Cloud-Based Tax Practice Guide – – Leveraging Digital Tax Document Automation

Cloud-based tax preparation document automation solutions allow
practices to move into entirely cloud-based tax practice modalities

Tax preparation has evolved considerably from the old era of service bureaus, couriers and paper forms. Computer-based tax applications permitted tax returns to be prepared entirely in-house. And now, thanks to advanced Optical Character Recognition (OCR), source documents like W-2s, K1s, and brokerage statements can be scanned and automatically bookmarked and organized.  From that, the critical tax data can be directly exported to tax software without redundant manual entry.

…– See also: White Paper: Digital Tax Practice Cloud

If your goal is improved efficiency, the time and work you save not needing to organize your files and data into tax software is crucial, but it isn’t the most critical part of a modern cloud-based tax practice.

Cloud-Based Tax Practice Files and Workflow

With most cloud-based tax practice document automation systems, the process begins like this: First you scan the paper docs from your tax client, and then you process the scanned files through OCR.  The result is an organized PDF file that can be opened in a PDF editor like Adobe Acrobat or Nitro PDF.  

The above scenario would suffice IF you received all source client docs simultaneously, and those documents were all the files that you required to prepare the return.  Unfortunately, that’s not the real world of tax return preparation.

In reality, clients deliver their documents sporadically.  Trailing K1s and amended 1099s often come weeks after the initial “shoebox” is delivered.  With Adobe Acrobat, incorporating those late documents into the original bookmarked PDF is cumbersome and time-consuming so instead you create a new, separate PDF. If you receive a third set of late documents from the client you create a third, separate PDF. Think about the inefficiency of this process.

And what about those tax docs that never get scanned?

To leverage the advantages of cloud-based tax practice document automation you need a workpaper organizing tool with which to build an exhaustive tax binder containing all required file types. Adding trailing documents to your work paper file should be simple and fast. Annotation tools and sign-offs that work with scanned documents AND Excel spreadsheets, Word docs and emails should also be standardized and simple to use. Adobe Acrobat and Nitro PDF do not fill these critical requirements.

Greg Pope of SurePrep, a tax document automation software provider, offers these insights –

There are two key questions to ask when evaluating tax document automation solutions. First, how complete is the vendor’s document coverage list? Second, and most importantly, what workpaper tool will be used when preparing and reviewing the tax return?

Evaluating a vendor’s document coverage list is fairly straightforward. Document coverage lists show you which source documents can be automated. Some solutions automate just a few document types like W-2s and 1099s while others recognize an exhaustive list of government forms. Each additional document type equals incremental time savings so pay close attention to how many documents the OCR solution can recognize. The longer the list, the greater the time savings.

———-