The way taxpayers have been preparing and submitting their tax returns to the government has evolved throughout the years. It started with manual filling of IRS forms by tax advisors, continued with the development of professional tax software that do most of the calculations for the tax preparers (allowing them to focus on tax advisory and planning) and ends with the most recent trend of e-filing, which allows taxpayer to prepare their own tax return without using a tax professional and submit their tax returns directly to the authorities online!

So, where do we go from here? Is e-file taking 100% of the industry? Is the tax preparer profession doomed? Some believe the future of tax filing is a combination between online tax software with “real-life-event-approach” and direct access to live tax professional for on-demand advice.

Back in the old days…

Before e-file and before tax software it was the tax professional who collected the relevant data from the taxpayer (which often brought a shoe box full with bills, receipts and tax information) and then spend hours (if not days) to manually fill out all the tax forms required by the IRS and calculating each and every line in each and every form. This extremely time consuming task, done to the light of many candles as you can imagine, left little time for tax advice or tax planning, resulted in more errors and resulted in longer processing time for a refund.

Computers, the super heros of the tax industry…

When computers arrived to the scene, the tax industry has slowly started change. Tax professionals, who quickly adopted the new comers, were able to prepare a return faster and with less errors, mainly due to the use of basic spreadsheets that made tedious calculations a much easier engagement. However it was still a manual process to fill out the actual tax forms, and mailing them to “Big Brother”.

Professional Tax Software – the real change maker…

It was not until professional tax software became available, when the industry saw some really big changes. Those new creatures had a library of tax software in them, permitting the users to key in, change, erase and add the tax data, and then print a complete return, all done on the computer. No more manual. Wow. Suddenly, tax preparers did not have to do any manual form filing, any manual calculations; it was all done by the software.

The preparer was in charge of collecting the data, entering it into the software and after error proofing, just click to print and “halleluiah”, it’s all ready to be filed. Still submitting the return was done by the old fashion, U.S. post office.

This new development allowed the tax advisor to focus on tax planning, maximizing the taxpayer refund and looking at the big picture, now that all the manual work has been taken by the software.

Consumer Tax Software – can they really do-it-themselves?

After the professional tax software idea proofed to be successful, some Tax Advisors computers geeks decided to take it to the next level and allow almost any John Doe to act like a tax professional. How did they do it? The geniuses simply took the basic features from the professional tax software, the most common forms, the most common deductions, the most basic credits and package it as a do-it-your-self tax software. Even if it started slow, it really caught up and quickly millions of taxpayer dropped their tax advisors and cheated with Turbo Tax, Tax Cut and alike.

For much lower fee, John Doe, could now prepare his own taxes, at 2:00 o’clock in the morning, enjoying a fresh cup of coffee at his kitchen table. No more, going to the tax professional, no more waiting days for the returns, no more paying high fees, finally FREEDOM (the only issue with these packages is that you had to actually buy a software and install it on your hard drive before you could use it. So, you could only use it at your own computer).  Submitting the returns to the IRS, as before, was done by printing, signing and mailing. For the tax preparers, this was a shocker, the sky is falling, and nobody needs us any more…

Help, arrived from an unexpected source, the government. As the tax software became easier and friendlier to use, the tax laws became much more complex. So for many taxpayer with simple returns, the do-it-yourself solution worked pretty well, but more all others, the lack of advice from a tax advisor, resulted in errors, higher taxes, and more IRS audits. Tax preparers are safe again. For now…

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