The hidden cost of tax errors—and how technology helps prevent them
Highlights
- Staffing shortages, rising complexity, and manual processes are driving an increase in tax preparation errors.
- Technology can significantly reduce manual data entry, improve verification accuracy, and flag issues before filing.
- Improved precision improves profitability by reducing rework, avoiding penalties, and strengthening client relationships.
Human errors in tax preparation are unavoidable, but when left unchecked, those small mistakes can start to add up. According to a 2024 Gartner survey, 18% of accountants make financial errors at least daily, with a third making errors every week, and 59% admitting to several errors per month.
The accumulative cost of inaccuracies might be draining more time and money from your practice than you realize. Let’s examine the importance of precision in tax filings and explore some best practices and technology that can help.
Jump to ↓
Why accounting errors are on the rise
Most common error types in tax preparation
How to ensure precision in tax preparation
How to ensure precision in tax review
How to ensure precision in tax research
Turning precision into profitability
Why accounting errors are on the rise
Withdrawn financial statements due to public accounting errors hit a nine-year high in 2024 according to data from Ideagen Audit Analytics. So what’s the cause of this trend? While it’s easy to chalk it up to carelessness, it could be a symptom of systemic issues that have been troubling accounting firms for years.
Staffing shortages
Recently, the industry has seen more accountants retiring or changing careers than students graduating from accounting programs. This trend has created a talent gap that’s forcing firms to squeeze more production out of a smaller staffing pool. When tax professionals are pressured to work harder, faster, and longer, error rates will inevitably rise.
Uptick in complexity
Regulatory bodies have made significant changes to accounting standards in recent years to ensure transparent and accurate reporting. Unfortunately, the burden falls on tax pros to keep up with frequently changing guidelines and avoid outdated practices. Several new provisions in the One Big Beautiful Bill Act are expected to further challenge precision in tax filings.
Overreliance on manual processes
To keep up with competition, accounting firms generally aim to grow their profitability with each passing year, which often means taking on more work. However, outdated manual processes weren’t designed for today’s increased pace. Without the assistance of automation, overworked preparers are bound to experience an uptick in errors.
Most common error types in tax preparation
There are plenty of ways to get a tax return wrong, and any one of them could result in e-file rejection from the IRS. Here are the most common liabilities to precision in tax filings that every tax pro should be aware of.
- Data entry errors
- Miscalculations
- Incorrect identifying information
- Incorrect deductions
- Failure to report cryptocurrency transactions
- Missed deadlines
How to ensure precision in tax preparation
When tax preparers manually input data for hours on end, fatigue sets in and the likelihood of errors increases exponentially. The solution is simple: Leverage automation to decrease preparer workloads.
Consider the Thomson Reuters approach.1040SCAN automatically scans and organizes client documents, then uses OCR technology to extract data and export it directly into tax software. But just like humans, OCR isn’t perfect. That’s why 1040SCAN also auto-verifies data on 65% of standard documents using text-layer matching and AI, eliminating the need for manual OCR verification on those items.
For the remaining fields that are still unverified, 1040SCAN’s Review Wizard displays the original document and captured data in adjacent panels, creating a standardized verification workflow that’s faster and more reliable than manual entry.
How to ensure precision in tax review
Reviewer time is valuable, and meticulously combing over each field in a tax return isn’t conducive to a profitable tax workflow. That’s where Thomson Reuters UltraTax CS assists with precision in tax filings. The software runs pre-submission automated diagnostics that automatically flag missing values and inconsistencies. Users see real-time previews of how each entry affects the return, catching potential issues before they become problems.
The system automatically generates checklists of fields where you had entries last year but haven’t entered data this year, helping spot omissions that might otherwise slip through. The software also features seamless data sharing that automatically populates related returns, eliminating duplicate entry and the transcription errors that come with it.
How to ensure precision in tax research
Any tax pro knows that keeping up with changing compliance guidelines isn’t easy. Here’s the good news: Your team no longer has to choose between hours of painstaking research and relying on their best guess. With AI-powered research assistants like Thomson Reuters CoCounsel Tax, in-depth expertise you can trust is just a search away.
CoCounsel Tax generates citation-backed answers based on content from Checkpoint, IRS Code, and government web sources, ensuring all information is accurate and up to date. It even integrates with Microsoft SharePoint to reference your firm’s internal documentation and factor it into its outputs. The result: Lightning-fast research your team can feel confident in.
CoCounsel Tax & Audit ROI Calculator
Discover how much time your firm may save by using agentic AI to answer questions and autonomously complete tasks and workflows
Calculate your savings ↗Turning precision into profitability
What does improved precision in tax filing look like? When firms significantly reduce their error rate, they’re saving direct costs in rework, avoiding IRS penalties, and protecting client relationships that might otherwise be at risk. The technology investment pays for itself through multiple channels: fewer unbilled correction hours, reduced staff time responding to errors, lower penalty exposure, and improved client retention.
Accuracy isn’t an expense. It’s an investment that pays dividends in retained clients, reduced rework, and protected margins. The firms that understand this distinction are the ones building sustainable competitive advantages in an increasingly challenging market.
Interested in learning more about the hidden benefits of building a stronger tech stack? Check out our exclusive white paper to get stats, insights, and examples of the ROI behind tax technology.
Know your tax workflow ROI: The true cost of manual processing vs. automation
Find out where firms’ manual processes are hurting profitability and learn why automation is the operational answer for ROI gains
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