Taxes are undeniably complicated, and when we encounter a complicated topic today, the first question we ask is, “how can technology make this easier?”
It’s a useful question, and one that has yielded exciting innovations across a range of industries. When it comes to tax preparation, though, the jury is still out on whether technology can offer significant benefits.
As of the 2018 tax season, research suggests that taxpayers are twice as likely to use tax prep software than an accountant to complete their taxes, but that doesn’t mean they’re happy with the results. In most cases, taxpayers simply don’t want to pay for an accountant. That’s not the only issue these programs raise. Tax prep technology may also raise security risks that conventional preparation practices don’t create. With so much private information on the line, both taxpayers and industry experts need to proceed with caution.
Tax Tech Advantages
Before diving into the potential risks of tax software, it’s important to consider why we use it in the first place. Since most people are dissatisfied with the results of these programs, why are they so popular? The simple answer is that we rely heavily on technology for any and all difficult tasks, and considering how many elements go into maximizing tax savings, we turn to technology to help.
Of course, complexity isn’t the only reason that we rely on software for tax prep. We also use a lot of supplementary programs to make sure all of the moving parts are in order. For example, there are great programs that can help businesses balance their books, as well as software for organizing receipts pre-tax prep. In other words, all of the software that will really help your business get ready for tax season are separate financial tools; tax prep software is much less impressive than these other programs.
Risks And Revolutions
Cybersecurity issues are the most important reason that most experts recommend avoiding tax software at this juncture, and the IRS doesn’t have much authority to crack down on risky or fraudulent preparation programs. These risks also include programs used by accountants to file taxes, but accountants are equipped with the baseline knowledge to weed out suspicious programs. The GAO has encouraged Congress to give the IRS more authority over third-party preparation software, but at present these programs threaten to leak private user information.
Despite the fact that the IRS has limited power over third-party filing programs, tax software is expected to migrate to the cloud over the next few years, and this may help reinforce security practices. The industry will still need to adopt stronger security norms, but coupled with the shift away from in-house servers to software-as-a-service systems, we could see improvements.
The Next Frontier
Tax software is primarily a tool of convenience, hardly a necessity, but there are a few changes to our financial system that could necessitate more advanced digital tools. In particular, the rise of cryptocurrency, which is entirely digital and fluctuates rapidly, will demand new CPA tools. As more people invest in cryptocurrency, both individuals and professionals will need software that can manage these assorted currencies.
Tax preparation software isn’t a lost cause, but it’s not the simple solution it’s often made out to be. Without greater standardization and, more importantly, stronger security measures, taxpayers should continue to rely on accountants for the best results.
Larry Alton is a professional blogger, writer, and researcher. A graduate of Iowa State University, he's now a full-time freelance writer and business consultant.Currently, Larry writes for Entrepreneur.com, Inc.com, and Forbes.com, among others. In addition to journalism, technical writing and in-depth research, he’s also active in his community and spends weekends volunteering with a local non-profit literacy organization and rock climbing. Follow him on Twitter (@LarryAlton3), at LinkedIn.com/in/larryalton, and on his website, LarryAlton.com. To read more of his reports — Click Here Now.
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