Hidden Costs of Not Hosting Your Tax Software in the Cloud

It’s not easy for many to abandon legacy systems and embrace modernization and digitization. However, clinging to outdated methods can become an expensive burden for businesses.

In the fast-moving tax management industry, many organizations still use traditional or on-premises software without realizing the hidden costs of not moving to the cloud.

Though sticking with legacy systems may avoid the upfront investment of cloud migration, its long-term financial and operating impacts can be much more significant.

From missed cost savings opportunities to increased risks of penalties, the consequences of not hosting your tax software on the cloud can badly hamper your business.

So, let’s look at the hidden costs of not hosting tax software in the Cloud.

Missed Opportunities to Save Costs and Improve Efficiency

One of the significant benefits of cloud-hosted tax software is that it can help you save costs by optimizing resource use.

Typically, on-premise software requires over-provisioning, which means buying more server capacity than you need in fear of running short on resources in the future.

Companies stuck on outdated traditional in-house solutions lose vast sums of money on owning resources with little use.

In contrast, the Cloud-based infrastructure is designed with flexibility, allowing for cost optimization through resource use.

It may help tax savings, as governments often offer notable tax credits and incentives to encourage digital transformation.

Increased Risk of Security Breaches and Compliance Issues

Another drawback of not going to the cloud is the increased risk of security breaches, especially when it comes to sensitive financial data.

Many old applications and operating systems are left unadministered to fight modern cyber threats. Businesses that fail to address this problem promptly could experience significant economic loss, legal penalties, and a loss of customer trust.

Multiple data privacy regulations, including the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA), are the most prominent examples.

Under the GDPR, a company can be fined up to 4% of its global turnover, with a CCPA fine possibly amounting to $7500 for every user whose data has been breached.

To avoid such heavy penalties, it is essential to consider cloud hosting, managed by teams of experts, and ensure that software stays up to date and corresponds to current global security standards.

Most cloud providers ensure security with solid encryption, multiple-factor authentication, and regular backups. While utilizing cloud-based solutions, firms enjoy increased security levels and avoid the extensive financial complications of a security breach.

Meanwhile, maintaining the same level of security independently would require significant investments in money and human capital and consequently lead to much greater operational expenses.

Ongoing Management and Maintenance Costs

Traditional systems and on-premises tax software incur ongoing management costs, as organizations must invest in an internal IT team for regular repair, bug fixing, hardware maintenance, etc.

Maintenance costs increase with aging systems, as some hardware units become nonfunctional and obsolete. Furthermore, on-premise software often requires specialized knowledge. Consequently, the firm has to incur extra expenses in training its employees.

Cloud solutions eliminate many of these concerns. They are designed to be user-friendly, reducing training needs.

Data Storage and Transfer Expenses That Shock Your Wallet

Another shortcoming of on-premise software is data storage, as these systems need more intelligent data management.

They tend to store redundant or obsolete information, which can cause intensive storage costs over time, given that 60% or more may never be used again.

Cloud hosting reduces the expenditure on data storage by filtering out outdated and duplicate information.

Another hidden cost is data transfer fees. Large firms may pay a hefty fee for significantly moving large amounts of data in and out of on-premises systems as their businesses grow.

Cloud solutions make managing and storing data more accessible by offering optimized data transfer and storage strategies. Tools like Cloud Spend Analysis Platforms can also track the costs associated with data flow and help businesses minimize expenses.

Ways to Minimize Migration and Cloud Costs

Many organizations view cloud migration as an opportunity to reduce infrastructure costs and gain better security and governance.

However, while the benefits of migration are undisputed, there are still costs for exiting the existing structure and hiring third-party consultants.

Hence, firms must consider the cost of data transfer, re-architecting, and training the new staff to work in the cloud environment. Fortunately, these costs can be considerably minimized:

• Right-sizing the resources by not over-provisioning and assessing the needs of a distinct phase and resource.
• Choose the suitable regions, as cloud service providers typically deliver services in cost-effective areas. In the case of AWS, this means South America, Asia Pacific, and Eastern Europe. For Microsoft Azure, these are North America, Asia-Pacific, Western Europe, and the Middle East.
• They are identifying and shutting down all idle workloads. When idle, these workloads are still being charged for.
• Optimizing storage plans. Cloud systems provide storage tailored to a firm’s specific needs, so the firm must find a balance rather than overpay for idle storage.

Conclusion

For many organizations, keeping tax software on-premise was the best option at the time. However, the hidden cost of using such a system has become overwhelming, given the risks of security breaches, the need for expensive resources to solve them, and the money left in unclaimed tax credits.

Indeed, moving to cloud-hosted tax software will benefit the organization on several levels; this move can help reduce costs, streamline operations, and improve security.

In conclusion, the choice is obvious: stick to an expensive on-premise setup or choose the cloud and avoid the costs silently eating into the business. Now is the time to change, while adopting cloud-based solutions is still convenient and beneficial.