The taxation industry is adopting the latest technologies, primarily due to the optimization and efficiency they bring to the processes. Thanks to dynamic accounting technologies, taxation professionals are creating their way for an advisory-related approach.
Digital transformation or technology, once noticed as a response to challenges like remote working, collaboration, resource constraints, and scalability, is now taking center stage.
According to the EY 2022 Global Tax Technology and Transformation Survey Report, 61% of organizations are now shifting their tax department strategies towards investment in data, while 84% of organizations plan to invest $2 million or more in tax technology, with an average of $3.6 million planned over the coming three years.
Data, cloud, and digital security are the foundation of all major technology trends in the taxation industry. Let’s see the six trends that will shape the future of the taxation industry.
Table of Contents
#1. Cloud-based Tax Preparation: Secure and Efficient
Cloud is no longer a passing trend that companies are waiting to adopt; it’s a transformation force that businesses can’t afford to ignore. If your firm is still hesitant about adopting cloud technology in tax, you need to reconsider because it is a losing battle.
Leveraging the power of cloud technology goes beyond convenience, allowing clients to get real-time updates. Moreover, hiring IT consultants to configure in-house servers and get software updates is unnecessary for an accounting firm, not a technology company.
Cloud-based tax preparation means hosting tax applications on cloud servers to facilitate tax planning operations. By adopting cloud technology, businesses are moving towards transforming the tax preparation experience while gaining access to leading tax software solutions such as Drake, Lacerte, Pro Series, ATX, ProSystem Fx, and UltraTax, irrespective of location.
Hosted tax software on the cloud eliminates the need to have expensive in-house servers as it comes with a subscription model. It offers real-time access wherein you can access your client’s tax data and applications from anywhere with an internet connection, delivering flexibility to your team. Moreover, cloud-hosted solutions bring scalability, which implies you can increase or decrease your resources as needed, making it appropriate for firms of all sizes.
Your client’s financial data is also kept under the advanced security shield in the cloud, protecting your sensitive financial information.
Simply, cloud-hosted tax applications streamline tax preparation processes, reduce manual tasks, and increase overall efficiency in your firm.
#2. Artificial Intelligence: Solving Complex Problems
Taxation has always been integral to a firm, assuring compliance with tax laws and regulations.
In these years, the focus has been driven towards risk and compliance management, due to which the tax industry is changing. Artificial Intelligence (AI) technology acts as an influential tax research tool that gives answers to all complex questions, both qualitative and quantitative insights.
Stuart Tait, Partner, Chief Technology Officer, Tax & Legal, KPMG in the UK, stated, “Use of AI will allow us to predict tax scenario outcomes with better than 90% accuracy and four times faster than traditional research methods such as keyword and Boolean searches.”
With AI-powered tax software, tax professionals can ensure accuracy in calculating tax liabilities as it identifies potential deductions and credits that taxpayers may have overlooked, ultimately reducing their tax burden. Additionally, AI can help tax professionals by automating repetitive tasks, freeing time for more complex tax issues requiring human expertise.
Also Read: How AI and Accounting Complement Each Other
#3. Blockchain: Contributing to Accuracy
Initially developed to support cryptocurrencies like Bitcoin, blockchain technology has extended far beyond the financial sector. Now, blockchain has been widely adopted across different industries, bringing its core features of transparency, security, and immutability to organizations.
Blockchain is a distributed ledger technology that securely records transactions. In taxation, blockchain can enhance transparency by creating an immutable record of financial transactions, simplifying audit processes, and reducing tax fraud.
Blockchain’s ledger maintains the integrity of data, as no one can alter or delete recorded tax-related transactions and documents. Moreover, its features of smart contracts automate tax calculations and payments, wherein these contracts execute transactions without intermediaries, reducing the chance of errors when predefined conditions are met.
Businesses involved in international transactions can utilize blockchain to facilitate cross-border payments as it reduces complexities associated with varying tax regulations in different countries.
The integration of blockchain technology in tax filing processes brings about improved accuracy and security while also reducing administrative burdens. This, in turn, enables tax professionals to concentrate on delivering strategic advice to their clients.
#4. Robotic Process Automation (RPA): Streamlining Tax Flows
Robotic Process Automation (RPA) is a technology that utilizes software robots or bots to automate the process of tax filing, freeing employees for strategic goals. RPA categorizes the extracted data into categories such as invoice receipts, automatically organizing it for tax filing and generating accurate tax reports compliant with tax regulations.
With automated filing of tax returns, professionals can easily ensure timely and accurate documentation and added tasks, such as payment reminders and more.
#5. Data Analytics and Big Data: Ease decision-making
With the ability to collect, analyze, and interpret vast amounts of data, Data analytics and Big Data Technologies are beginning to build momentum.
The technologies are playing a significant role in analyzing large data sets to identify discrepancies in tax filings while providing predictive insights for proactive tax planning.
Looking forward to strategic optimization, big data allows tax practitioners to monitor data in real time and address compliance issues promptly. Data-driven insights allow tax professionals to tailor tax solutions as per clients’ needs with compliance. Big Data platforms automate data compilation and integration, reducing manual data entry.
#6. Managed Cybersecurity: Stay One Step Ahead of Threats
Handling millions of data sets, tax firms understand the importance of security. Therefore, managed security has seen a significant wave of adoption. Tax data security is paramount; it comprises sensitive client information, including social security numbers, bank account details, and other financial data.
Cybersecurity technologies encrypt sensitive tax data, both in transit and at rest, protecting it from unauthorized access.
Managed Cybersecurity Solutions also offers real-time monitoring, incident detection, incident response, Multi-Factor Authentication, data encryption, and secure file transfers.
Moreover, Managed Security Solutions comply with industry best practices to offer guidance and support to tax firms on cybersecurity matters. They offer a secure platform for sharing tax documents with clients to protect confidential information during transmission.
The growth of cybersecurity measures in taxation protects sensitive data and reinforces trust between tax professionals and their clients. It is an essential component of ensuring the integrity of tax filings.
#7. E-filing and Digital Signatures: A Sustainable Approach
E-filing and digital signatures bring a range of benefits for tax professionals and their clients, such as eliminating the need for paper-based filing implicating digital signatures, resulting in a more streamlined and environmentally friendly process. Additionally, digital signatures make the process highly secure as every signer has a unique identifier so that only authorized professionals can access documents.
Digital signatures reduce the risk of blunders, such as incomplete or missing signatures, that can result in filing uncertainties. Electronically signing a document allows companies to witness an 80% reduction in signing errors.
The growth of e-filing and digital signatures has made tax filing practices more efficient, secure, and environmentally friendly to leverage a hassle-free experience.
Are You Preparing for the Future?
The future of taxation is undeniably data-driven, redefining how tax professionals approach their work. Now, they are no longer mere CPAs but strategic advisors, leveraging data to navigate the intricacies of tax management.
As we have seen the trends forming the future of taxation, the role of digital transformation in taxation is evolving. Earlier, they served as mere record keepers. Now, cloud and data are the strategic catalysts.
The Vision Ahead
Tax professionals need to be at the forefront of innovation while embracing these changes. The future belongs to those who harness the power of these technologies and understand taxation is not an enigma but a compelling opportunity—a path towards a more accurate, efficient, and client-centric tax landscape.
The future of taxation is here, and data drives it.