Tax preparation software prepares tax returns and the related information forms, and files them with the tax authority, often in bulk. Its users are accounting firms that file returns for many clients, companies that must send tax forms to thousands of people, and households that file their own returns. More and more of the preparation is now drafted by an AI assistant and checked by a person.
Most of the companies in this category build software for the United States, where tax filing is especially complicated. So this page uses the American system. India's own version, for individual income tax returns, is covered on the page on income tax filing software.
In the United States, people file a yearly federal income tax return, called Form 1040, by 15 April. Many also file a state return. Before that, employers and other payers must send each person forms that report what they paid. An employer sends each employee a W-2 form, which shows the salary and the tax deducted. A company that pays a freelancer $2,000 or more in a year sends a 1099 form. These are called information returns. A company with 3,000 freelancers must prepare, send and file 3,000 such forms each January. Bulk filing software does this from a spreadsheet or from the company's HRIS and payroll data, and files all of them electronically.
Accounting firms have a different problem: the tax season. Imagine an accounting firm in New Jersey with 15 tax preparers and 1,800 clients. Between February and April, each client sends a folder of documents: W-2s, 1099s, mortgage interest statements and receipts. The AI assistant reads each document and fills in the right lines of the return. For a typical client, it drafts the full return in a few minutes. It also lists what is missing, for example a 1099 form from a bank that the client sent last year but not this year. A preparer reviews the draft, checks each flagged line and answers the questions the assistant could not. A senior accountant signs the return before it is filed. This way of working is called human in the loop. The assistant is built on a large language model (LLM), software trained on large amounts of text to read and write it.
A small business's income and expenses come from its small business accounting software. A larger company's come from the closed books in financial close software.
India plays a large part in this work. Many American accounting firms send tax preparation work to teams in India, and several of the software products are built in Bengaluru and Hyderabad. Some Indian companies also do American bookkeeping and tax filing for start-ups that Indians founded in the United States.