The next big fintech trend is tax planning

Taxes and fintech: Two words that most people are not used to seeing side by side. That is going to change.

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

Built-in tax

Embedded economy is one thing. There are automated payments, lending, investments, insurance and banking services. The all-in-one model. The whole concept of “embedded” makes the function more accessible to everyone.

Embedded tax takes that concept into, well, tax returns. Imagine that your client has full control over their taxes via their smartphone. There is not much they need to do during the year to maintain their records or find out if they qualify for certain tax incentives. That’s pretty much all there; the data is obtained from their bank.

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

This is where tax-as-a-service comes in.

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 – such as a bank. By using machine learning and AI-based simulations, TaaS is integrated into digital financial apps. With TaaS, people will be able to pay their taxes from their phones within minutes.

These super apps are one of the big fintech trends, and you’ll see 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 pay taxes on an app too?

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

What is driving this transformation?

Taxes are expensive.

For starters, a person’s tax bill is one of the biggest expenses of the year. The average tax bill is $15,000 annually – no small sum. With the amount of money going out the door, it’s a wonder banks haven’t expressed more serious interest in being a part of it.

They are also expensive when you consider the high rate of bad financial decisions around taxes. While the average tax bill is $15,000, most pay more than that — to about $3,000 more. I know the age-old argument: “I’d rather get one lump sum back at tax time.” But as an accountant, that’s just irresponsible; people are literally making an interest-free loan to the US government. You know it, but most of your customers still don’t understand (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 beyond the reach of taxpayers who probably need it most, it perpetuates a general misunderstanding of taxes and lost opportunities.

And taxes are complicated.

The US tax code is an unwieldy beast for virtually everyone. Add to that complicated tax scenarios such as freelance work, multiple income or revenue streams, temporary tax legislation and cryptocurrency, which are some of the main drivers of complicated tax compliance today.

Finally, taxes are annoying.

Time is without a doubt the most precious resource and something we never have enough of. So why do people spend billions of hours a year filing taxes? It’s annoying, isn’t it?! And expensive to boot.

Fintech can make taxes less annoying.

And tax planning is a big opportunity…

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

But for all this to happen, tax registration must be integrated into financial institutions and tax applications. It needs to be streamlined. And it will be in the end. Hopefully sooner rather than later. Some banks are already adding tax planning and filing tools for their customers. Digital banks already exist. And there are even some banks leveraging built-in tax applications right now. Of course, private equity, venture capital and M&A are driving much of this growth in the tax and accounting sector. It will continue.
What is that 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.

Built-in tax, for example. A 1040 practice is already unprofitable. The tax legislation is too complicated, the return takes too much time, and it is purely a compliance practice. Check the box. Submit the annual report. There is no time for year-round planning or looking ahead. It is a disservice to our customers and our companies.

By delivering NOK 1,040 to a built-in tax platform, the return is made automatically using information that the customer’s bank already has throughout the year. It’s easier, faster, cheaper and less annoying for them. And for you? More time for advice, to help that customer take their money further. Or to focus on different customers. Either way, win-win.

Then look at fintech as a whole. Imagine the career opportunities, especially for junior accountants. No longer is this a field where there are only a few main tracks. Access to technology is a game-changer for the industry. These are just some of the ways our roles can transform and evolve:

• Auditors: They can go from a historical perspective to a month-end perspective to strategic risk consulting in a digital-first or digital-only environment, they will be able to contribute to business models and strategic planning
• Tax advisers: 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 transformational accounting; they can bridge the gap between IT and finance; and they understand how to leverage technology in a reporting environment

Then there are opportunities for even newer roles. Fintech can make compliance easier by connecting value and purpose with the business mission, helping business owners gain a clear picture of their people, processes and technology needs.
In the future, careers will be built together with AI and technology. You don’t have to spend so much time worrying about the big layoff or how to fill your pipeline with talented accounting students. They 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 possibilities are endless.

Factors influencing the growth of fintech trends

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

You also need to get out of the way. Change is difficult. But it will come anyway. The best firms are getting ahead 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.