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Taxes and fintech: two words most people aren’t used to seeing side by side. This will change.

Tax planning and reporting is the next big fintech trend. Yes, automation, artificial intelligence, robotic process automation and robots are always on our radar – and in fact, they are the tools that power tax planning. But it’s more than that.

Integrated tax

Integrated finance is one thing. These are automated payments, loans, investments, insurance and banking. The all-in-one model. The whole “integrated” concept makes functionality more accessible to everyone.

Integrated taxation incorporates this concept into, well, tax filings. Imagine your client having full control over their taxes via their smartphone. They don’t have to do much throughout the year to maintain their records or determine if they qualify for certain tax incentives. That’s about it there; the data is extracted from their bank.

When it’s time to do their taxes, they can file quickly and easily with their bank, get their refund faster, and it’s free. The bank would offer an integrated tax as added value for its customers. Not just digital banks either, your regional bank is getting involved.

This is where we come into tax as a service.

Tax as a Service (TaaS)

Similar to software as a service, which distributes applications to multiple users through a cloud provider, tax-as-a-service distributes a tax platform over the internet or a smartphone. TaaS is an on-demand, 24/7 application programming interface that seamlessly integrates with a host server, such as a bank. Using machine learning and AI-powered simulations, TaaS integrates into digital finance applications. With TaaS, people will be able to do their taxes from their phone in minutes.

These super apps are one of the big trends in fintech, and you’ll also see more of them in taxes. You can order a race or a meal with an application. You can do most of your banking on one app. So why not do taxes on an app too?

AI, ML and cloud computing are powering this behind the scenes. Technology and automation are already beyond what you are just beginning to see now. AI, ML, the connected digital ecosystem, Web3… it’s happening for the tax market.

What drives this transformation?

Taxes are expensive.

For starters, a person’s tax bill is one of their biggest expenses of the year. The average tax bill is $15,000 per year, which is not negligible. With all the money coming out, it’s a wonder the banks haven’t shown a more serious interest in being a part of it.

They are also costly considering the high rate of poor financial decisions surrounding taxes. While the average tax bill is $15,000, most people pay more than that, up to around $3,000 more. I know the age-old argument: “I’d rather get a lump sum payment at tax time.” But as an accountant, that’s just plain irresponsible; people are literally giving an interest-free loan to the US government. You know it, but most of your customers still don’t get it (or don’t want to change their hold).

Taxes are also misunderstood.

Tax planning is designed to help people get the most out of their money. But when its cost is beyond the reach of taxpayers who likely need it most, it perpetuates a general tax misunderstanding and missed opportunity.

And taxes are complicated.

The US tax code is an unwieldy beast for just about everyone. Add to that complicated tax scenarios like self-employment, multiple income or income streams, temporary tax legislation, and cryptocurrency, which are some of the main drivers of complicated tax compliance today.

Finally, taxes are boring.

Time is arguably the most precious resource and something we never have enough of. So why do people spend billions of hours a year filing their taxes? It’s annoying, isn’t it?! And expensive to start.

Fintech can make taxes less boring.

And tax planning is a huge opportunity…

  • Build and protect a heritage;
  • Help low- and middle-income people close the tax gap;
  • To make more informed financial decisions; and,
  • Using data analytics to get a better picture of our customers and clients.

But for all of this to happen, tax reporting needs to be integrated with financial institutions and tax applications. It must become streamlined. And it will be, eventually. Hopefully sooner rather than later. Some banks are already adding tax planning and reporting tools for their customers. There are already digital banks. And some banks even currently operate integrated tax applications. Of course, private equity, venture capital, and mergers and acquisitions are driving much of this growth in the tax and accounting sector. It will continue.
What’s in it for you?

Accountants have so many opportunities in fintech. And the beauty is that these innovations are still so new that we can literally create our own path forward.

Integrated tax, for example. A 1040 practice is already unprofitable. The tax laws are too complex, reporting takes too long, and it’s purely a compliance practice. Check the box. Produce the annual report. You don’t have time to plan the whole year or look ahead. This is a disservice to our customers and our businesses.

By handing over these 1040s to an integrated tax platform, the return is made automatically using information the customer’s bank already has throughout the year. It’s easier, faster, cheaper and less boring for them. And for you? More time for advice, to help this client optimize his money. Or to focus on different customers. Either way, win-win.

Then look at fintech as a whole. Imagine the career possibilities, especially for young accountants. It is no longer an area where there are only a few main tracks. Access to technology is a game-changer for the industry. These are just a few of the ways our roles can transform and evolve:

  • Auditors: They can move from a historical perspective to a month-end perspective to advising on strategic risks in a digital-first or digital-only environment, they will be able to contribute to business models and strategic planning
  • Tax advisers: They can shift from a focus on compliance to a focus on innovation; they understand money and strategy and can tell compelling trading stories with real-time data
  • accountants: They can move from data entry and manual accounting to leading transformation; they can bridge the gap between IT and finance; and they know how to leverage technology in a reporting environment

Then there are the possibilities for even newer roles. Fintech can facilitate regulatory compliance, linking value and purpose to business mission, to help business owners get a clear picture of their people, processes, and technology needs.
In the future, careers will be built alongside AI and technology. No need to spend so much time worrying about the big resignation or how to fill the pipeline with talented accounting graduates. They will want to work in this field because they know they can continue to grow, learn, and find purpose.

This is a big change, and it won’t happen overnight. But the opportunities are endless.

Factors influencing the growth of fintech trends

There remains the big question of when this transformation will occur on a large scale. It depends on a few different factors, like how new fintech companies fare in this changing environment, how quickly mainstream banks and credit unions pick up the slack, and what other innovative features will come. add to the built-in tax engines. That’s not to mention the IRS and ever-changing federal regulations and tax laws.

You also have to go out of your own way. Change is difficult. But it still comes. The best companies are embracing fintech and finding ways to integrate it into their business model. How long this transformation lasts very much depends on the extent to which we as an industry fight or embrace it.