The Tax Professional’s Guide to a Paperless Tax Workflow

Recommended Reading: Scan & Populate Gains Traction

Industry expert Greg Lafollette recently took to his blog, TheTechGap.com to talk about one of my favorite topics—scan-and-populate tax document automation technology. 

This technology has gained tons of traction over the last few years, with major suite vendors—CCH, Thomson Reuters, and now Intuit—entering into the category by releasing products that automatically import data from scanned tax documents into their respective tax software packages.

Greg is quick to note that the “best of breed” product, Copanion’s GruntWorx, is far superior to the in-suite products from the Big Three.  He says:

“The market leader is Copanion’s GruntWorx which is now marketed by the AICPA’s CPA2Biz affiliate. They were formed in 2006 and now offer a very full and rich stable of capabilities including a newly released “gather” function and direct populate functionality to GoSystem Tax RS, UltraTax, and ProSystem Fx Tax. This is great news for UltraTax and ProSystem Fx users as the GruntWorx service is most definitely superior to the “in suite” products offered by Thomson Reuters and CCH. “

Clearly he’s on to something!  Check out the article: Scan & Populate Gains Traction – now on A and A side, too!

70% of Tax Professionals Scan Tax Documents—Do You?

If you had any doubt that “paperless” is sweeping the industry, our survey results may make you rethink your position. 

According to our annual tax season survey—to which we received more than 850 responses—70% of those surveyed are scanning tax documents at some point during the tax preparation process.  Perhaps more surprisingly, only 10% had no plans to scan tax documents at all, with the remaining 20% considering it for the future.

So what’s so great about digital documents?  Why is the industry moving in this direction?

Converting paper files to digital workpapers has several benefits.  The first advantage most think of is the elimination of paper filing and storage.  That’s definitely true—but there’s more to it than that.  Consider that scanning also:

• Facilitates firm-wide access to client documents via network or internet connection during preparation and review
  
  
• Provides an electronic record of documents received from clients—making it easier to identify what is missing and quickly find individual documents to fulfill client requests
  
  
• Reduces the cost of supplies related to copying, such as paper and toner

And that’s just skimming the surface.  When you consider adding a paperless tax workflow solution to automate the tax preparation process, like scan-and-organize or scan-and-populate tax document automation solutions, then you leave the more ordinary benefits and start getting into the really good stuff—like efficiency and productivity gains. 

For a deeper look at how you can fit scanning into your firm’s tax workflow and ease your way into workflow automation, read our free white paper: Automating the Tax Process for Maximum Efficiency - Taking a Phased Approach

Recommended Reading: The 24 Personalities of Individual Tax Returns

When speaking about our paperless tax workflow solution, we often ask tax practitioners to describe their “typical” return. They laugh and say there is no such thing as a “typical” return—all clients come with their own, unique circumstances. They then go on to describe clients that are day traders, others who live off of retirement income, small business owners with extensive Schedule C information…the list goes on. When I read the article on CPATrendlines, “The 24 Personalities of Individual Tax Returns (and the Clients behind Them),” I knew they were right on the money. It’s a funny and accurate read—I recommend you check it out for a laugh.

Take the Waiting Out of Tax Preparation—How to Collect Client Data Earlier

Shortly after the April 15 filing deadline, we conducted a survey to learn how tax season went and how tax professionals are using technology to improve workflow. I’ll be sharing the results of this survey in the coming weeks over several blog posts, but I thought it appropriate to start with the first question we asked: What were the top three bottlenecks in your overall process to prepare and file returns this tax season?

Not surprisingly, the top two answers, at 72% and 44%, respectively, were waiting for clients to send in documents and processing late additions of client tax documents.

With a looming April 15 filing deadline, there are only so many weeks to prepare tax returns. Time is at a premium—and practitioners are reliant on clients to deliver their source documents in a timely manner.   

But what if you could go a step further?  What if you could automatically retrieve tax documents from the financial institutions where your clients hold accounts—as the documents become available?  You could cut out the middle-man and go directly to the source, eliminating the bottleneck of waiting for clients to collect and send their source documents to you. 

Now you can.  Today we released a new addition to the GruntWorx family of products—GruntWorx Gather. GruntWorx Gather creates a secure web interface that allows your clients to connect with the leading financial institutions and brokerage houses to automatically retrieve their 1099 consolidated brokerage statements. Clients can also use this interface to upload electronic copies of their source documents, making it easy to scan and upload hard copies of tax forms—or post digital copies provided by issuers not supported with Gather integration.  With both automatic retrieval from institutions and client-initiated document upload capabilities, Gather presents a complete solution for efficient collection of client data.

This new technology allows tax practitioners to:

• Save time by getting documents from clients earlier in the season
  
  
• Eliminate the issue of late-arriving "corrected" forms from clients
  
  
• Save clients the hassle of faxing, mailing, or emailing documents
  
  
• Receive client documents in digital format
  
  
• Download multiple sets of client documents from one location
  
  

We’re very excited about this announcement—and what it could mean for the profession at large. Visit our website to learn more or to schedule a demonstration.

Recommended Reading: Technology Accelerates Competitive Advantages

In this article, L. Gary Boomer, CPA, discusses the importance of technology for improving performance and meeting client requirements. One of the four areas of technology he evaluates is Process and Workflow, noting that firms that strive to improve processes and utilize digital workflow tools have several advantages over those that still use mostly paper. He also highlights process and workflow technologies that will increase efficiency if a firm changes its processes, trains staff, and ensures compliance.

Click here to read the article

Scanning Tax Documents: High Quality Input Yields High Quality Results

If you’re going to go paperless, start by creating high quality PDFs of scanned documents.  

For best results, scan original forms in black and white, at 600 dpi, in duplex.  It’s as simple as that. Whether you’re scanning documents for archival, scanning before preparation, or using tax document automation software to organize and extract data for you, these four requirements are at the core of document quality. 

Here’s why:

• Original Forms - Every time a document is copied, the image quality is degraded. The further removed you get from the original document, the “noisier” the document becomes. Noisy documents are hard to read.
  
  
• Black and White - Though color and grayscale may look more readable to the human eye, scanning your documents in black and white will ultimately provide clearer images.
  
  
• 600 dpi – If you’re using tax document automation software, higher image resolution will improve the accuracy of document organization and data extraction. High quality input generates high quality results. Likewise, low quality input will lead to lower accuracy in forms recognition and extracted data. Because software is “reading” the documents and extracting relevant data, it is crucial that the scanned images you submit for processing are of the highest quality and are as clear as possible. Submitting documents with higher resolution will also provide up to 50% faster turnaround. 
  
  
• Duplex – Duplex is just a fancy word for scanning both sides of the page at once. Scan both sides and you won’t miss any important information on the backs of pages.

Get these four points down and you’re pretty much covered. If you want to take it a step further—particularly if you’re using software to organize and extract data from the scanned documents—here are some more tips to get the highest quality images:

• Give Scanned Documents the “Readability Test”:  If your eyes are straining to read a document, software will likely do the same. Noisy, hard to read documents will make it difficult for the software to read field labels and data contained therein. If software can’t read the data, it can’t extract it and populate it into the tax return.  
  
  
• Look out for Distortion—Scan the Document at its Original Size. For best results, the size of the scanned document should correspond roughly to the size of the original document. If the size of a document is greatly reduced or expanded when scanned, it increases the chances that the scanned image will be distorted. Distortion may also be caused by scanning documents that are folded or crumpled, and by documents that were caught in a paper jam while being scanned.
  
  
• Scan Each Document to Its Own Page. If more than one document is scanned to the same page, only the dominant form, as determined by the software, will be bookmarked. Visibility of the less dominant form(s) will be lost, as only one bookmark will be generated per page. For scan-and-populate users, data will not be extracted from either form.
  
  
• Avoid Submitting Documents with Faint or Faded Text. Not all original tax documents are suitable for processing by tax document automation software. Going back to the “Readability Test”, faint, faded text is hard to read and therefore may not be properly classified. If a document cannot be classified, the data cannot be extracted by scan-and-populate software.
  
  
• Avoid Black Backgrounds, Ink Bleeding, and Smudging. Black backgrounds can be created by leaving the tray cover open during single page flatbed scanning. Black backgrounds, ink bleeding, and smudging are considered “noise” and can slow processing.
  
  
• Avoid Submitting Clipped or Cut Forms. Clipped or cut forms may be missing important data that the software needs to identify and classify the form, and to extract the tax data.
  
  
• Scan Multi-Page Documents Together. Multi-page documents, like brokerage statements and K-1’s, should be submitted in logical order, where possible. Most software will not reassemble a multi-page document that has been scattered throughout an input PDF.

Now that you know what to look for, it will be easy to spot documents that won’t make the cut before being processed by tax document automation software. Download our free tutorial to learn more about best practices for scanning tax documents.

Using Scanned Tax Documents to Prepare Returns: Setting up Adobe Acrobat for Tax Preparation

Moving to a paperless tax workflow isn’t an exercise in change for the sake of change—it’s a matter of efficiency.  When it comes down to it, there’s no reason you can’t work with digital tax workpapers the same way you would with paper ones.  Training your staff to use the software tools that make it easy to work with electronic documents will ultimately make the difference in time savings during tax season.

One of the most basic software tools available to your firm is PDF viewing and editing programs, like Adobe® Acrobat®.  I’m sure you’re familiar with PDF viewing software, like Adobe’s free Reader® program, but it’s the Acrobat Standard and Pro products that will allow you to leverage the types of functionalities you need to make tick marks, comments, and annotations on the electronic workpapers. (To learn exactly which product does what, see this detailed list of Adobe Reader vs. Acrobat capabilities)

We’ll start with a very basic overview of the Acrobat User Interface. The Acrobat User Interface consists of three main areas—the Document Area, the Navigation Panels and the Toolbars.  

Navigation Panels: Navigation Panels allow you to quickly find any bookmark, comment or page in a set of PDF source documents. There are three Navigation Panels that are frequently used by tax professionals—Pages, Bookmarks and Comments. Simply click on the icon for the desired panel or use the View menu to access a Navigation Panel.

The Pages Panel shows the scanned images in the order that the pages were scanned. This panel can be used to add or combine separately scanned pages to a document—which is useful for merging additional tax documents that arrive late, after the return has already been started.  Just click and drag the pages to rearrange the order.

The Bookmarks Panel makes it easy to navigate through the document with bookmarks, which are virtual links to pages within the document.  The easiest way to bookmark electronic source documents is to use a tax document automation solution, which will automatically bookmark your clients’ documents in a consistent order that matches the tax preparation process, with the document issuer’s name on each bookmark (an example of a bookmark label is: “1099 INT # 1  COUNTRYWIDE HOME LOANS”). You can also manually bookmark pages in Acrobat Standard or Pro (keyboard shortcut Ctrl+B).  

Bookmarking tax documents is a key time-saving capability that is unlocked by going paperless.  The bookmarks let you quickly jump to specific documents within the PDF, without having to wade through tens—or even hundreds—of documents to find the tax data you’re looking for.

Like the pages panel, you can click and drag bookmarks to rearrange the order.  One thing to note is that the order of the bookmarks may not match the order of the actual pages in the document, so moving a bookmark will not automatically change the order of the pages.

The Comments Panel lets you easily find and review any tick mark or annotation in a set of PDF source documents. This feature is primarily used during the review process. Click on any comment in the comments panel to jump to that annotation in the document.  Note how each comment includes the user name of the person who inserted the tick mark or annotation. This makes it easy to review comments of specific preparers. The comments panel also provides the ability to sort comments by different criteria, such as author, date, and tick mark color.

Before you use the Comments Panel, you’ll have to familiarize yourself with Toolbars that allow you to create comments and annotations.  To customize the toolbar, select View in the main menu, then select Toolbars to choose and select which tools to use. You can customize the toolbar for your own needs, but some of the most frequently used toolbars for tax professionals include:

1. Comment & Markup: Tools for adding tick marks and annotations
2. File: Open, save and print files
3. Find: Search a PDF document
4. Page Display: Change document display settings
5. Page Navigation: Quickly move to any page
6. Select & Zoom: Easily zoom in and zoom out on any page
7. Tasks: Create and combine PDF files
8. Typewriter: Add annotation by typing text anywhere in the document.

So now you should have a good idea of how to find the primary functionalities you will be using in Adobe Standard and Pro.  We’ll take a deeper look at how to create tick marks and use comments in future blog posts, but until then you can download our free white paper, Five Essential Techniques for Preparing Returns Using Scanned Tax Documents, to learn more about using Adobe to prepare and review tax returns.

Scanning Tax Documents: Considering the Benefits of Front-End vs. Back-End Scanning

The introduction of workflow automation tools—like tax document automation software—presents some exciting possibilities for streamlining workflow and improving productivity.  Firms that have automated workflow by going “paperless” will tell you that implementation is best handled in phases—the first major transition being the adoption of tax document scanning. 

Most tax professionals agree that scanning tax documents is more productive than the alternative—hours in front of the copy machine, burning through reams of paper. But the real question is not to scan or not to scan—it’s when to scan. There are two basic camps of firms that have already incorporated scanning into their workflows:  firms that scan on the front-end and firms that scan on the back-end.

Scanning on the Front-End

When you scan sets the stage for the level of efficiency gains your firm can realize as a result. Firms that scan tax documents on the front-end position themselves for a completely automated and highly efficient paperless tax preparation process.  Consider this:

1. Scanning tax documents up‐front creates a digital library of docs that can be immediately accessed throughout tax season. With source docs stored electronically, support staff can fulfill client requests in seconds during the busy season—locating the electronic file and emailing it to the client in a few clicks of a mouse—without interrupting billable work.

2. By scanning documents initially, firms can make use of tax document automation systems to automatically extract and import tax data from scanned tax documents, and create an organized, bookmarked, and labeled PDF of source docs. This step can eliminate manual data entry and paper handling altogether, as documents may be scanned in any order before uploading for bookmarking.

3. Digital files can be stored within the firm’s DMS or network hard drive for final archiving. This helps firms gradually reduce the use of paper and eventually phase out file cabinets.
   

Scanning on the Back-End

Back‐end scanning also provides electronic copies of client files for archiving purposes, which eliminates manual filing at season end and reduces the need for physical storage.  However, with back‐end scanning, efficiency is only realized at the end of the process. 

Scanning on the back-end eliminates the possibility of automating the tax process with automatic data entry and document organization.  Relying on paper files from the start, staff must manually organize source documents and use paper copies to prepare returns and fulfill client document requests during tax season. This is not only time‐consuming for staff, but it also means longer response times on the client end.

Develop a Plan and Stick With It

Whether you decide to start scanning tax documents on the front- or back-end, make sure you develop a plan to get started.  Who is responsible for scanning?  Where will you save the files?  Will the file names follow a specific naming convention?  These are the types of questions you should consider before applying changes to your workflow.  Having a plan will make for a smoother transition and provide a cohesive structure for your staff to follow—no exceptions.

Tax Document Automation: Transforming Consolidated Brokerage Statements into Excel® Spreadsheets

The tax document automation movement hinges on time savings, efficiency gains, and standardization of workflow. The way to trim the workflow ‘fat’ is with automation of document organization and data entry.  The two basic categories of tax document automation are scan and organize and scan and populate software solutions.   We’ve already discussed these basic functionalities in our “Tax Document Automation: What is it and Why Should I Care?” blog entry.   As part of the scan and populate category, we have identified another unique solution to deal with the stock trades in your client’s brokerage documents.

Extraction of trade data is the “low hanging fruit” of the scan and populate category.  In the 2008 tax season, Copanion processed more than three million tax forms.  75% of the relevant data extracted from these forms was trade data.  Clearly, software that can automate data entry of trade details can replace the lion’s share of manual entry of tax data.  

With scan and populate software solutions, data is automatically imported into the corresponding data field in your tax preparation software.  But sometimes it’s easier to review data and tie it out before it’s entered into your tax software program.  Here’s where software can provide the best of both worlds.  Copanion’s GruntWorx Trades product will extract data from scanned 1099 Consolidated Brokerages Statements into a standard Excel® spreadsheet file.  By extracting into a common, easy-to-use file format (every accountant knows Excel), the software allows data manipulation before it is uploaded into your tax preparation software. 

GruntWorx Trades software extracts the key trade details, such as Quantity, Security Description, Purchase Date, Sale Date, Sale Amount, Purchase Amount, and Gain/Loss, and populates this information into an Excel spreadsheet, placing each brokerage account onto a separate tab. Each brokerage account can then be tied back to the 1099-B total for that account. The software also separates out stock trades that are missing a cost basis so you can quickly copy and paste the missing data fields and send them off to the client to complete. 

This is an example of GruntWorx Trades output, where trade details have been extracted from Consolidated Brokerage Statements.
 

Once all of the trades have been reviewed and tied out, the standard Excel file makes it possible to import the trades data into your tax preparation software (providing the software supports an import functionality), saving preparers from keying in tens, hundreds, or thousands of individual trade details. 

Tax preparation software packages that support import of trade details include GoSystem Tax RS, Lacerte, UltraTax, and CCH Prosystem fx Tax.

CPA2Biz and Copanion Announce Strategic Alliance to Help CPA Firms Increase Tax Preparation Workflow Efficiency

We're very excited to announce that Copanion has partnered with CPA2Biz to add tax document automation to the CPA2Biz Trusted Business Advisor(SM) platform.

"Our Trusted Business Advisor Solutions platform is about bringing web-based technology to firms to increase efficiency and enable more strategic client relationships," said Erik Asgeirsson, CEO of CPA2Biz. "Copanion's GruntWorx® software allows firms to standardize tax preparation workflows, freeing up partners and staff to focus more time on client consultation, a higher-value service for the firms and clients."

"We're very excited to be part of the CPA2Biz platform and enhance our reach into the profession," said Ed Jennings, Copanion CEO. "Existing firm customers are reporting a reduction in tax preparation time of up to four hours per return, helping to accelerate efficiency and profitability significantly. CPA2Biz recognizes the value of our solution and the positive impact it has on a firm's workflow, which is why Copanion was selected as the exclusive provider of tax document automation technology."

To learn more about this partnership, read the press release or visit www.cpa2biz.com/gruntworx.