Simplify your 1040 tax workflow: A comprehensive guide

It’s time to streamline with technology

The tax profession stands at a technological crossroads. As firms grapple with inefficiencies that strain resources and talent, a new era of AI-driven solutions promises to revolutionize processes. These innovations offer a path to enhanced productivity, improved client service, and a more engaged team.

From streamlining document collection to automating complex research tasks, the potential for transformation spans the entire tax preparation lifecycle. Forward-thinking firms are already leveraging these tools to tackle increasingly complex tax landscapes with greater speed and accuracy.

As the industry evolves, the question is no longer whether to adopt these technologies but how to implement them effectively. The journey to modernization touches every aspect of tax practice, from client document collection and data entry to the intricacies of the review process and the final delivery of completed returns.

Let's explore how embracing these innovations can equip firms to navigate the complexities of today's tax environment with confidence and precision.

Modernizing document collection

Requesting and gathering the necessary client documents and data is the first phase of the tax prep process. For most firms, this is the most challenging stage of the workflow process. It is also a primary source of workload compression, as clients are often slow to submit the required information — which can be especially true for firms that haven’t modernized their approach.

Typically, there are three different ways that firms have approached data collection: paper organizers, portals, or a file-sharing service. It is not uncommon for firms to use a combination of all these options, but, unfortunately, each of these three methods has its pitfalls.

1. Paper organizers. Firms usually print out paper organizers and mail them to clients in January. Paper organizers are probably the biggest source of workload compression because clients typically don’t send them back until they’ve received all their W-2s, 1099s, K-1s, etc. This process means preparers often receive the needed information late into tax season, which can cause a host of challenges.
2. Portals. Instead of printing the organizer, it is converted to a PDF and uploaded to a firm’s portal. The taxpayers must then log into the portal, download the documents, and print them all out. They then fill out the questionnaire, scan it with all their documents, and upload everything to the portal. This approach can be challenging since not everyone has a printer or scanner in their home.
3. File sharing. In this setup, firms use some type of file-sharing service to gather client documents. Similar to portals, using a file-sharing service can present the same inconveniences.

The reality is that today’s clients have grown accustomed to the conveniences and accessibility of mobile applications, even when it comes to financial services. They want and expect the same experience from your firm. Therefore, firms must modernize data collection to not only remain competitive but also to improve workflow. This approach means leveraging the right client collaboration tools that facilitate data collection and integrate with the tax software to automate 1040 preparation.

Collaborating and communicating

Consider, for instance, a tool that enables clients to collaborate, share, and communicate with the firm from anywhere and on any device.

Features to consider include the following abilities:

• Using a mobile app to photograph and upload documents as they’re received
• Automatically retrieving 1099s, 1098s, and W-2s for greater convenience
• Integrating with the tax software to automate 1040 preparation
• Viewing, approving, and storing tax returns within the online tool
• Messaging tax professionals from within the tool to ask them questions directly
• Signing e-file authorizations, engagement letters, and other documents from anywhere with e-signature capabilities

Properly introducing clients to such a tool can significantly improve the adoption rate. For example, you could mail clients a snail-mail letter in November and send them an email announcing the new tool in December. For higher-value clients, you may even want to follow up those written communications with a personal phone call to see if they have any questions. Ensuring your clients are well-prepared and fully aware of the upcoming changes is crucial. Both proper communication and thorough preparation are keys to a smooth transition and sustained growth.

Modernizing how a firm collects client data and leveraging the right client collaboration tools saves time. It also sets preparers up for success when preparing tax returns.

Automating data entry

After the source documents and client data are collected, preparing the tax return comes next. This process is the heart of the workflow and is often where firms spend a great deal of their time. Oftentimes, they spend much more time than they need to — this is especially true for those firms not using the latest technology to drive greater automation and leverage AI-driven research capabilities.

Though most firms automate some portion of their tax processes, small firms use automation the least. According to Thomson Reuters Institute’s 2024 State of the Tax Professional Report, an average of 43% of firms only automate 25% or less of their tax processes. Midsize firms use automation the most, relative to their workload, with one-quarter of firms automating between 26% and 50% of their processes and 20% automating more than half.

If your firm still relies on traditional methods and legacy tax systems, it can limit your efficiency and ability to compete with tech-savvy competitors, not to mention the growing number of clients who expect it.

After all, modern tax preparation software integrated with AI-powered research tools can significantly streamline the process, providing instant access to relevant tax codes, regulations, and case law as you work through complex returns.

Is your firm among those still manually putting together workpapers? Perhaps you’re scanning documents at the end of the process just for document storage or not scanning at all? Maybe you have administrative staff scanning documents, converting them to PDFs, and then manually dragging the thumbnails to create an index?

The process of manually putting workpapers together:

• Lacks standardization
• Is highly inefficient
• Increases the risk of errors

Firms can significantly mitigate these issues by implementing AI-driven research tools that integrate with tax preparation software. Such tools can help standardize processes, increase efficiency, and reduce errors by providing instant access to accurate, up-to-date information.

Firms looking to effectively improve the tax workflow process must first modernize document collection and then automate data entry to save time and drive greater efficiency.

Finding the right scan-and-populate solution

It is vital to leverage the right technology, especially a scan-and-populate solution that will help automate data entry. To do so, firms should implement a robust solution that utilizes artificial intelligence (AI) and machine learning to improve results.

Why? Traditional optical character recognition (OCR) relies on fixed templates that tell the computer where to look for data. With AI, the solution can create dynamic templates to make non-standard documents OCR compatible — a functionality that is essentially impossible with traditional OCR.

In addition, machine learning can establish rational thresholds for expected values. In other words, the OCR solution will learn to catch its mistakes before humans need to.

It is important to remember that OCR solutions require some human verification. Humans ensure the data extracted from the documents — the W-2s, 1099s, etc. — is accurate before exporting it into the tax software. While AI and machine-learning capabilities certainly improve results, firms that truly want to automate and streamline the preparation phase can also use a verification service whose staff will validate the accuracy of all OCR data.

An organizational tool

1040Scan is a solution from SurePrep, now part of Thomson Reuters, that bookmarks and organizes source documents into a standardized work-paper index that follows the order of the tax return. It integrates with several tax prep solutions, including UltraTax CS.

Furthermore, 1040Scan leverages AI and machine-learning capabilities and contains patented auto-verification technology — which can accurately auto-verify at least 65% of standard documents. SurePrep also offers firms an optional verification service.

Firms aiming to automate and streamline their preparation phase are utilizing tools like 1040SCAN and the verify service. This automation eliminates the need for data entry and verification tasks within the office. The system processes documents and sends them directly to the preparer, elevating their role to conducting the first level of review. It automatically assembles the workpapers, eliminating the need for the preparer to handle data entry or verification. By the time the preparer receives the documents, a significant portion of the data is already populated in UltraTax.

Integrating scan-and-populate technology with a robust tax software solution is also essential for optimizing workflow. This tech should use tax software that streamlines data entry, simplifies the filing of advanced returns, and provides ultimate integration capabilities and flexibility.

Features and functionalities to consider:

• Reducing duplicate data entry through automatic linking between business entities and personal tax returns
• Pulling in data from the previous year and using to-do diagnostics to link directly to the input field
• Emailing a list of missing data to clients with the click of a button
• Creating allocation worksheets automatically, making it easier to prepare multi-state returns
• Displaying all relevant information — including input, forms, prior year input, diagnostics, and more — at once on multiple monitors
• Integrating with a robust research platform powered by AI and machine learning to get targeted search results in less time
• E-filing and e-signature for a paperless experience

Revamping the review process

Reviewers bill time at the highest rate, making review the most expensive phase of the 1040 income tax process. Unfortunately, firms often overlook it as an opportunity for improvement. It’s time the review process gets a closer look and, in many cases, is modernized.

“The billable rates are so high, especially compared to some of these other tasks and whatnot, but firms don’t think about this,” said Corey Greene, Senior Product Marketing Manager at Thomson Reuters. “When they think about ‘Where can I save my time?’ they think about the data collection process; they think about the return preparation process. We need to think about the review process.”

The review process depends on the phases that happened before it:

• How does the firm gather documents?
• How were those documents prepared?
• Is the firm reviewing paper-based workpapers or PDFs?

Reviewing paper-based workpapers is very difficult and inefficient. Even firms that are reviewing electronic workpapers — like PDFs, Microsoft Excel, Word documents, etc. — have vital factors to consider, such as:

• How they’re managing the documents.
• Whether or not the documents are in a document management system. If they are, is there version control?
• Can you download the PDF or open it and edit it? Is there something that prevents someone else from also editing it at the same time?
• Are there multiple levels of signoffs in the document management system? In other words, can the preparer sign off on a work paper, and then a reviewer signs off on the work paper?
• Are there signoffs at all in the document management system?
• Does the document management system integrate with AI-powered research tools that can quickly provide relevant tax codes, regulations, and case law to support the review process?

While considering these key factors for selecting a document management system, it's also worth exploring how integrating AI-driven research tools can bring significant advantages. For example, implementing an AI-driven research solution can significantly streamline the review process. Such a tool can help reviewers quickly access relevant tax research and guidance, especially when dealing with complex tax situations or needing to support positions taken on returns.

Holistically integrating AI-driven research tools and a robust work-paper management system can not only standardize processes and improve efficiency but also significantly enhance a firm's profitability by minimizing review time and increasing staff leverage.

A tool to minimize review time and increase staff leverage

The good news is that several tools are available to help firms facilitate and improve the process. With the right work-paper management system in place, firms can minimize review time and ensure standardization by automatically bookmarking and organizing tax documents.

Furthermore, the right solution can help increase staff leverage. In other words, partners can review more work from more managers — and managers can review more work from staff. Adopting this high-leverage model will increase a firm’s profitability.

SurePrep SPbinder is a tax work-paper software solution that makes it easy to manage digital workpapers. With powerful preparation and review tools to streamline the process and shorten review time, you can maximize efficiency and increase your firm's profitability.

Firms must keep in mind that leveraging tax software with robust diagnostics and hyperlinks to industry-leading guidance and research can help them further improve the review process.

Tax return delivery: Still a lot of paper

How is your firm delivering the completed tax return to clients and processing payments? Many firms continue to use several different options when delivering tax returns. There’s still a lot of paper.

There are a lot of disjointed digital options, whether it be email, file exchanges, or portals. The problem is that nearly all these methods are time consuming. Also, almost all of them are inconvenient for both the firm and its clients.

“I see so many firms out there having to remind the taxpayer several times over what the next steps are that they need to take at this point in the process,” Greene said. “Think about your own experience and your admin staff’s experience if they’re the ones handling this process. Once you deliver that tax return, that end product to the taxpayer, how often are you getting questions from them about what different things mean, what they owe, or what refund they should be expecting?”

Beyond that, Greene noted that getting clients to complete their final tasks is a challenge. “How often do you have to reach back out to them saying, ‘Hey, have you signed that return yet? When can you get around to signing that return?’ Think about how many interactions are associated with this delivery stage of the workflow.”

A solution that leads to a better client experience

Firms can improve and modernize the client experience by leveraging the right 1040 client collaboration software. Implement a solution that makes it easy to deliver final tax returns, tax payment vouchers, and the firm’s invoice.

Furthermore, the software should enable clients to easily render knowledge-based authentication (KBA) e-signatures to sign Form 8879 for e-file authorization, make tax payments, and pay their invoices directly from an app for iOS or Android.

Interestingly, the Thomson Reuters Institute Future of Professionals Report found that 50% of firms believe that client appetite will significantly influence the pace of adoption of advanced AI-powered technologies. This statistic highlights the importance of choosing solutions that not only streamline processes for the firm but also enhance the client experience.

Then there’s the question of what the firm — and its clients — does with the tax information. Helping taxpayers interpret and consume the information is obviously important, and so is mining the data for additional growth opportunities. Therefore, it is essential not to overlook the value of customizable data mining tools.

For instance, let the system help you identify clients that fall into specific categories — such as qualified business income (QBI) deduction and cryptocurrency — and are ideal for additional tax planning or advisory services.

A talent management advantage

Weeding out inefficiencies in the firm’s tax workflow process leads to happier clients and improved profitability while also helping firms to better attract and retain talent. Talent has long been a concern for the accounting industry, fueled by the downward trend of new accounting graduates and the growing number of experienced professionals looking to wind down their careers and retire.

Additionally, the stresses of tax season do not help in your efforts to keep your most valued employees happy and productive — or to continue growing your team.

According to the recent State of the Tax Professionals Report, “Competition to find and keep good people is fierce, and shifts in both work culture and employee expectations have forced many accounting firms to adapt.”

Moreover, nearly half (49%) of professionals in the Future of Professionals Report mentioned earlier expressed a desire to focus more on achieving work-life balance, improving their well-being, or simply resting.

Implementing advanced AI-powered research tools can significantly contribute to staff development and satisfaction. These tools can help elevate the role of staff members by providing them with powerful research capabilities, allowing them to tackle more complex issues and grow professionally. By empowering employees with innovative technology, firms can offer more challenging and rewarding work, which can be a critical factor in attracting and retaining top talent.

Leveraging technology that helps ease the heavy workload of busy tax seasons means that staff are less stressed and have the time to focus on more fulfilling work. The right tools can also help any firm address these areas, creating better efficiencies so you can put your money to better use elsewhere in the practice. This reallocation can include making investments that improve the long-term financial health of your firm, compensation for employees, or providing your employees the opportunity for growth at your firm.

Greene said, “When you think about the talent issue — the talent difficulties that all the firms out there are facing — how could you not look for ways to elevate the role of the preparer and elevate the role of all your staff members; whether that’s elevating someone who typically focuses so much of their time on review work into more of an advisory role, preparer into more of a review role, or your admin staff into more of a preparer role?”

He continued, “With a lot of these tools, elevating these staff members is more and more possible and being enabled each and every day.”

By investing in advanced technology and AI-powered research tools, firms can create an environment that not only improves efficiency but also fosters professional growth and job satisfaction, addressing many of the key factors that attract and retain top talent in the accounting field.

Conclusion

In today's competitive environment, modernizing and streamlining your tax workflow is no longer optional; it's essential for the success and sustainability of your firm. Inefficiencies in tax processes can lead to unnecessary strain on staff, financial losses, and a competitive disadvantage. Advancements in technology offer a roadmap to address these challenges effectively, enabling firms to modernize the collection of client documents, automate data entry, improve the review process, and enhance the delivery of the completed returns to their clients.

Viewing technology adoption as an opportunity rather than a threat can lead to more meaningful client relationships, happier staff, and long-term success. Now is the perfect time to simplify your workflow with a trusted technology provider.

Recommended solutions from Thomson Reuters

UltraTax CS

UltraTax CS professional tax software automates your entire tax workflow and delivers powerful, time-saving tools. It seamlessly integrates with our other solutions, including CS Professional Suite, SurePrep 1040SCAN, and SPBinder, so you never lose any billable hours to manual processing. Meet all your tax workflow needs with a customized, end-to-end solution built on cloud computing, advanced data sharing, and paperless processing.

GoSystem Tax RS

GoSystem Tax RS is the tax software of choice for large firms and corporate tax departments, relied on by the top 100 CPA firms and designed to support all tax return types with unrivaled scalability. GoSystem Tax RS seamlessly integrates with our other solutions, including CS Professional Suite, SurePrep 1040SCAN, TaxCaddy, and SPBinder.

Checkpoint Edge

Checkpoint Edge is a next-generation research and guidance tool delivering the latest in artificial intelligence, cognitive computing, and machine-learning technologies, combined with our editorial staff's tax and accounting expertise. Spend less time searching and more time doing what matters for your practice. It enables you to find fast, accurate answers with a more fluid and intuitive user experience. See how AI and Checkpoint Edge can transform your tax and accounting research.

Onvio Firm Management

Onvio Firm Management is comprehensive, cloud-based software that lets you run your accounting practice more collaboratively than ever — from anywhere. Your firm can create the perfect client communication hub by combining document storage with secure online client accounts. Your staff and clients will always stay in sync with centralized data management and real-time updates. Plus, you’ll be able to work from anywhere using the convenient mobile apps.