If you had to make a list of the major things that business leaders in nearly every industry are concerned about on a daily basis, tax preparation would undoubtedly be right at the top. It’s a major source of concern – whether they’re worried about the effects of tax reform, the consequences of making a mistake or the sheer volume of time and effort involved in preparation to begin with, it’s something that many cite as one of the biggest challenges of running a business, year after year.
But what if there was a way to streamline the tax preparation process? If there was a solution that not only allowed you to automate a lot of the administrative side of tax preparation, but also reduce the possibility of human error and extract relevant information from W2s and other documents in real-time, that would be a solution worth investigating, right?
The good news is that this solution already exists: it’s called OCR and if your business isn’t already using it to help manage your tax documents, there are a number of compelling reasons as to why now would be an excellent time to start.
What is Machine Learning?
But before you can get a better idea of the major advantages that OCR brings to the table, it’s first important to come to an understanding of the category of computing that it falls under: machine learning.
At its core, machine learning is a particular subset of artificial intelligence that essentially allows computers to “learn” on their own without actually being programed to do so. In other words, a piece of software has the ability to improve on its performance when completing a task using algorithms that can analyze and make predictions from available data. In many ways, it is a natural evolution of both pattern recognition and computational learning theory in artificial intelligence.
One of the most obvious (and straightforward) examples of this idea in application takes the form of the “Photos” app on a MacOS computer. If you input two photos of the same friend into the software and tag the first one with the friend’s name, the “Photos” app will automatically recognize that person in the second photo and apply the appropriate tag. It will then continue to properly identify that person in every other photo they appear in afterwards – thus “learning” the friend’s name and improving its own performance moving forward.
That is admittedly a very basic example of machine learning in execution – the implications in the business world in particular are much more broad, not to mention much more important. Machine learning tools can be used to quickly analyze available data from a variety of sources to create better, more accurate and more timely sales forecasts, for example, by way of rapid analysis prediction and processing. It can also be an efficient way to use that same data to better interpret past customer behaviors, identifying certain trends or patterns in a market that would have otherwise went undiscovered.
But machine learning can benefit businesses in nearly every industry in a variety of other ways, too. In terms of cyber security, these tools can be used to do everything from detecting network intrusions to detecting and preventing fraud in real-time. In the world of marketing, they can be used to build more accurate pricing models based on niche customer demand and generate real-time targeted advertising on websites that your audience members are actively engaged in.
OCR For Tax Documents
OCR or “optical character recognition,” on the other hand, is another type of machine learning that has potentially significant benefits in other areas of business, too. The term itself describes the process of converting images of text that is either printed, typed or even handwritten into machine-encoded text. With OCR, it’s possible to take a photo of a document that exists in hard copy and instantly have a computer translate it into a document that can then be edited as if you had just created it in a word processor moments ago. It works with nearly everything – from the aforementioned photos to scanned documents to even the conversion of text on a sigh in the background of a photo from your camera roll.
ORC solutions, like those offered by Filestack and others, work best using documents that are semi-structured in nature – something that describes nearly all tax forms quite accurately.
Consider for a moment the fact that simply organizing and entering data from source documents into tax preparation software makes up the lion’s share of your time requirements during preparation. With the right OCR technology, it is now possible to cut that time requirement in half – or more – all while generating results that are 100% consistent and reliable.
An OCR solution can recognize a plethora of different types of source documents, from brokerage statements to W2s, 1099s and everything in between, both recognizing and extracting relevant text to transition into your existing tax preparation software. It can identify much of the information contained in the specific fields on these forms like someone’s name, their address, their social security number/EIN, their income and more, even if the location of these fields changes from one document to another. Many solutions can also be programed to not only transpose that information but analyze it, too, catching the types of errors that a human might miss that could lead to significant delays in processing and e-filing.
Where OCR Makes A Difference
Instead of spending countless hours (or paying money to bring in outside help) to manually enter the information from countless employee W2s into your tax software, for example, you can allow your OCR solution to capture all of that information instead. That data will then automatically make its way to the relevant forms within that tax software, eliminating the need to spend time entering and organizing that data at all. At the same time, the solution can be used to perform an analysis to make sure that everything is accurate – like by making sure that every document entered into the tax software has a social security number that matches the employee in question – thus creating a higher level of consistency and ultimate data quality as well.
While it’s certainly true that certain types of documents will still need to be entered by hand – OCR isn’t quite where it needs to be yet to perform the same analysis of things like letters or handwritten notes – it’s still a perfect opportunity to save a massive amount of time on your company’s tax preparation while guaranteeing a higher level of accuracy and reliability as a result. That is time you are then free to re-purpose into the most important task of all: actually running the business you’ve dedicated yourself to in the first place.
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