The recent tax filing deadline provided a powerful annual reminder of a defining feature of our economy: a mad last-minute dash by tens of millions of people to pay the government what they think they owe.
It's especially stressful and complicated for people who fit into a big and growing segment of the population: relatively high earners who have more complex returns than a single income, but who also aren't in the billionaire class of people with teams of accountants handling everything.
For many years, people who fit into this middle category have been largely in the dark about taxes. With complex returns, many have only been able to toss huge amounts of paperwork at CPAs, and then ultimately sign their names on tax forms that they can't fully understand.
Now, this segment (sometimes referred to as having "high net worth" or "emerging wealth") is about to expand in an unprecedented way, due to the so-called great wealth transfer. In the coming years, younger Americans are expected to receive tens of trillions of dollars from older family members who worked hard their whole lives to earn and save. One analysis estimates that $84 trillion will be handed down, with the vast majority—about $72 trillion—going to younger Americans, and the rest going to charities.
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Most recipients won't know all the complexities of their tax responsibilities. Some types of inherited accounts can be subject to federal taxes currently, and some states have their own inheritance taxes. It's also quite possible that the tax codes themselves will change. Younger generations have been showing support for more inheritance taxes to help address inequalities, and may support congressional candidates who will enact new laws.
Without guidance on what to do and how to handle all the tax implications, people could easily end up overpaying the government, or mistakenly underpaying and facing audits. They'll also be especially vulnerable to unscrupulous operators who come along and try to take advantage of the situation.
And it's not just inherited money that will be at stake. Younger generations are in a very different economic reality from previous generations. They may be invested in crypto or other new technologies. They may also have RSUs (restricted stock units), as well as multiple properties and a wide array of investments. Young people frequently make different kinds of investment decisions.
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And America doesn't have enough people to guide this generation into the future. That's partly because there's a shortage in the accounting industry, which has reached "crisis" levels, according to a report in The CPA Journal. The number of people taking the CPA (certified public accountant) exam has dropped by a third in recent years. Fortune cited the shortage as a key factor leading to all sorts of mistakes in earnings reports.
I have a unique window into this problem. I had launched a startup to revolutionize the little understood mortgage servicing industry, another financial sector that was operating in outdated ways. (It was ultimately sold to another company, Stavvy.) So I knew how deeply embedded processes and technology can hold back an industry.
Then, my father died. He ran a CPA practice as a sole proprietor. Suddenly, his many clients needed help with their taxes. And I saw how difficult today's CPAs have it. They are overwhelmed and underappreciated.
As an outsider, I saw that we need to transform the entire system. People in that vast middle category, with complex taxes but no billionaire benefits, should have a whole new experience with taxation. People need a functional, productive relationship with a CPA all year round helping them make decisions and plan out their taxes. They should also have a clear understanding of what's going on with their money.
It's time for the accounting industry to face real disruption. Some of that is through technology, which the industry has been notoriously slow to adopt. New tools can automate some of the grunt work like reading through and compiling 1099s and income reports and doing tabulations. Artificial intelligence (AI) can help generate intelligible summaries that show clients exactly what's going on with their taxes.
But the big picture change we need goes beyond technology. It's time to turn taxes into something people can plan around in order to build a nest egg and ensure that their money is going to the right places. No more mass confusion. No more stress and all-nighters that often lead up to big filing days in April and October.
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Everyone deserves better than what they're currently getting—the nation's overworked and often underappreciated CPAs like my dad; the millions of people who will need great accountants; and older Americans who want to leave their hard-earned wealth in trustworthy hands. The faster we address this, the less of a headache it will be. It's time to chart a new path.
Eric Rachmel is a co-founder and CEO of OLarry.
The views expressed in this article are the writer's own.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
