The Tax Professional’s Guide to a Paperless Tax Workflow

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.

Scanning 101: Basic Settings for Tax Document Scanning

The first step in going paperless, and the heart of all paperless tax workflows, is scanning documents.  The documentation you receive from clients will continue to be paper-based—and all of that paper has to go somewhere before you can start working with it digitally.

But not all scanning is created equal.  The image quality of scanned documents starts at the scanner level.  If your scan settings are not optimal for scanning tax documents, the image quality of the resulting scanned document will be lacking.  Set your scan software to the following basic image specifications to ensure you always scan your documents right the first time.

• Scan to a PDF.  To create a PDF from your scanner, choose File > Create PDF > From Scanner in Adobe® Acrobat®, or any industry-standard PDF writer.  You can also choose whether you’d like to create a new document or add the scanned pages to an existing document.

• Scan at 600dpi.  Make sure your image settings are set to scan the document at a resolution of 600dpi (this is not the same as scanning at a lower resolution and then saving at 600dpi).  This setting is especially important if you’re planning to use a scan-and-organize or scan-and-populate tax document automation solution.  Software that “reads” and extracts data from scanned tax documents may not be able to identify the text on low resolution images.

• Scan in black and white.  Scanning in black and white will create smaller files, so they’ll take up less space on your hard drive or in your document management system (DMS).  And again, if you’re using tax document automation software, this scanner setting will provide clearer images for processing—and they’ll take less time to upload.

• Scan the original documents. Every time a document is copied, the image quality goes down. The further removed you get from the original document, the “noisier” the document becomes—and the harder it is to read.  For best results, scan the original source document, as received by the client.  Avoid using copies of client documentation—especially faxed copies, which are very low quality.

And finally, automatically organize your scanned client source documents.  Though this doesn’t exactly fall under the “Scanning” heading, it will change the way you scan documents.  If you know you’re going to be using a tax document automation solution, to automatically index and organize your client’s source documents, you won’t need to sort the documents before you scan them.

GruntWorx Organize allows you to scan a stack of disorganized client documents and will automatically identify, organize, bookmark, and label each document with the document issuer’s name on each bookmark.  Using GruntWorx Organize will also allow you to completely hand off the organization and scanning to support staff, so your preparers can focus on more value added activities.  Best of all, you can try 5 returns free to evaluate how the product works and how it can fit into your paperless tax workflow.

To learn more about the do's and don'ts of scanning tax documents, download our free tutorial, Best Practices for Scanning Tax Documents

Best Practices for a Paperless Tax Workflow - Suggestions from Peer Professionals

At the close of tax season 2008, we interviewed hundreds of tax professionals about how the season went—what worked, what didn’t, and what they’d do differently next year.  Of about 50 questions, two in particular really stood out to us.  For these two questions, survey participants weren’t choosing one of the five answers that best relates to them—they were writing in their own answers.  And even though these questions were open-ended, we kept seeing the same responses over and over again. 

Question #1:  What advice would you offer someone who is considering adding scanning to their tax workflow?  

Overwhelmingly, the #1 answer was: "Do it."  "Go for it."  "Get started."  "Try it."  And my personal favorite: "Change or die!"  You get the idea.  Paperless is the way the industry is headed, and the general consensus is that it’s a better, more efficient way of preparing tax returns. 

Question #2: Share your best practice from this tax season.  

Here are summaries of the 5 most popular responses we received (following the order of the tax preparation process):

1. Use a high-quality scanner to scan tax documents before tax preparation
   
   
2. Automatically organize your clients’ scanned tax documents with a scan-and-organize or scan-and-populate tax document automation solution
   
   
3. Supply your tax team with dual monitor workstations.  This allows them to view the source documents on one screen and their tax compliance software on the other, without all the messy clicking in and out of windows.
   
   
4. Save the organized scanned tax documents to a document management system (DMS) or an informal file organization system on a shared network drive so that all preparers can quickly access documents from a centralized location at different stages of the tax preparation process.
   
   
5. Train your tax team to use PDF editing software, such as Adobe Acrobat Standard, to add tick marks, comments, and annotations to digital workpapers.  It’s easier than you think and a little training goes a long way.

We’ll dive into each of these bullets individually in the coming weeks—starting with scanning tax documents.  Until then, you can learn more about the responses to our tax season survey by watching the webcast replay, "Scanning Tax Documents - A Look Back at the 2008 Tax Season" (brought to you by the CPA Technology Advisor). 

NEXT UP: Scanning Tax Documents—Learning the Basics