The tax industry is ripe for innovation!
This week, I went to Tax Camp in Tel Aviv with my entire team. Engineers were paired with tax professionals to code tax software in new ways. There was also a tax hackathon where everyone coded tax forms for prizes. (It wasn’t all work, as there was a day sight-seeing and learning the history of Jerusalem, too). Not only is technology in the tax world, it was clear that technology is radically changing the game and CPAs are enjoying the experience.
When you think about artificial intelligence (AI) and machine learning (ML), those are tools that give us the chance to tap into bigger opportunities to disrupt tax now.
Think about it: Tax software hasn’t changed in 30 years. Consider all the advancements in computer science that have happened during that time. But no one has really changed the software because it’s been too expensive to touch it.
Lower costs = better tech, now
Generally, CPAs are very reluctant to change. From an innovation standpoint, that has made disruption in our industry hard to come by. Software companies don’t want to invest the money because the users aren’t there. Just 15 years ago, the message to the profession was “get more CPAs on board,” and you will get better tech.
Today, the way tech works with tax is very different. If you think about how AI can read a PDF document and immediately pull out the important information, it can do the exact same thing to the tax code. And because the technology is different, fewer engineers are needed to develop this AI. So the cost to develop the AI is lower. And at the end of the day, what that really means is automated tax returns.
One person can only handle so many tax returns. But with new iterations of AI and ML, one professional can take on much more because they’re no longer doing a lot of the calculations and review by hand.
The more that automation comes into the space, the more it will help you do things faster. This isn’t new. Innovation has been happening at least incrementally for the last few decades. Do you still do taxes the same way you did in 1990 or even 2000? No. There’s no need to get cracked out by this next wave of change. Just learn how to adapt to it.
Show me the money
The other piece to this disruption is what’s driving it. Where there’s money, there’s movement. Yes, the tech is different from before. But the bigger determining factor in why this disruption isn’t going away is, in fact, the money.
Look at Top 20 and even Top 100 firms as evidence of this. PE firm TowerBrook Capital Partners bought an ownership stake in EisnerAmper LLP in 2021. Later in the year, Lightyear Capital bought into Schellman & Co. LLC. There will be others, both in terms of PE acquisitions and fintech startups disrupting the industry. For the CPA firms, this means more money to implement technology and scale up without the need for many more people. From a fintech perspective, this means more automation will be available.
Never has money come into the accounting space at a rate that it’s coming in today. Investors realized that accounting is ripe for automation because nobody’s done anything to innovate in the last 50 years. So if they put a little money in it and add a little manpower and some engineers, the whole system can change. This is what a lot of CPAs aren’t seeing. They don’t realize how much money is coming into our industry.
The PE folks, the venture capitalists, they’ve found the accounting space can be automated and, more importantly for them, they’re probably going to get a decent return on their investment. Accounting hasn’t been touched by innovation in so many years; innovation requires money. Well, the money’s here!
The Future is automated
This is why CPAs need to up their game…now. Automation can take the place of the grunt work that 1040 preparers are used to doing. Those tax pros need to figure out where they can make up the difference.
This isn’t a bad thing. Eventually these automation tools, which are centered around the consumer market now, will make it to the professional market. As the innovation happens and things get a lot faster, the professionals won’t have to do so much busy work.
Here’s how that could work in the future:
- A CPA has a 1040 tax return client and uses automation to scan the return and input numbers first;
- Automation imports the numbers and completes the initial review and calculations; and,
- AI highlights seven different items where the taxpayer could save money.
Because the tax professional is the one spurring this conversation, the taxpayer is at least a little more likely to listen. This gives the tax pro an opportunity to propose suggested planning opportunities throughout the year. It goes back to coaching and accountability.
Take it a step further. Talk with your client and ask how these four suggestions factor into their broader business plan.
Many CPAs and accountants already use some form of automation in their practice; Maybe imported data from QuickBooks online or even automating the bookkeeping process from end-to-end. The next phase goes further than that. It won’t happen next year, but it will happen soon.
The times they are a-changin’
It’s important for CPAs and accountants to realize how quickly this is changing. A lot still think their job isn’t going to change much. They’re so busy doing the work they’re missing the marketplace movement. They need to figure out who they want to serve, how they want to serve them and how they can put the human back into the process.
If you’re charging $1,000 for a small business owner with a 1040, you need to be aware that very soon, there are going to be alternative solutions for that client, above and beyond other CPA or tax preparer competitors. Your competitors will be AI and fintech.
You can’t just raise your prices. You’ve got to figure out the value you’re delivering and how you’re expressing that value. How can you help your clients understand that there’s value in what you’re delivering? Otherwise, they’re going to say, “’Oh well, I can just use an automated service.”
If you want to change, if you want better tech tools, talk to your fellow CPAs. Get more people involved. That’s the only way this industry changes; one person at a time.
And after spending the week at Tax Camp and understanding more about how new technologies are changing the tech landscape, the future of the accounting industry is so exciting. The best is yet to come!