Software Survey: Taking tax planning beyond tax prep


Officially, tax season is over, other than the ongoing process of extensions and entities other than individuals having different fiscal years. And chances are, no matter how well you did for your clients, most of them expected to pay less in taxes than they actually owed, or felt that they deserved larger refunds than they actually got. When it comes to taxes, a totally satisfied client is a rarity.

But getting your client the best outcome isn’t a matter of chance. They have to plan their income, expenses and investments carefully. Some clients are great at this. Many are not.

Tax planning is an important service provided by many practitioners. And the right software is a key component, along with a great understanding of the Tax Code, in giving your clients the best advice and helping develop a plan that will best serve their financial goals.

In some practices, the tax planner will also work as a financial planner for the client. In many practices, however, tax planning and financial planning may be handled by two entirely different entities. It’s important, as a tax planner, to work hand in hand with a client’s financial planner if your practice isn’t providing both services. 

Hitting the high points

Taxes are the one thing in life that rarely stay static. And hitting that moving target requires a great deal of awareness of what changes are happening, what are in the works, and the impact that these changes will have on the taxes your clients will ultimately be responsible for. To provide a heads-up on some of what you can expect and how software providers are addressing the changing tax environment, we asked a virtual panel of providers of tax planning software where they thought the current issues in planning were, what issues and problems are on the horizon, and how they are addressing these issues. 

Andrew Argue, a CPA and the CEO of Corvee, felt that new tax legislation is a critical consideration, especially given the current economic environment and the effects that the COVID-19 pandemic has had.

“One of the biggest potential issues in the tax planning process for the current and upcoming years is possible legislative changes from the Biden administration, including tax on unrealized gains, raising the corporate rates to 28%, repeal of 1031 like-kind exchanges, tax on carried interest, and a variety of other proposals,” he said. He also noted that tax planning may be a good new source of revenue for some preparers. “With the recent legislative changes driving preparation complexity, slow responsiveness, and understaffing at the IRS, increased automation, and fee competition, preparers have to make the decision of whether or not they want to move to tax advisory services and tax planning. With all of the recent government benefits including PPP, EIDL, SVOG, RRF, ERC and more, taxpayers are more aware now than ever they may be missing out on tax advantages.“

But Argue wasn’t the only one to point out the extensive effects the last two years have had, not only on our lives, but on the way we and our clients work.

Cathy Rowe, vice president of product management for tax for the U.S. professional market at Wolters Kluwer Tax and Accounting North America, also noted similar upheavals in the tax environment that are driving increased and enhanced tax planning. “The current environment has significant tax planning implications that must be considered, driven by economic volatility, rising inflation rates, supply chain issues, remote work and changes made by the Tax Cuts and Jobs Act provisions,” she said. “The uncertainty of federal tax reform also adds to the planning uncertainty.”

She pointed out several specific areas that need to be addressed in tax planning, starting with state and local tax changes: “The shift to remote and hybrid work across most industries has created challenges in how employers and their employees are subject to state and local income taxes. Many states offered temporary administrative relief and guidance addressing employee withholding and reporting rules during the pandemic. With this guidance expiring, businesses and employees must consider how states deal with continuing remote and hybrid working arrangements. Businesses should also be assessing how shifting arrangements affect the tax treatment of travel and commuting costs and payments for expenses related to employees working from home.” Rowe also mentioned potential federal tax legislation and international planning as areas that will be important to planners.

And Bloomberg Tax president Lisa Fitzpatrick added Build Back Better Act ambiguities, particularly around the research and experimentation credit, to the mix.

“Given the stalling of the Build Back Better Act in the U.S. Senate, calendar-year taxpayers are faced with the reality of mandatory capitalization of R&E expenditures under IRC Section 174 for tax year 2022,” she said. “Although anticipated for tax years post-2021 (due to Section 174 amendments under the 2017 Tax Cuts and Jobs Act), mandatory capitalization must now be considered for 2022 quarterly provisions and estimated payments, as retroactive relief is not guaranteed. The stalled BBBA leaves numerous tax provisions (including R&E, energy incentives, and the U.S.’s position on a global minimum tax in alignment with BEPS Pillar Two, to name a few) in limbo, with tax departments forced to plan through the ambiguity.”

Zac Meyer, senior director of product management for tax, advisory and accounting at Thomson Reuters, also made the point that the right tax planning software can enhance the firm’s capability to provide service to its clients. “One of the biggest tax planning challenges we hear from customers is the ability to use their data as a foundation for insights to provide client advisory services that go beyond tax planning,” he said. “Some firms are looking to solve this challenge by hiring new talent focused on data mining and insights. Realistically, most firms can’t afford to hire a full-time data scientist, and instead are looking for a technology-based solution.”

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Put a robot on your payroll

Artificial intelligence and machine learning are two of the newest technologies being folded into many accounting and tax applications. When we asked our virtual panel if they felt these technologies had a place in tax planning, we were met with an overwhelmingly positive response.

“Yes, most certainly,” said Shekinah Cravens, senior product manager for the Accountants ProConnect Group at Intuit. “We envision leveraging AI and ML to proactively identify clients that would benefit from tax advice, to predict client actions and propose corresponding ways to save on taxes, and to customize the strategy selection process for accountants.” 

“New technologies have always played a role in delivering two key benefits for the profession: identifying relevant data to inform decisions and accelerating the time it takes to complete tasks,” Thomson Reuters’ Meyer told us. “As one example, ML and AI can be applied to identify planning scenarios for clients through the lens of regulatory content and external data, and then used to surface insights and potential next steps. There are other examples of this approach across fintech, especially in digital investing and financial planning.”

And Bloomberg Tax’s Fitzpatrick was equally enthusiastic. “Optimization and strategic automation are essential to the success of today’s corporate tax function,” she said. “AI and machine learning, when deployed thoughtfully and strategically, can enhance the corporate tax function, which is increasingly called upon to do more with less. AI and machine learning can supplement the human corporate tax function by automating more routine and manual processes (in areas such as provision and compliance) which will then free up corporate tax department members for high-value-add tax planning.”

Finally, Corvee’s Argue added, “There are two major areas where AI and machine learning will play a large role in the coming years. The first is analyzing new and old tax laws and providing advice, insights and strategies that haven’t historically been available to tax preparers looking to simply file returns for compliance. Second, each year there are hundreds of millions of files that are transmitted electronically to the federal and state governments. This data can be analyzed and compared against the tax law in order to determine where taxpayers are falling short of legal requirements. Over the coming years, you’ll see advances in AI and machine learning that will enable tax professionals to ensure that their clients are taking full advantage of the tax laws in total, rather than just completing the core forms for annual filings.”

Planning for the ephemeral

Tax planning is difficult enough when you know the currency that you’re working with. With its extreme volatility, planning with your clients who hold significant amounts of cryptocurrency can be an order of magnitude more difficult. Many of our panelists were honest about the state of their software when it comes to incorporating planning for cryptocurrency.

Cravens said that Intuit is still in the development process. “As legislation around cryptocurrencies firm up, we are considering providing tax saving strategies for our accountants who have clients dealing with cryptocurrencies,” she said.

But others, such as Corvee, have gotten a bit further along in their approach to handling crypto. “There are two major issues regarding crypto and tax,” Argue explained. “The first is determining how much you owe in taxes and making an estimate during the year. There are a variety of companies (TaxBit, CoinTracker, etc.) that do a great job helping taxpayers and tax advisors determine estimated and final amounts owed. These can be incredibly complex when you start considering new areas of crypto such as farming, liquidity pools, staking and other areas of decentralized finance. The second is dealing with the capital gains associated with crypto. It is our belief that the best way to deal with crypto gains is not to approach them directly, but to look at them as part of the taxpayer’s overall life and business. What else is going on with their 1040 and related schedules? What about their businesses? Real estate? In order to approach selling cryptoassets for gains, a holistic approach to tax planning can best address tax mitigation.”

And partnering with a company active in the cryptocurrency world is another approach. “To help firms handle the rise in crypto trading, Thomson Reuters partnered with Ledgible last fall to streamline the tax compliance workflow process for transaction data gathering and reporting,” said Meyer. “With UltraTax CS and GoSystem Tax RS, firms can connect with a client’s cryptocurrency portfolio, automatically calculate taxable gains/losses from activities, and import that data into a client’s tax return. From there, the client’s overall gain/loss data can be imported to Planner CS along with other tax return data for additional adjustments and planning.” 

And keeping up with exactly what is happening with the quickly changing tax and economic components of planning is a vital part of helping implement the best strategies, Bloomberg Tax’s Fitzpatrick noted. “New legal and tax questions emerge daily around the highly complex, ever-evolving digital world of cryptocurrency and other digital assets,” she said. “The increased scrutiny of cryptocurrency by the SEC and IRS requires tax practitioners in the crypto space to continuously educate themselves. Bloomberg Tax is addressing this need by providing a comprehensive news vertical that combines tax and legal developments on crypto, [nonfungible tokens], and the multiverse. Bloomberg Tax also provides detailed analysis of the taxation of cryptocurrencies in the United States, including trading and investing considerations, issues for investment entities, and information reporting and compliance rules, and provides information about the tax treatment of cryptocurrency in other countries when clear guidance is available.”

The more things change …

Tax planning as a service offering has always gone hand in hand with tax preparation. But staying up to date with improvements in the software used to perform this service has increased exponentially in importance with the extreme changes in tax law, as well as new economic realities such as cryptocurrency. Integrating these enhanced capabilities is not only a matter of applying enhanced software to the process, but understanding these enhancements and how they affect both the process of planning and their application to your clients’ individual circumstances.

The potential for increased ability to serve your clients, as well as the concurrent increase in your practice’s revenues, makes this area of practice very much worth examining and implementing, or upgrading your practice’s capabilities.