The hallowed tax season is upon us, and American citizens are again preparing themselves for the filing process.
The ordeal costs, on average, nine hours of taxpayers’ time. However, according to a study conducted by April, time spent is not their biggest concern.
“Our federal tax code has grown from about half a million words to 5 million words over the last couple of decades, and it’s gigantic,” said Ben Borodach, Co-Founder and CEO at April.
“While we’ve created more credits and deductions for various Americans, the software and services designed to help people take advantage of the tax law have not kept up.”
This delay in software development has left many citizens confused, despite wanting to understand the system further.
“We found that 40% of Americans actually want to engage in their taxes more frequently,” continued Borodach. “They want to understand what credits and deductions and services are being made available to them and how they can optimize their taxes.”
“When it comes to their tax situation, even the most financially literate of our groups don’t have access to or understand their taxes,” said Fay Scott, April’s VP of Marketing. “So it’s this black box that they only spend the audit process of tax filing really engaging with.”
“What’s interesting is the entire category of tax software is leaning into “spend less time on your taxes,” but what this report is saying is actually people want to engage more. They want to understand it better.”
Developing an AI tool powered by machine learning could make all the difference for them.
AI could be the missing piece
April has developed a tax filing solution they regard as a “pocket tax advisor,” working with real-time integration with users’ finances and using AI to determine possible ways to optimize taxes.
“There are two main things that April is bringing to the issue,” said Borodach. “One is a more personalized tailored experience for each taxpayer. That’s where we bring machine learning and AI. And the second one is by bringing taxes into your typical consumer finance process.”
“Right now, taxes are on an island. So we’re all going through tax season right now. And we’re all doing a retrospective.”
“What April does is by embedding this into your bank account, into your payroll, into your investment platform, we allow you not only to save time and get more tailored advice but also to make better financial decisions when the opportunities are present.”
Seven shades of the tax filer
April’s report identified seven unique approaches people took to file taxes.
On identifying these personas, their focus turned to the potential for different tax filing experiences to meet the needs of each one.
“Right now, you have a DIY digital software, which is TurboTax, which serves about 70% of the tax software market,” said Borodach. “You now have one software which took all the 1000s of questions and took them from an analog state in paper form and made them digital.”
“So the 24-year-old Uber driver with a student loan, Owen, is getting the same experience as the 45-year-old who works at the local grocery store and has two kids. We really need solutions that work for everybody and allow and allow them to be tailored to each specific situation.”
Using AI and financial integration, the April system can identify the user’s needs and adjust advice according to their needs. In this way, they can also advise on possible tax credits and deductions for consumers to make the most of the relevant benefits the system has in place.
Accuracy and understanding rank highest
April’s survey found that 29% of respondents felt that “Ensuring I’ve entered my information correctly and accurately when filing my taxes” was one of their highest priorities.
Tax reports made up of open-ended questions and relying on high levels of self-reporting leave much room for human error.
Many respondents were concerned that they weren’t yet taking advantage of the tax system to achieve the maximum return for their situation due to this lack of understanding and fear of error.
“What this report is saying is actually people want to engage more. They want to understand taxes better,” said Scott. “Spending less time on your taxes was ranked priority seven out of 10. Above that was estimating your taxes ahead of time and easy-to-understand guidance along the way.”
“The whole tax software category is optimizing to a need people are saying isn’t important to them….Currently, taxpayers are not being met by market solutions.”
Some turn to their trusted tax advisor to help them navigate the waters, but for many, the cost of an advisor excludes it as an option. Despite this, the study found that people would pay for a system that could help them navigate the tax code.
“A lot of people are willing to pay to have a better tax experience,” said Borodach. “This is a category ripe for disruption, people are ready for it, and they’re willing to pay a premium for a better product and service.”
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