Keeping up with the latest tax industry trends can be difficult when day-to-day operations are so demanding. In a field that relies on consistent processes, it’s no wonder decision makers often hesitate to embrace change.
However, recent challenges have injected a heightened sense of urgency into the tax space. Staffing constraints are pushing firms to capacity, client expectations are higher than ever, and the workplace is rapidly evolving. Firms that want to remain competitive under these circumstances must embrace change and find creative ways to adapt.
Here are some of the forward-thinking trends in the tax industry that are poised to redefine how tax professionals work.
Tax industry trend #1:
Advancing automation with AI
Artificial Intelligence (AI) isn’t limited to science fiction anymore. Recent breakthroughs in cloud computing have made AI available for practical application at scale. In the tax industry, these trends have opened the door to limitless opportunities for workflow automation.
Machine Learning (ML) is a branch of AI that automates human tasks by making inferences from patterns in data. With the wealth of prior-year data in tax software, ML can elevate data accuracy and firm productivity.
In 2022, AI-powered technology helped firms unlock new ways to streamline 1040 tax preparation by:
- Auto-verifying OCR data on 65% of scanned documents
- Auto-indexing non-standard documents by referencing data in prior-year binders
- Auto-reclassifying K-1 supplemental information
With less manual work to oversee, preparers can process returns more efficiently, focus on higher-value work, and mitigate seasonal burnout.
Tax industry trend #2:
Embracing remote and hybrid work
2022 data from Ladders showed a 36% rise in remote professional jobs in the U.S. and Canada during the 2022 calendar year—11% higher than their initial projections.
Of the 8,090 remote-capable employees surveyed by Gallup in June 2022, only 6% wanted to return to the office. If asked to return, 60% of remote-working respondents indicated that they would be “extremely likely” to seek employment elsewhere.
Bottom line: Remote work isn’t going anywhere. Its endurance since 2020 indicates that both businesses and employees have benefitted from remote arrangements. Tax professionals want to maintain the flexible workplace norms that improved their work-life balance and quality of life. Remote and hybrid businesses want to keep their competitive edge in the hiring market. Some business owners have even used the paradigm shift as an opportunity to downsize their office leases. And with geographic boundaries removed, firms can bypass local talent shortages by conducting nationwide searches for qualified candidates.
Tax industry trend #3:
Outsourcing tax return preparation
In the past, firms experiencing seasonal workload compression would often turn to temporary staff for help. But today, even temps and interns seem to be in short supply in the tax industry. Temp hires must also go through onboarding before they can start contributing, which turns into an annual training expense.
That’s why more and more firms are outsourcing tax return preparation to third-party services. Outsource vendors employ expert staff who are trained to prepare 1040 and business returns using the same tax software as the firms they service.
Third-party preparers collaborate with the firm until the return is ready for in-house review. This enables tax practices to process more returns without overextending their in-house team or spending on seasonal hires.
While full-preparation outsourcing remains a popular option, one of the fastest-growing tax industry trends is verification outsourcing. In this scenario, a firm uses software that automates data entry and binder assembly, but outsources the Optical Character Recognition (OCR) data validation. By the time a preparer touches a return, all the manual work of data entry and workpaper organization is complete.
Did you know? Scan-and-populate automation paired with an verification outsource service can eliminate 80% of the work for 20% of what outsourcing tax preparation costs.
Tax industry trend #4:
Leveraging data analytics
By nature, tax and accounting practices generate highly structured data. Proactive firms are adopting data analytics technology to leverage that asset.
Data analysis enables tax practices to make better informed decisions about compliance, strategy, and workflow optimization.
Some examples? Visualization tools can reorganize scattered data sets into a coherent format that’s easier to interpret.
Other technologies can analyze data to make educated predictions about future earnings and tax implications. Imagine being able to simulate the probable outcome of a transaction before advising your client whether to do it!
Technology trends in the tax industry aren’t just making work easier. They’re also enabling tax professionals to work smarter.
Tax industry trend #5:
Shifting focus to advisory services
2022 research from Intuit Accountants shows that clients want more guidance from their tax professionals. 83% of respondents indicated that they would prefer to receive year-round tax advice in addition to filing their annual return.
Managing raised client expectations might sound daunting on top of an already full plate, but it also presents an opportunity for long-term growth. An increasing number of firms are leveraging this demand to curate a narrower, more profitable clientele.
Servicing a high volume of 1040-exclusive clients isn’t the most productive use of billable hours. Many firms are automating the bulk of that process and shifting focus to a wider breadth of premium services for a more targeted client base. This gives tax professionals the opportunity to develop long-term advisory relationships, which can generate a steadier influx of revenue throughout the year, encourage more expertise-driven engagements, and keep staff energized about their work.
Preparing your firm for the future
Many of these emerging tax industry trends share one thing in common: digitization. Tax practices that are still tied to even partially paper-based processes lack the flexibility to adapt to the times. Implementing fully digital infrastructure creates opportunities to maximize automation, remote work, standardization, and client service.