Taxes have gotten remarkably simpler since the introduction of new technologies that semi-automate the process. However, like any technology, tax tech is poised to grow more advanced in the future. While it’s unlikely that the IRS will drastically simplify some of its more complicated forms, rules, exceptions, and procedures, we can produce more sophisticated technology capable of handling them.
So just where is tax tech headed from here?
Main Paths of Evolution
These are some of the biggest courses of growth we can expect in the near future:
1. Simpler, higher-level concepts.
At first glance, complicated tax forms like your 1099-MISC may seem almost intimidatingly complicated. They’re filled with different entry forms, long-winded series of instructions that differ based on tiny individual differences, and calculation sheets that require carrying values from multiple different areas. Advanced software will be able to take these forms and reduce them to their bare, high-level concepts. They can explain what the 1099-MISC form is in the span of a sentence or two, ask users only for the most relevant information (in plain English) and automatically take care of the remaining calculations.
2. Better integration with other systems.
Future tax-related technology will also be better at integrating with other systems. Currently, your tax software may be able to integrate with your accounting software—if they’re made by the same company. However, future tax planning software will likely be able to connect with any accounting software you use, plus things like bank accounts, investment portfolios, and any other place that keeps a digital record of your ongoing transactions. If you’re able to digitize your physical receipts and cash transactions, in the near future, you may be able to fully automate much of your tax preparation by tying these systems directly together.
3. More personalized interfaces and functions.
Tax preparation is also likely to become more intensely personalized, tailored to the individual or business using it. Currently, individuals and businesses see very different interfaces when preparing taxes, but soon, differences within those categories may emerge. For example, you may see different descriptions of forms based on your level of financial expertise, or be offered different options for write-offs based on your tax bracket and previous history. That level of customization will make tax preparation more convenient and more appealing to a wider range of people.
4. Efficient use of IoT.
By 2020, we’re projected to have a collective 30 billion internet-connected devices as part of the internet-of-things (IoT). It’s incredibly likely that tax preparation software will try to make use of this by tying directly into these operating devices. For example, if you make the majority of your purchases through a “home base” style smart device, you may be able to connect it directly to your tax software to draw in new information.
5. Real-time documentation.
For the past several years, advances in tax tech have leaned toward making systems more automated, especially for businesses. The next step here is to convert that automation into a real-time process, so individuals and business owners alike can project the tax consequences of their decisions. For example, tax-deductible items might be proactively flagged, with a projection of how much each purchase could influence your tax return. It may also help you more accurately budget your planned tax returns and expenses.
Like with most technologies, it’s much easier to predict broad potential changes than it is to accurately or precisely pinpoint how those changes will unfold (or when). Some of the top performers in the tax preparation software niche, including TurboTax, TaxAct, and H&R Block, will likely be frontrunners in these new, revolutionary changes, but don’t be surprised if a radical newcomer arrives to shake things up. In any case, your taxes are about to get even simpler, so keep watch for these technological milestones on the near horizon.