelly, smoother onboarding also hinges on manual support to fill the lag time between client requests. A dedicated resource can dramatically reduce the customer’s wait time and helps in completing a priority task.

A dedicated resource can ensure smoother handoff from sales to operations by streamlining proposal, contract, and payment documents. Moreover, his timely intervention will help future clients in understanding the in-house technologies to clients.

Staying Updated with the Tax Rules

Frequent changes in tax rules leave tax professionals in a state of flux. Therefore, accounting firms should align their internal tax systems with live feeds from IRS. Frequent news updates keep accounting firms updated with the rule changes and help them in reducing filing errors.

Some important areas to mark are updates on audits, missing income, excessive deductions or credits, unreported income, and refundable tax credits. Keeping up with tax law changes can help in staying ahead of the rest. It makes a complex tax year more manageable.

Improving Customer Experience

Accounting firms that are thriving are the ones delivering a delightful customer experience to clients. They are laser-focused and successfully clear backlogs in a timely manner. They have deep and native capabilities to execute back-office tasks, software to support client interactions, and robots to pull the necessary information. On top of that, they have the bandwidth to serve a greater number of customers and provide quality consultancy services.

Smoother navigation is another void where modern-day accounting firms are focusing. They are employing chatbots and self-service processes to guide visitors towards the stream of information they need. In this way, they are able to elevate conversations while handling social security numbers in compliance with security standards.

Moreover, next-gen accountants are partnering with reliable cloud solution providers to host their in-house systems for supercharged outcomes.

Reducing Cost

The recent fallout of the banks has roiled the US economy, which was yet to recover from the aftermath of the pandemic. The inflation rate is spiking straight into the stratosphere. Therefore, accounting firms must keep a tab on where their hard-earned money is spent. Technology and automation can reduce the expenditure on human capital.

However, the costs can spiral out of control if proper audits are not conducted on their technology stack.

Digitally mature accounting firms understand the significance of a tech stack audit for saving time and money. They eliminate any outdated technologies or systems that no longer serve their purpose.

IT experts recommend accounting firms host their applications on private servers. Application hosting provides valuable opportunities to slash server maintenance and upgrade costs. Apart from this, hosting prevents business-reducing & performance-sapping downtime errors.

Final Words

Tax season challenges continue to evolve, take new forms, and hound accounting firms. The answer to solving the tax season riddle lies with technology. However, technologies can have blowbacks if not approached or adapted appropriately. Therefore, firms should keep their head above water and tread carefully.

They should have a strategy beforehand. That’s the void that ACE Cloud Hosting can fill. Talk to our cloud experts to find out how we can help your accounting processes transcend for new efficiency gains.

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