Tax & accounting firms’ tech stack: A new look at what they need

The Thomson Reuters Institute’s recent 2024 State of the Tax Professional Report underscored a theme that many tax & accounting firms have continued to struggle with: The need to drive more efficiency. So, it isn’t a surprise that among the more than 500 tax firms surveyed in the repot from across the United States, Canada, the United Kingdom, and Latin America, driving efficiency is again listed as the number one priority for firms over the 18 months. (Not surprisingly, efficiency also held the number one spot in our 2023 report as well.)

According to the report, the need for improved efficiency is being driven by the number one challenge that tax & accounting firms are facing: The lack of or limited number of qualified candidates. This includes people with not only tax skills but technology skills as well. With only limited options, many firms are leaning into technology to get their work done more quickly and with better accuracy in order to provide clients with better-quality work overall. At the heart of the efficiency drive, tax firms must incorporate automation into almost all aspects of the way in which they work.

For tax firms to meet this challenge, firm leaders need to understand and determine what a proper technology stack should look like in order to meet firm needs. Indeed, a tax & accounting firm’s technology stack should be designed with its current and short-term business strategy in mind, as well as an understanding of the firm’s requirements. For example, tax firm leaders survey for the Tax Professional Report listed among their top investment priorities such items as tools to improve workflow processes, new tax technology solutions, and practice management tools.

For tax firms that are strategically contemplating and planning for their tech stack, the following factors should be explored: systems that integrate, advanced data analytics, artificial intelligence (AI), and the strategic use of cloud infrastructure.

3 technologies for consideration for the ultimate stack

1. Advanced data analytics and AI

The use of AI in tax technology isn’t new (and although new is a relative term, in the world of technology, anything greater than five years’ old is considered outdated.) In fact, use of tax technology dates back at least a couple of decades with machines assisting with simple tasks such as performing tax calculations and conducting some basic research. Over the years, some tax & accounting firms have slowly migrated to using tax technology for more complex work, including utilizing advanced data analytics and AI to provide more insightful, proactive, and personalized services.

For example, with the growing uncertainties of tax policies and regulations, tax firms may use software that employs predictive analytics. By analyzing trends gathered from historical data, firms can predict future patterns for their clients, such as potential compliance risks or financial opportunities. The use of AI and especially generative AI (GenAI) will continue to become a more important feature of tax technology.

Indeed, some firms may choose to work with AI and GenAI to research tax-related regulations and questions; others may choose to explore the use of machine learning to better assist with automation of routine tasks. Machine learning has the potential to automate the classification and extraction of data from unstructured sources such as invoices, receipts, and contracts.

Another AI-powered tool that can assist with automation is natural language processing, which can be trained to automatically read, understand, and interpret client emails and other communications while extracting relevant information for filing purposes and automatically routing queries to the appropriate department or response templates.

2. Blockchain for security and compliance

One element of any tech stack has to include considerations for security and compliance, especially as all tax firms’ work involves their clients’ personal information. Although not new, blockchain technology can help firms handle data integrity and security, through features such as:

• • • Smart contracts — Traditionally utilized by the legal industry, smart contracts can be programmed to execute tax payments when certain conditions are met, reducing delays and ensuring compliance.
    • Data integrity — Blockchain’s immutable ledger means once data is entered, it cannot be easily altered. This is crucial for audit trails and compliance, and provides transparent and secure record.

3. Integrated cloud infrastructure

Finally, integral to any technology stack an integrated cloud infrastructure that allows firms to streamline their operations because most of their data can be managed in a centralized way. Such technology allows for seamless integration of various tax software and applications, enhancing workflow efficiency and reducing errors by ensuring consistent data use across platforms.

The cloud infrastructure provides robust data security and compliance with tax regulations, which is critical for handling sensitive financial information. Additionally, it can offer scalability to handle peak times, such as tax season, without the need for heavy IT investments. Remote accessibility enables professionals to work flexibly from any location, which itself improves productivity and client responsiveness. Overall, an integrated cloud infrastructure supports more efficient, secure, and adaptable tax services.

The findings from the Tax Professional Report highlight a significant trend toward prioritizing efficiency within tax firms. This shift is largely underway and is being driven by the ongoing challenge of a shortage of qualified candidates, which has underscored the importance of integrating advanced technologies into everyday practices.

To address these challenges, many tax & accounting firms are developing a comprehensive technology stack that includes advanced data analytics, artificial intelligence, blockchain for enhanced security and compliance, and integrated cloud infrastructure. By doing so, these firms can not only improve their workflow and process efficiency but also enhance the quality of the service they provide to clients.

Further, this strategic adoption of technology will not only help in managing current firm limitations but also position these firms for future growth and adaptability in an increasingly digital and complex regulatory environment. As tax technology continues to evolve, firms that proactively invest in these technologies are more likely to thrive, ensuring client satisfaction and operational excellence going forward.

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You can download a full copy of the Thomson Reuters Institute’s recent 2024 State of the Tax Professional Report here.