The next big fintech trend is tax planning

Taxes and fintech: Two words that most people aren’t used to seeing side by side. That’s going to change.

Tax planning and filing is the next big fintech trend. Yes, automation, artificial intelligence, robotic process automation and bots are most definitely still on our radar — and in fact, these are the tools powering tax planning. But it’s more than that. 

Embedded tax

Embedded finance is one thing. That’s automated payments, lending, investments, insurance and banking. The all-in-one model. The whole concept of “embedded” makes the feature more accessible for everyone. 

Embedded tax takes that concept into, well, tax returns. Imagine your client having complete control over their taxes via their smartphone. There’s not much they have to do throughout the year to maintain their records or figure out if they qualify for certain tax incentives. It’s pretty much all there; the data is being pulled from their bank. 

When it is time to do their taxes, they can file quickly and easily through their bank, get their refund faster and it’s free. The bank would offer embedded tax as a value-add for its customers. Not just digital banks either — your regional bank is getting involved in this.   

That’s where we get into tax-as-a-service.

Tax-as-a-Service (TaaS)

Like software-as-a-service, which distributes applications to multiple users via 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 — a bank, for example. Using machine-learning and AI-based simulations, TaaS embeds into digital finance apps. With TaaS, people will be able to do their taxes from their phones in a matter of minutes. 

These super-apps are one of the big fintech trends, and you’ll be seeing more of it in tax, too. You can order a ride or a meal with an app. You can do most of your banking on an app. So why not do taxes on an app too? 

AI, ML and cloud computing are powering this behind the scenes. Tech and automation are already moving past what you’re just starting to see now. AI, ML, the connected digital ecosystem, Web3 … it’s coming for the tax market. 

What’s driving this transformation? 

Taxes are expensive. 

To start with, a person’s tax bill is one of their biggest expenses of the year. The average tax bill is $15,000 annually — no small amount. With how much money is going out the door, it’s a wonder that banks haven’t expressed more serious interest in being a part of it.  

They’re also expensive when you think about the high rate of poor financial decisions surrounding taxes. While the average tax bill is $15,000, most people pay more than that — to the tune of about $3,000 more. I know the age-old argument: “I’d rather get one lump sum payment back at tax time.” But as an accountant, it’s just irresponsible; people are literally giving an interest-free loan to the U.S. government. You know that, but most of your clients still don’t get it (or don’t want to change their withholding).  

Taxes are also misunderstood. 

Tax planning is designed to help people get more out of their money. But when the cost of it is out of reach for taxpayers who probably need it the most, it perpetuates an overall misunderstanding of taxes and missed opportunities.

And taxes are complicated. 

The U.S. Tax Code is an unwieldy beast for practically everyone. Add to that complicated tax scenarios like freelance work, multiple streams of revenue or income, temporary tax legislation and cryptocurrency, which are a few of the main drivers of complicated tax compliance today. 

Finally, taxes are annoying. 

Time is arguably the most precious resource and something we never have enough of. So why are people spending billions of hours in a year to file their taxes? It’s annoying, right?! And expensive to boot. 

Fintech can make taxes less annoying.

And tax planning is a huge opportunity … 

• To build and protect wealth;
• To help low- and middle-income earners close the tax gap;
• To make more informed financial decisions; and,
• To use data analytics to get a better picture of our customers and clients.

But for all that to happen, tax filing needs to become embedded within financial institutions and tax applications. It needs to become streamlined. And it will be, eventually. Hopefully sooner rather than later. Some banks are already adding tax planning and filing tools for their customers. There are already digital banks. And there are even some banks leveraging embedded tax applications right now. Of course, private equity, venture capital and M&A are spurring a lot of this growth in the tax and accounting sector. That will continue.  
What’s in it for you? 

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

Embedded tax, for example. A 1040 practice is already unprofitable. The tax laws are too complex, the returns take too much time, and it’s purely a compliance practice. Check the box. File the annual return. There’s no time for year-round planning or looking ahead. It’s a disservice to our clients and our firms. 

Handing that 1040 off to an embedded tax platform gets the return done automatically using information that the client’s bank already has throughout the year. It’s easier, faster, cheaper and less annoying for them. And for you? More time for advisory, to help that client take their money further. Or to focus on different clients. Either way, win-win.

Then, look at fintech as a whole. Imagine the career possibilities, especially for younger accountants. No longer is this a field where there are just 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 strategic risk advisory in a digital-first or digital-only environment, they’ll be able to contribute to business models and strategic planning 
• Tax advisors: They can move from a compliance focus to an innovation focus; they understand money and strategy and can tell compelling business stories with real-time data
• Accountants: They can move from data entry and manual bookkeeping to transformation lead; they can bridge the gap between IT and finance; and they understand how to leverage tech in a reporting environment

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

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

Factors influencing the growth of fintech trends

There’s still the big question of when this transformation will happen on a large scale. That depends on a few different factors, like how newer fintech companies fare in this evolving environment, how quickly mainstream banks and credit unions catch on, and what other innovative features will come on top of integrated tax engines. That’s to say nothing of IRS and federal regulations and constantly changing tax laws.

You also need to get out of your own way. Change is hard. But it’s coming anyway. The best firms are getting out in front of fintech and finding ways to incorporate it into their business model. How long this transformation takes depends a lot on how much we as an industry fight it or embrace it.