Why Is Tax Software Stuck In the Stone Age?

Peter Wen, CPA gives an overview of the tax software market for accounting firms. Learn about the offerings from the Big Four vendors in tax (Drake, Intuit, Thomson Reuters, and Wolters Kluwer), who these products are for, and how to plug the productivity gap between accounting and tax.

Notice: This is a machine-generated transcript. As such, there will be spelling, punctuation, and accuracy errors throughout. Thank you!

Peter Wen: [00:00:00] I think that's the frustration with with tax software today is, you know, so much effort is still being put into preparing a return. You know, a lot of it shouldn't be done by humans. It should be automated. And you know why that might sound scary to some people. What our customers have been finding is they love it, right? They're like, oh, the data, I don't have to worry about. The data flows from transaction to accounting to tally for to to their return, and then it's to the IRS. It frees your brain up. Right? I don't need to think about punching the numbers in. I can think about my client.

Blake Oliver: [00:00:35] If you'd like to earn CPE credit for listening to this episode, visit earmark CPE. Download the app, take a short quiz and get your CPE certificate. Continuing education has never been so easy. And now on to the episode. Hello, everyone, and welcome to another episode of the Earmark podcast. I am your host, Blake Oliver, CPA, and I'm joined today by Peter Wen of Tally four.

Peter Wen: [00:01:06] Hey, Blake, how are you doing?

Blake Oliver: [00:01:07] I'm doing really good. Peter, we go way back. I'm so glad to talk to you because it must be like ten years now. Maybe more than that.

Peter Wen: [00:01:16] Yeah, maybe a little more. Just about. That's about right.

Blake Oliver: [00:01:19] Yeah. We met when you were at zero. You were one of the early. Employees at Zero in the Americas in the San Francisco office.

Peter Wen: [00:01:29] I think 2012 we probably met zero just came to the U.S.. I joined very early on a former CPA, so they hired me because I actually knew about accounting and tax in the US. So I was really lucky to join that team early on in San Francisco, and it was a lot of fun working with that whole team, getting zero here in the US.

Blake Oliver: [00:01:49] And how many employees were there when you joined?

Peter Wen: [00:01:53] I think I'm number ten. It depends on whether you count Craig and Katherine Walker, the CTO and community manager. So it was very early. We were in Startup HQ south of the mission and then we moved offices very quickly. But it was a lot of fun.

Blake Oliver: [00:02:08] And you stayed there for a while. And how long were you were you at zero?

Peter Wen: [00:02:13] Yeah, I stayed there a good six, seven years. Did a lot there, you know, expert on the accounting stuff, tax stuff. I was really on the product. Mostly. It grew really fast and we did a lot of good work in those early days.

Blake Oliver: [00:02:27] And now you've got your own company. You've got a startup called Tally four. Tell me about Tally four. I know you're in the tech space. What do you do?

Peter Wen: [00:02:36] Tally four is automation for taxing the cloud. As we'll talk about today a little bit. Taxes, such an important part of everyone's professional life, the CPAs and the tax professionals, they're listening and there aren't really good cloud products out there. So Tally is building a really great cloud product for you all.

Blake Oliver: [00:02:54] You had me at cloud in tax because I don't come from the tax world. I come from the bookkeeping client accounting services, CAS world. And so it's been strange for me to watch as over the last ten years, decade or more, all of this cloud technology has come to CAS and bookkeeping. And now we can we can do everything in the cloud. There's literally nothing you can't do in the cloud anymore.

Peter Wen: [00:03:21] Right? The bookkeeping side, the CAS services side of the house really got the cloud tools first. And the tax world has been neglected for a long time. There's very few cloud products for the tax side and that's what we aim to to to change. And I'm doing that because, you know, when I was a CPA and did a lot of tax, I was sick of typing. I got carpal tunnel. You know why why enter data twice between systems and things like that. It's really an underinvested space and it should change for everyone's benefit.

Blake Oliver: [00:03:54] So I'm excited to have you on because I'm sure you've done a ton of research on tax and tax software and tax workflows in the cloud and what's manual now. And I am eager to learn there are these massive companies that make tax software that hasn't changed, that seems like it hasn't changed in decades. And so I'm curious like to get an overview from you of the market, like what is the market for tax software in the world of client accounting services or bookkeeping? We know we've got QuickBooks, we've got Xero, we've got FreshBooks. There's like a handful of major players, right? And I want to know what what is that in the in tax? What does that look like? Who's who's dominant and who is like, who are the companies?

Peter Wen: [00:04:41] I should know, it's often overlooked. That's right. The two sides of the house bookkeeping and tax are very different. I say they're like cousins, right? Even if you've been in the world for, you know, the cash world for a long time, you may not know the tax products and they're not that apparent. But I like to say that there's really kind of the four big players that make the software for the professionals, and I count them as Drake. And then there's Thomson Reuters has ultra tax and access owned by Walters coolers, has a couple of products under their stable. You know pro systems and axis are kind of the two the two big ones. And then of course you have Intuit. Intuit has three different products under their name as well, Pro Series, Pro Connect and Cert. So those are really the names that that are kind of current today.

Blake Oliver: [00:05:36] Okay. So I'm setting up a firm and I'm going to add tax. It's either going to be most likely Drake Thomson Reuters What was the name of that product?

Peter Wen: [00:05:47] Automated Voice Ultra tax. There is their kind of flagship product. They are also working on on view a cloud product that they've been working on the past couple of years, and everyone's looking forward to that product as well.

Blake Oliver: [00:06:00] I remember that they had to delay the release of that. They've been struggling.

Peter Wen: [00:06:03] Yeah, it's not easy building a cloud product, right? Yeah, kind of a different way of thinking of how to architect it. So it's not easy left. Yeah, everyone's definitely wanting a true cloud product modern you and they're waiting for the details on that as well.

Blake Oliver: [00:06:20] Okay, so Drake Thomson Reuters Wolters. Sure. And you said there's two systems, pro systems and access.

Peter Wen: [00:06:28] Yeah. What's the Pro Systems? Is there kind of more on prem? Product access is a little bit newer and it's meant to be a cloud product. A cloud product that's networked, not necessarily a browser based cloud product.

Blake Oliver: [00:06:46] So would that be like hosting a QuickBooks desktop file similar to that?

Peter Wen: [00:06:51] It's a little bit better in the sense that it's not a desktop product put in the cloud on a virtual desktop. It is managed by BI as a network product. If yeah, if I don't get too.

Blake Oliver: [00:07:05] Technical, so do I use how do I access it? Do I use a virtual terminal? Do I like, Is there a program.

Peter Wen: [00:07:10] Download a small, small piece of software and it kind of automatically hooks you into your purchased your purchased licenses?

Blake Oliver: [00:07:19] Okay. So semi cloud I guess would be the term.

Peter Wen: [00:07:23] Yeah. The convenience is there. You don't you don't need a virtual desktop and it's a little bit easier to deploy. It's actually a little bit cheap. You don't have to pay for a virtual desktop as well. So it has its advantages. It's not it's not browser based. And since I couldn't do it on a mac, for example, I couldn't do it on a Chrome browser, but it's definitely more robust.

Blake Oliver: [00:07:43] And pro systems. The other Wolters Kluwer product is that the older one?

Peter Wen: [00:07:46] Yes, that one is still widely used in large firms that maybe haven't that they do have an IT department. They can deploy it in-house on premise. So that's still a very popular product.

Blake Oliver: [00:08:00] So that's where I have the server in my office and everyone's connecting to that server and it's desktop software and all that. And ultra techs though Thomson Reuters product, ultra techs, is that similar, Is that.

Peter Wen: [00:08:14] Yes or no. That's, that's you know, that was typically it came off of a desktop product. So that typically is hosted on a virtual desktop and you access it in that fashion.

Blake Oliver: [00:08:25] Okay. Virtual desktop. Got it. Yeah. And then on via the Thomson Reuters product that's coming is pure cloud. Yes. So people must be really excited about that because there aren't too many true cloud tax products from the major players.

Peter Wen: [00:08:39] Yes, everyone is looking forward to that product. And you know, it's definitely the cloud is where we want to be, where everyone wants to be for many different reasons, and we don't need to go through them here. Right.

Blake Oliver: [00:08:51] Just our listeners. Our listeners don't need to attend the session where we say, What is the cloud? That's a given. That's a prerequisite for listening to this podcast.

Peter Wen: [00:09:01] Thanks for, for making sure the right people get in.

Blake Oliver: [00:09:05] I'm not going to ask you, Peter. You know, say so. Tell us, what is the cloud? How does cloud computing work? I think that would immediately.

Peter Wen: [00:09:11] Get a cloud.

Blake Oliver: [00:09:12] Here. It's like when you're listening to a podcast about or a session about cryptocurrency and somebody asks, So what is blockchain? And then you have to listen to somebody explain, what is the blockchain for 10 minutes? We won't do that. So thank you. Hey, and I apologize for jumping around a lot, but going back to Drake, which is the first one you mentioned, is that desktop based?

Peter Wen: [00:09:29] Yes, that is desktop as well. So and typically that's virtual hosted too. And you know, there's there's services you can use to help kind of manage your virtual desktop to varying degrees of efficiency and cost. I personally don't like virtual desktops.

Blake Oliver: [00:09:43] Well, I think, you know, from my experience, if it's similar to using QuickBooks hosted on a server somewhere like that's that's what we're talking about and it works. But there's a lot of disadvantages to it.

Peter Wen: [00:09:56] Challenges with it, Absolutely.

Blake Oliver: [00:09:58] Okay. So to review, we've got Drake, which is desktop or virtual desktop type software. We've got Thomson Reuters Ultra tax, which is also you can host that virtually on via the forthcoming peer cloud product not available yet. And from Wolters Kluwer, we have Pro Systems which is on prem, and then we've got CCH Access, which is hosted by Wolters Kluwer. So it's sort of like hybrid. Now the last one you mentioned is into it and they have three products you said, So walk me through the products that Intuit has.

Peter Wen: [00:10:30] Yeah, they've got they're all into the Pro Connect brand. They have Pro series, which is really friendly with QuickBooks desktop. They kind of go hand in hand with the desktop products and then they have Pro Connect, which used to be called into a tax online, and that's where they kind of took the name the brand things under Pro Connect and then left cert is really the granddaddy of their products is really kind of their their their best their best product from kind of a tax form, you know, breadth kind of perspective. So the is widely used across professionals. I'm sure many of your listeners use cert and, you know, that's an old product. You know, it's been around 30 years but trusted by many people.

Blake Oliver: [00:11:16] Is that Rene Lysaght? Is that the same?

Peter Wen: [00:11:20] I'm yes, I'm sure. I'm sure it is. I don't know which branch of the family. As you all know, very prolific family in the accounting and now bill payment space.

Blake Oliver: [00:11:30] So, yeah, that's.

Peter Wen: [00:11:31] Lots of good stuff.

Blake Oliver: [00:11:32] That's why I always recognized the name because Rene Lacerda is the CEO and founder of Bill.com. Yes. And I understand his family has a long history. I guess there was a product that they created decades ago and sold to Intuit.

Peter Wen: [00:11:46] Yeah, I don't know the actual history of the acquisition history of that. It's definitely way back before my time. I'm sure there's a there's a Wikipedia article on it.

Blake Oliver: [00:11:54] We'll just have to get Rene Le Cert on the show to talk about it.

Peter Wen: [00:11:57] We said.

Blake Oliver: [00:11:58] Okay, so, so, oh, I've got some more questions about into it first. So the pro series you said that's that's desktop hand in hand like with Cube desktop.

Peter Wen: [00:12:07] Yep.

Blake Oliver: [00:12:07] Pro Connect used to be Intuit tax online. So is that an online product? Is that a cloud product?

Peter Wen: [00:12:13] It is a cloud product. So yes, it is. And a lot of people are looking at that because of the cloud product, but it's a little bit older cloud product. So there there are still some limitations in terms of maybe what you can do with it. For example, tally for actually, you know, so we integrate with all the products that we've mentioned, probably pro connect actually, despite it being a cloud product actually doesn't have a way for me to get data in as far as I know. So. Oh wow. Yeah. So it's the world is still not perfect. It's really not I'm not happy.

Blake Oliver: [00:12:49] With it because that's one of the big value propositions of a cloud product, is that you can have an API that's easy to access and they. Right. So they don't have an API that you can access.

Peter Wen: [00:12:59] I am unaware of it and I've been poking around for a long time, so if I'm wrong, please let me know. I think that's the frustration with tax software today is, you know, so much effort is still being put into preparing a return. You know, a lot of it shouldn't be done by humans. It should be automated. And you know why that might sound scary to some people. What what our customers have been finding is they love it, right? They're like, oh, the data. I don't have to worry about. The data flows from transaction to accounting to tally for to to their return and then to the IRS. And you know, what used to take, you know, a couple of hours is now maybe monitoring the data and you can actually do it frees your brain up. Right. I don't need to think about punching the numbers in. I can think about my client so.

Blake Oliver: [00:13:48] Well and it's.

Peter Wen: [00:13:48] Still out. Lots to do.

Blake Oliver: [00:13:50] So when I got my start as a bookkeeper, I would work with tax CPAs, tax lawyers. And something I remember very vividly was sitting in the office with them pulling up a trial balance and I would be asked to email it over or even print it. There was one attorney who liked me to print it for him, and I would say, okay, I'm going to print you the trial balance. And then he would put it out on his desk and he would very quickly key it in to his tax software. And I asked him, like, isn't there some sort of import that you can do to save yourself the time of typing in all these 50 accounts? And he said there is there's a CSV export. You can do that I can import, but it actually takes me more time to reformat your spreadsheet than for me to type it in because I'm so good with the ten key. And he was a wizard with the 10-K. He like, you know, I got my start as a musician so like I can play fast. He was playing the ten key, like it was a violin. Yes. You know, and he's and he's and he's playing, you know, a showpiece.

Peter Wen: [00:14:55] Yeah. Some people yeah I was pretty good at a Tinky at one time and I kind of lost my, my muscle memory and definitely it is music in some ways so it's a great analogy. I don't know if anyone would ever have a little song on.

Blake Oliver: [00:15:09] Somebody should hook up a ten key. Actually, I should do this. Soak up a ten key to like to play music because you well, if you got ten keys, you only need like I think How many more. Well they actually they're called a ten key but they've got more keys. Right. So you could, you could hook up a whole keyboard.

Peter Wen: [00:15:25] Yeah. Right.

Blake Oliver: [00:15:25] Yeah. You could do it. 12 notes. Right.

Peter Wen: [00:15:27] Right. We're going to, we're going to see if we can.

Blake Oliver: [00:15:29] Do a ten key orchestra. I feel like this has to have been done. We'll find it. So I want to review before we move on, I want to review the landscape of the tax software world, because you're giving me an overview in education that I just have. I've always been wondering here the names of these products. I don't really know what they are, what they do, what they're who they're right for, who uses them. So I want to dig in.

Peter Wen: [00:15:51] Yeah. It's not comprehensive, by the way. Right? There's other products out there, right? I'm not mentioning.

Blake Oliver: [00:15:55] Yeah, yeah. But like, these are the big ones by market share. I take it these are the ones that most firms are using. So. Okay, so Drake desktop software, you can virtualize it. I mean, you can virtualize any desktop software. So we'll just say it's desktop Thomson Reuters ultra tax virtual on via cloud doesn't exist yet coming. Wolters Kluwer Pro Systems Desktop. Cch Axcess Cloud Hybrid. Hosted by the company. You can't go host it yourself into it. Pro Series Desktop. Pro connect cloud actually a the only so that's the only cloud one that we've talked about that's actually available now but doesn't have an API. And Le Cert, the Grandaddy best product that's been around forever. A lot of firms use it and I take it that's going to be hosted or not on prem, right?

Peter Wen: [00:16:49] Or it can be on a virtual machine.

Blake Oliver: [00:16:51] Virtual machine. Okay. So this is why since there's only one cloud product here, a lot of firms I talked to, they want to go pure cloud, but they can't. And it's specifically because the tax software doesn't let them do it because they have to have like some virtual hosting solution and or they have to have a server in their office. Right. That's the big reason why a lot of firms can't move cloud.

Peter Wen: [00:17:14] Absolutely. That's one. They're the one. You know, it's one big piece, right? It's one of the anchor tenants of your software stack. That is not that's holding everyone back. You know, there's other you know, if you're in a larger firm, there's obviously other pieces that might might still be in that kind of camp. But if you're a young firm starting out and you're looking, hey, what's what am I going to use? Yeah, you kind of hit a brick wall.

Blake Oliver: [00:17:36] Well, so that's my next question is who are these different products for? So like, if I'm let's go by firm size or scale, like if I'm a small firm, which we would classify as generally under ten people, what am I looking at?

Peter Wen: [00:17:53] Yeah. And you know, there's actually a great survey from the Journal of Accountancy that's that's published every year on a survey of what products are being used right by the practitioners. And they break it down by how many practitioners purchase what product. So, you know, Drake is definitely for kind of a solo practitioner, one or two, the cost is is very low. So that's really kind of an entry level product. You know, people love Drake support. They talk about how support is awesome. But yeah, that's that's a low cost, easy way to get started. But certain ultra techs are kind of broad across the whole spectrum. You know, the big firms do use them and access and pro systems are typically larger firms, so they skew more to the heavy side, right? Large firms, I do know small firms, solo practitioners using access. I don't know many using pro systems, but they do use access because it's it's a good product. So maybe you've got Drake on one side, you've got access maybe heavy on the other side and pro systems, and then you've got Lazard and Ultra techs kind of covering that kind.

Blake Oliver: [00:19:06] Of the broad range, like a firms of all.

Peter Wen: [00:19:08] Sizes, mid-sized all the way to large.

Blake Oliver: [00:19:11] Okay.

Peter Wen: [00:19:12] That's my characterization.

Blake Oliver: [00:19:13] So pro systems and access both tend to be larger firms. Yes. Okay. So Wolters Kluwer, then. Right. Those are the two products that you mentioned. They they really focus on the large firms, it sounds like.

Peter Wen: [00:19:26] Yeah, well, yeah. I mean, you know, I think the sort of ultra tax have their good share of the large firms as well. Okay. Yeah. And that's right. It's kind of like the payroll days where you try to poach, you know, ADP would try to poach from.

Blake Oliver: [00:19:40] Paycycle or Paychex, Paychex and ADP. We're always going up against each other.

Peter Wen: [00:19:45] Yeah, exactly. So I liken to like that, like, give me maybe switch every once in a while or if you if you move firms, right. For example, if you moved firms and you were using research certain one firm you're a young professional and then maybe you get another job and now they're using access or they're using pro systems, you kind of learn both. Yeah, maybe you land in a home and now you're you're more of a you're more of one type, but you've seen one or two in the world and you maybe hark back to using that in your. But that's kind of the world that I, that I, that's the way I see the world and people moving between products.

Blake Oliver: [00:20:18] How hard is it to go from one to the other?

Peter Wen: [00:20:22] The UI's are all different in their own fashion. I think if you know the you if you know the forms, you know, it takes obviously some learning, but you know, it's all form based. So that's kind of your touchstone of knowing the lines and the form. Yeah, I don't know if I know them as well as I used to, but yeah, it takes it takes time to, to learn each product, I'd say for sure.

Blake Oliver: [00:20:43] And the switching costs must be pretty high. I imagine firms don't swap out tax software very often.

Peter Wen: [00:20:50] Yes, it's definitely something not to be done lightly, but people have done it right. It's not like it's impossible. And actually a tally for we have firms that are actually more than one product because maybe they purchased a firm and one firm used one product and they haven't had time to migrate them all into one. The beauty about the cloud entirely for specifically is that we're neutral, right where I want to help move data from anywhere to anywhere. So we've actually standardize our tax mappings to the Irish meth file that's modern E file. So the IRS has done us a favor by standardizing the XML, right? That's nerdy language for the box. Designation for the box. They've actually given us a standard. So we kind of build to that. What that means for us is that we actually are agnostic to the to the software vendors. So you can actually have two products on Califor, you can have Drake and Access, and then you do all the mappings in Califor and you actually can just route it to wherever you want.

Blake Oliver: [00:22:00] So let's talk more about how that works. So I mentioned my experience watching a tax guy type in a trial balance manually into his tax software to get what he needed to to proceed. And that was the gap. It was a literal paper based gap between our systems.

Peter Wen: [00:22:16] And at least he didn't go to a PDF and then and then scan the PDF.

Blake Oliver: [00:22:21] So we were a little more efficient than some. Yeah. So tell me about what you're doing with Tally for and how you're. How you're plugging that gap.

Peter Wen: [00:22:32] The world is data. Everything is data. Even if you go pay cash at your coffee shop, it's going to make it into into square or clover immediately as a digital transaction. Right? So you may think it's physical, but it's actually instantly digital, and then that transaction will flow through transactional accounting. Same thing with an invoice, right? Anywhere it starts, the money transaction happens. It kind of moves into what I call the sexy world, right? Fintechs is really sexy. Then there's accounting tech, which is maybe a little bit less sexy, but still essential. And then. It moves to the tax world where there's now this wall and that's where it goes back out, back in. And it's like, okay. Let me just make a little clear. Right. I think. I'm talking about direct tax, right? The indirect tax world, right to Avila's or sales tax is actually kind of ahead in terms of tax tech because they saw the volume problem with e commerce. So e commerce was more more apparent. Hey, there's going to be a lot of transactions here. No one can be starting to key the stuff in. So that's why I think sales tax is advanced in terms of the tax technology, right? You got all those guys that solved the problem, you know, maybe eight years ago.

Peter Wen: [00:23:52] So but there's still this one big underinvested space on the tax filing products. You know, I'm talking about corporate to write in business, you know into it obviously has TurboTax which has done right has digitized that flow for individuals. So there's this one, this one holdout portion that's still very important that that please someone, someone fix it because the world is moving ahead without you. It needs to change fundamentally because the next generation expects tools to be like, I know you're younger than me, but even younger. Right. Why am I? I can't believe. You should see some of the icons on these products, but it'll come. And when it does come, I think you'll see the same things of what cloud accounting did for everyone's lives. And the bottom line, to be honest, right, you don't really even know what is being locked up in terms of value. I use that word very loosely. You know, you can go work on the beach. I mean, you could be at your kids in the bleachers and your kids game and do some work and if you want it. Right. But but that stuff needs to be unlocked because it's you shouldn't be in the office doing all this typing.

Blake Oliver: [00:25:12] Well, I think one of the problems, one of the big problems that. I think causes a lot of the issues we have in accounting, which is the work life balance issue, the difficulty attracting people into the profession issue is all of this workload compression that happens. Yes, in a very short amount of time, you know, a quarter or two quarters of the year, it all has to happen. And there's this pressure on the accounting side to close the books, get the data over the tax people who then have to scramble and in a few months do all of this work. And and I think a lot of it is due to this issue of not being able to the data doesn't flow easily. So it doesn't make it's difficult to do it more than once a year.

Peter Wen: [00:25:56] Right. Well, it's a stressful life. I mean, and. You know, you highlight something that's actually also overlooked, right? I think the bookkeeping side of the cost side. There are more of a monthly cadence. They can if they do it right, be on top of the books, right? Yeah. There is actually a cycle and that's what really good cash practices do. They they they have good systems that they're monitoring the data, they're helping do the payroll. But the tax people that can't do that, they kind of wait for this big deluge of data. And yeah, your guy could type it, but he's owned by himself. How how can you train 50 people to type as fast as him? That's great, you know, But in this modern world, not everyone can do that.

Blake Oliver: [00:26:40] And so do it without making a lot of errors.

Peter Wen: [00:26:42] Well, yeah. I mean, yes, I mean. Yeah, yeah. No question about it. Right. So, so that's why it's a compounded problem. And then, you know, I actually think there's a personality difference between a bookkeeper in a book side accountant and a tax person. Right. The different knowledge set and it's a different cadence of work. And you can't just throw people across the side. Yeah, maybe someone might, but you can't just say, hey, you now are in tax world, you know, for whatever the three months of during the busy seasons or the six months between the big humps right it's like now you're taxed I'll pull you off bookkeeping right. So there is a cultural difference between the two sides of the house and the tax side of the House. I think they need they need their the good tools, their life will change like the cloud accounting side if they are given the right tools.

Blake Oliver: [00:27:33] So how does tally for it do this? Like I'm doing the books in QuickBooks Online, let's say. How do how do you get the data? How do you get the flow going of the data into the software tax Software?

Peter Wen: [00:27:44] Yeah, you sign up for tally four and then you hit you connect to and we connect with other things. We write, we connect to the cloud products, Xero, Intuit, QBO, as well as Cube desktop. And we have Excel, we have real estate goals. We're trying to get as many goals as possible, but we make it really easy to pull data in in there, really kind of zero into it. Qbo world, you pull it in, takes about 5 seconds. You get your trial balance. You know what telephone is? It's a trial balance. It's a ledger in the cloud. Right? So we are we're monitoring that data as you pull it in. And then we give you some tools to group and assign the tax lines. We memorize those over the years. We give you some automation to template. But literally once you pull the data in in right.

Blake Oliver: [00:28:36] So the trial that you're talking about, the the trial balance mapping that I've seen in a lot of people do this in a spreadsheet, right? Yep. So I take the trial balance and then I'll move combine accounts.

Peter Wen: [00:28:49] Yes. And line them, grouped them, rename them.

Blake Oliver: [00:28:53] And maybe I'll do some adjusting entries.

Peter Wen: [00:28:56] They're adjusting journal entries, tax entries. If you you need to make book entries. Right. The trial balance is a beautiful product idea, right? It's really the the core of accounting, right. It's very humble, right? It's oh, it's just a chart. It's just a name and number. Right. But it really is how the data is organized and it's often overlooked as a point of of organization. Yeah. So that's so important that to get that place done right and in the cloud.

Blake Oliver: [00:29:25] So and when we say grouping like an example would be I don't know the bookkeeper was very detailed and had 20 different accounts for office expenses.

Peter Wen: [00:29:34] Yeah. Or. Right. I put each car as an account. I bought a couple of vehicles and I decided each one should have his account. And you don't want to put each car on the return. So if you can just rip them.

Blake Oliver: [00:29:47] Up for tax purposes, we group it, you know, and we we report just that one number. And but we have to be able to trace back to the original books.

Peter Wen: [00:29:56] Yes. Yes.

Blake Oliver: [00:29:57] And so that's what that document is. So your software takes on the role of that mapping document, that trial balance. Well, book to tax.

Peter Wen: [00:30:07] Yeah. I mean, we are charge of account cleanup tool. I've never really kind of articulate it in that way. But yes, if you have a chaotic chart of accounts, we basically give you a way to kind of clean it up, group it. Right now, it's based on the tax kind of forms, but you could actually group it for any kind of other reporting purposes as well.

Blake Oliver: [00:30:26] Okay. So once I've cleaned things up and I've got my. Numbers that I want to put into the return. Yeah. And they're all. Yeah, I've got the lines. I know, I know where they're going on the forms. How do you, how do you get them into the tax software. Like you were saying that pro connect is cloud based but it doesn't have the API that you can use. I imagine that a lot of these hosted or desktop or on prem products like they don't have APIs, do they? Like how do you this is seems like an enormous challenge you've taken on.

Peter Wen: [00:30:59] Well, yes. It's you know, each one has their own kind of import method. You know, they're typically they're typically pretty good in the sense that they they allow certain fields to be imported. And then what Khalifah does is make it really easy. We give you one file to import and you don't even need to look at it. You just import it in. It's almost as good as an API given the virtual desktop database, but it really takes, you know, 5 seconds to get that data in and there's no keying, right? So that's really an important part and that's. It's not it's not an API, but it's it's it's almost as good to be on this. Right. And some people actually prefer that because it worked with their system and they they actually get the work done. The benefit of what Khalifah does and we memorize everything. So if you have junior staff maybe coming on or then you, they can just kind of look at Califor and they just say, Oh, that was how it was done last year. Pretty much the next year is the same. The reviewer can kind of review it and jump in right in the cloud and kind of say, Oh, that one is good and move it along, as data should be. Now I will say right, Access does have an API. So that product we we integrate a little bit deeper and there's a one button push. So they would push a button there and it would, it would go right into CCH, you'd select the return and it would go in.

Blake Oliver: [00:32:22] So what what has been the change then, like for firms that implement tally? For how much time are they saving and what is it like? How is it changing the way they operate? Why would somebody why would somebody buy your product?

Peter Wen: [00:32:40] Yeah. Thank you for the opportunity to pitch. You know, they save about the equivalent of a full time equivalent for every 50 to 70 business returns.

Blake Oliver: [00:32:55] And is that because each return takes that much time to to do this manually over?

Peter Wen: [00:33:00] Yes. And, you know, it depends on how efficient the firm is themselves. Right. But that's what we've been seeing across our current customers and current users. And it's amazing how much time gets saved and especially a year, two and three where everything's kind of set and you're really taking 10 minutes to move that data over. So it changes everyone's thinking about how they can, you know, not only, you know, per return, you know, costs, but now they can think about a cloud team, right? A team that's not in one office. They can think about using resources in a different manner. So it does open people's minds and they love it. So I'm very.

Blake Oliver: [00:33:40] Happy. Yeah, I'm I mean, the biggest problem we have in accounting right now for most firms is they can't attract experienced tax professionals. A tax manager, a good tax manager is like a unicorn. You just can't you can't find one.

Peter Wen: [00:33:56] Yes. Treat your tax managers nice.

Blake Oliver: [00:33:58] Treat them very well. Right. And so you're saying you can I mean, maybe not a tax manager, but like at least some you can save on the lower level folks, right?

Peter Wen: [00:34:10] Yeah.

Blake Oliver: [00:34:11] I mean.

Peter Wen: [00:34:12] Well, you're using technology for what it is, right? Memorizing and kind of putting the flow in and then it releases everyone's brain. Right. The tax manager as well as. Right. Well, maybe a junior. Right. And all can stop thinking about. Yes. Like, should I memorize this? Where's that Excel thing. Is it you know. Oh, you guys made some script that maps stuff, you know, even that, you know, an Excel jockey. I used to do it like that. Yeah, right. But freeing up even that that friction in your brain as you scale, as you scale a firm, even once you get there, five or six people, it's just easy.

Blake Oliver: [00:34:48] Yeah. And a lot of firms, I imagine, have very high level people doing this managers, directors, partners.

Peter Wen: [00:34:53] Oh gosh.

Blake Oliver: [00:34:54] Doing the mapping. Right. All this manual moving of data and.

Peter Wen: [00:34:58] 300 bucks an hour to.

Blake Oliver: [00:34:59] Map. Yeah, that's kind of crazy.

Peter Wen: [00:35:01] That's why your returns are cost so much, right?

Blake Oliver: [00:35:03] No, I think so. Right. So like a lot of firms are talking about dropping 1040s, trying to get out of that game.

Peter Wen: [00:35:09] Well, everyone we talked to. Yeah, it's quite a trend.

Blake Oliver: [00:35:12] Sorry, but I feel like if the data flowed smoothly and you had the books up to date throughout the year, it would be possible. You might have to still raise prices, but it would be possible to have a very profitable 1040 practice. But the problem is just these gaps that exist.

Peter Wen: [00:35:29] Yes, I think you have profitable all different business lines, right? Yeah. Once you automate. So, you know, there's different reasons why people choose different sweet spots within their firm. You know, our job at telephone is to is to give you the options of how to choose to deploy your your personnel, basically.

Blake Oliver: [00:35:47] So how much does tally for cost? And then put that in perspective with the tax software, too, for me, because I was on I was on Twitter and I saw a video from Logan, I think it was Logan Graf who was talking about how much it costs him to run his small firm and then, you know, how much he makes. And he was spending I think it was like $30,000 a year on his tax software. And that kind of blew my mind.

Peter Wen: [00:36:17] Huh?

Blake Oliver: [00:36:18] Is that normal? Is that is that like is that is that a typical expense for like a solo practitioner or like what?

Peter Wen: [00:36:26] Yeah, definitely can go into four figures. You know, I don't know his specific volume and stuff like that, but yeah, it easily can get to Yeah. That's not, it's not out of the question. Yeah. Now telephone charge is 30 bucks a return and that's it. A return per year.

Blake Oliver: [00:36:43] So typically and we should say that's as of July 2022, in case you're listening to this later.

Peter Wen: [00:36:51] You know very modest cost given the amount of time saved. Now in terms of. Yeah, the stack, yes, it's inexpensive. I mean, the overall tech stack of tax is is a big cost. And, you know, the virtual hosting is a component. I'm not sure if that included a virtual hosting piece.

Blake Oliver: [00:37:12] I think it did.

Peter Wen: [00:37:14] Cost maybe.

Blake Oliver: [00:37:14] It did because he wasn't breaking that out.

Peter Wen: [00:37:18] Yeah. I mean, that in itself is right per user. It could be 1500 bucks a year.

Blake Oliver: [00:37:24] Yeah.

Peter Wen: [00:37:25] Yeah. So it adds.

Blake Oliver: [00:37:26] Up. Why do you think these companies haven't innovated in the way that Xero has Intuit has when it comes to general ledgers? I mean, we have so many options for cloud based general ledgers of all sizes, companies of all sizes. We got net suite, we've got intact in the mid-market, we've got QBO, we've got Xero, we've got FreshBooks, we've got so many choices. There's there's even specialized startups doing deals like soft ledger, right?

Peter Wen: [00:37:56] And yet there's been that's a great question.

Blake Oliver: [00:37:58] Why is it so little innovation in tax?

Peter Wen: [00:38:01] I think because tax is a four letter word. It's it's baffling to me in a sense, because because there's such a need. But I do think there's probably an expertise barrier to to build software is not easy, to be honest. Right. You need experts and know the complexity of what you're doing. You need an engineering team that that can do it. You know, I think that the incumbents. Right. There's an investment. There's no there's no. Incentive to invest because they have the customers already. Right. And in some ways a classic business, Harvard Business School case where like, oh, wow, why would I do why would I eat my own customer by spending to build the next generation? I mean, that's why you have startups. The startups disrupt. They take a chance and they disrupt an industry because, you know, natural course of change. But it's a risk, right?

Blake Oliver: [00:39:03] And we saw a canopy canopy came in a few years ago and said they were going to build a tax product that would compete with these existing ones. And they. Failed.

Peter Wen: [00:39:16] Yes, they gave up. They identified the need. Yes, absolutely. So, you know, it's great that someone identified the need. Now, execution is a different different issue. Right. So there is a there is a you know, someone needs to do it. So even seven years ago, someone tried or five years ago, how long that was, Right? So, yes, please, someone do it. You know, we're doing our part, but it's going to happen, right? Someone's going to do it because it's that last piece preventing truly automated. You know, everyone's trying like the metaverse, right? Like no one in the metaverse is going to be tanking stuff, so. Well.

Blake Oliver: [00:39:53] Is it is it it's it can't be the difficulty of like writing the the software because like, we're just talking about putting numbers on the tax forms. Right. Like this is not building virtual worlds, is it the tax law that's so difficult, like creating the I imagine that there's excuse my ignorance listeners who are very familiar with tax, but this is not my area of expertise as a CPA. I'm on the GL side, right? The accounting side. And so to me, you know, I know there's a lot of complexity with like debits and credits and, and building a system that can actually handle thousands and millions of transactions and all that sort of thing. But like in tax, I mean, you're just you're taking a trial balance and you're you're putting it into forms. So why is it so hard to build a cloud based version? Why like, why did Canopy end up giving up?

Peter Wen: [00:40:47] Well, you know, the tax law is definitely complicated. Right. And being knowing that a corpus of right, that corpus of what needs to be done is complicated. Right? You do have to know it to get it right. Right. This is a regulatory this is a compliance product. So so I do think there's inherent difficulty in that. Now, I don't think it's you know, I don't think it's as hard, to be honest. Right. As 3D graphics or gaming, to be honest. Right. Or some of the mathematical complexities, maybe not that way. So I do think that's that's such a good thing because it's within reach. But I think it just needs it needs kind of a good it needs a good team to build with the right vision, with a good product, people with good customers that are willing to to write. Yeah, I think that deep knowledge of the corpus of tax, you definitely need to know that history of tax and all the forms. And I think that's a big barrier. Finding people that know that and want to be in a software company is definitely one of the barriers. You know, finding programmers is another, right? That's not right. You know, I, I, I say to my brother, it's just data, right? Just like what you said. It's like, oh, yeah, you type, right? You just type it and any monkey can type. But Right. Being able to craft a program in the cloud is, is definitely you have to find the right people. They'd rather be doing gaming or meta or metaverse. So there are challenges to building a cloud product. It's not cheap, for one thing.

Blake Oliver: [00:42:17] Last question before I let you go. This has to do with this shift to advisory services or the the constant, constant urging from thought leaders in our profession and from it seems like everybody saying you've got to replace that $500 return with a 5000 or more tax planning package for clients. But that seems like a really huge leap for a firm to take. So, you know, in the in the time we have left, do you have any advice for firms that are looking to do more advisory to do more tax planning work? Like what have you seen that is successful? And let's take it from the standpoint of I have I have a firm that's really heavy compliance. I'm doing just a lot of like tax returns, busy season, turning them out. Right. Not a lot of planning stuff for my clients. Like how do I even begin? Like, where is the where would I start?

Peter Wen: [00:43:14] Yeah, Tollefson is actually working on a tax planning product as well. And, you know, I think you get a sense the data, right? There's more things you can make more money on if you take away one of this big roadblocks. So advisory is definitely something that that we think everyone's going to move towards in the next 510 the decade. Right. Using your brain, you'll automate the easy stuff. Use your brain to talk to your customers and know the tax law and to really do that planning. And yes, you charge you should charge more for that. It should be a more important engagement. So we think the software has to help you provide those services. Right? Very much like cloud accounting. You know, ten years ago, the product gave you a way to do different business and interact with your customers differently. And it opened up a whole new world. That's going to happen for the tax world as well with the software. So as we build our own products, you know, we do hope other people build other products that help the professionals really live their their true worth as an expert and then build a great business around that. So more to come from us. And we do hope that right then more products help that be possible.

Blake Oliver: [00:44:34] So if our listeners want to learn more about tally for where can they go?

Peter Wen: [00:44:38] Oh, tally for tally for we've got some great resources there about what we do and how to run a good touch kind of stack and product in the cloud.

Blake Oliver: [00:44:51] Awesome. Peter, it's been great catching up with you. Thanks for giving me that crash course on tax software and and the gaps and I'm really looking forward to seeing innovation in this space. And congratulations for being a first mover.

Peter Wen: [00:45:07] My pleasure, Blake. There's plenty of stuff to talk about. Tax and accounting, love to love to learn more myself. And I'll see you on the next podcast.

Blake Oliver: [00:45:17] See you soon. Thanks for listening. I hope you enjoyed this episode and that you learned something new. And if you did, wouldn't it be nice to get some CPE credit for it? Well, I've got great news. My new app, Earmark CPE offers free Naspa approved CPE credits for listening to podcasts, including this one, visit earmark CPE to download the app, take a short quiz and get your CPE certificate. That's earmark CPE.

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Why Is Tax Software Stuck In the Stone Age?
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