How Technology is Changing the Way We Do Our Taxes

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Back in 2007, almost 80 million Americans filed their tax returns through the internet. This was an estimated 57.4% of all the tax returns that had been filed. Five years later, this has increased to a massive 82.4%.

A lot of people have discovered that filing your tax returns through the internet with a professional, or filing it themselves with software from home is much more comfortable and efficient. So how has technology changed the filing system from how it was before? We will show you a comparison of how it used to work and how it works now.

How Filing Tax Returns Has Changed Over the Years

Before e-filing was even available, all the taxes were filed using a lot of paper-work. The first e-filing system launched in 1986 and only three metropolitan areas were participating in this: Cincinnati, Raleigh-Durham, and Phoenix. That year only 25,000 tax returns were filed electronically.

In 1987 this system expanded to 7 cities increasing the number of filed tax returns to 78,000. At that time it also became possible to get the tax returns directly deposited into your bank account. Five years later, in 1992, e-filing was available everywhere in America, which led to millions of people filing their tax returns.

In 2002, filing tax returns became utterly paperless.

Before e-filing was accessible to everyone, tax preparers used computers to file the tax returns for their clients. However, many tax preparers weren’t interested in the way this system worked. According to the IRS, a lot of people thought this was just a ruse to obtain personal information from the tax returners.

So How Did the Initial Tax Process Work Before E-filing Then?

First, a tax prepared had to call an IRS phone line, the IRS employee had to plug the phone into a tape/modem recorder, which was called a ‘Mitron’. Through this recorder, the tax information got recorded on the tape. Then, the tape was inserted into a mini-computer called the ‘Zilog’. This handy little computer changed the data in such a way that it was understandable for the IRS data system.

To confirm this process, the IRS employee called the tax preparer. Who in return had to plug their phone into their modem again to obtain the transmission. As you can see, we have already come a long way to make tax returns more efficient and fast.

How the Modern Tax Return System is Right Now

In the way the contemporary tax return system is right now, we can quickly figure out where specific numbers are coming from and how they got calculated. Access to forms, guidance, and other instructions works much more manageable now as well.

Often tax programs are stored in a cloud, so it is accessible everywhere for everyone when you have an internet connection. Besides all these already convenient features, some of the programs can also help the preparers to procure missing data from their clients. This can be done by directly sending emails to the clients, while others accept receipts of information returns from payors.

How Will the Tax Return System Be in the Future?

No one knows for sure how the tax returns are going to be in the future. What we do know for sure is that: tax return software is increasing in complexity. This results in fewer people filing their taxes with a certified public accountant or a tax preparer.

People with an income of less than $60.000 a year can already file their taxes for free with the IRS. However, people with more complicated returns, for example, business owners, are likely to keep using a CPA or tax preparer. 

Automatic Filing 

Or what about a system where no one has to file their taxes, and this gets done automatically? In a tax withholding system, the tax which is due will automatically get deducted from your income. 

Reconciliation System

Another system is the reconciliation system; here, people will give their information to a tax agency, who in return will file their taxes on their behalf. Both of these methods save a lot of people from having to file an annual tax return form.

There are already six countries using these systems; these countries include Germany, Japan, UK, Russia, Sweden, and Denmark. Of course, the globally changing economy, and tax legislation play an important role too. They are bound to change, and with these changes, the filing system has to adjust as well.

The Push for Ending Tax Cuts

Tax cuts, especially for the wealthy and big corporations, have become a hot topic in the political landscape. Although it may be a long way away it may be that we could see a decline or an elimination of some tax cuts and deductions in the future. This will also play a significant role in the possibility of an automatic taxation system. 

To Sum It Up

As mentioned above, tax returns have come a long way. The methods on how to file them have changed a lot over the years, increasing its efficiency and user-friendliness. Besides that, tax returns are more accurate now, refunds come quicker, and it is clear on where specific numbers are coming from.

Paper-work is no longer necessary, which has improved to make tax-returns more comprehensive and puts less stress on the environment. More and more people are filing their taxes through the internet; this will be bound to increase even more over the years to come.

There are numerous forms and programs available like a w2 generator, so make sure to spend some time to research what kind of programs and forms work the best for you. The way the tax systems work are bound to change in the future, so stay up-to-date and file your taxes on time to get your returns as soon as possible.

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