Let’s be honest, to say you are a tax professional today that is hosting tax software on-premises is like saying you are still using a rotary phone. And yet, there are still a notable number of tax pros that continue this way, and have not made a move even to cloud hosting.
In this article, I’d like to explore some of the “reasoning” behind doing so and ultimately, the reasons to finally make the switch.
The Cost of “Control”
When firms host tax software on premises, they often justify it with one word: control. Data hosted on your own servers, within your own premises, feels safer and gives you ultimate control over your data. But this control has its own limitations and can come at a very high price.
Hardware doesn’t come cheap and requires an upgrade every few years. Storage and processing servers are changing rapidly and becoming obsolete within a year or two, forcing an upgrade.
Then there’s IT maintenance, which includes installing updates, troubleshooting errors, managing licenses, and ensuring compatibility with other systems. Add power consumption, cooling, and physical space, and suddenly your “control” turns into an expensive burden.
Cloud-based or hosted tax platforms eliminate all this overhead. You pay a predictable subscription fee and get automatic updates, built-in redundancy, and enterprise-grade infrastructure.
You’re also not stuck replacing aging servers or worrying about whether your IT team remembered to install last night’s security patch. All this becomes possible because these cloud providers enjoy the economies of scale, which any small or midsized organization can only dream of.
Even large organizations may not enjoy the same level of economies of scale as the cloud service provider. In short, on-premises hosting is a burden on time and money, taking focus away from what truly matters: serving clients.
Security is No Longer a DIY Project
Cyber criminals and cyber threats have evolved faster than most in-house IT teams can handle. Ransomware, phishing, and data breaches now target even small tax firms, as attackers are aware that they store sensitive financial information. The study, “Cybersecurity needs for SMEs”, focuses on how SMEs are increasingly targeted by cybercriminals due to their limited resources and outdated technology.
In an on-premises system, everything must be handled by the in-house IT team, including firewalls, intrusion detection, encryption, access control, backups, and compliance with IRS standards. Missing even a single update or letting a backup fail can expose your clients’ data and destroy your reputation overnight.
On the other hand, reputable cloud tax software providers employ full-time security experts. They use advanced encryption, 24/7 monitoring, and multiple data centers with redundancy and disaster recovery plans. These are protections that even large accounting firms can’t easily replicate in-house.
Compliance Requirements are Getting Tougher
Compliance as we know it, is not getting any easier. Whether it’s IRS WISP requirements, state-specific rules, or client confidentiality under the FTC Safeguards Rule; compliance now requires a level of control and documentation that’s hard to achieve with legacy systems. Managed service providers design their platforms to stay compliant.
Most leading solutions undergo independent audits for SOC 1, SOC 2, and ISO 27001 certifications. They also build tracking and reporting features that simplify record-keeping and audit preparation.
If you’re still hosting on-premises, compliance becomes entirely your responsibility, and every missed log, outdated patch, or misplaced backup could mean a violation of compliance and regulation. Moreover, continuing to host tax software on-premises can become an increasingly significant compliance risk that is not worth taking.
WFH Changed Everything
It’s no secret that the pandemic disrupted the way accounting firms operate, and the effects are long-lasting. Remote work has become the new reality for the corporate world, and businesses are forced to adopt it. Client meetings are held remotely, documents are exchanged digitally, and collaboration happens in real-time.
The "KPMG Global Survey" examined how the COVID-19 pandemic permanently reshaped work models across industries, including sectors such as accounting, auditing, and consulting. On-premise systems weren’t designed for remote access.
They rely on office-based servers and often require VPNs or remote desktops, which are often laggy, unreliable, and inconvenient for users. Cloud hosting, on the other hand, makes mobility effortless. Staff can log in securely from anywhere, collaborate in real time, and access client files on demand. Multi-factor authentication ensures data remains protected, while automatic syncing keeps everyone on the same page.
Scalability and Performance
Tax season brings heavy workloads for your tax software, however, inconsistent that load may be. One week, your systems are quiet, and the next, they’re overloaded with thousands of returns and file uploads. On-premises infrastructure forces organizations to over-invest in hardware that remains underutilized for most of the year or risk performance failures during demand surges.
Cloud-hosted tax software offers on-demand scalability. You can instantly increase your storage or processing requirements for the tax season. Once the tax season is over, you can easily scale back and pay only for what you use. This flexibility is a major competitive edge.
Firms can handle more clients without adding IT headaches or delaying turnaround times. And with performance optimized in the cloud, even large data files open quickly, keeping your team efficient when it matters most.
Staying Current Is a Full-Time Job
Your tax software needs regular and frequent updates, irrespective of whether it’s hosted on-premises or on the cloud. However, if it is hosted on premises, these cumbersome updates become your responsibility entirely. This is time-consuming and prone to errors. Moreover, you will need a large IT team to manage this.
Hosting tax software in the cloud is a straightforward solution. Updates roll out automatically across all users, ensuring everyone always works on the latest version. You don’t waste time installing patches, verifying compatibility, or coordinating downtime. And given how frequently tax laws and forms change, automation isn’t just convenient—it’s essential.
Data Backup and Disaster Recovery
Data loss due to a crash or a ransomware attack is every accountant’s nightmare, especially during the tax season. According to "The State of Backup and Recovery Report 2025*", over 30% of respondents said they worry that their company doesn’t have a good backup and recovery solution.
This becomes more probable in an on-premises setup. Backup is entirely your responsibility. Disaster recovery is a costly but necessary process. That means scheduling regular backups, testing recovery procedures, and storing copies off-site, all tasks that easily slip through the cracks.
Cloud hosting essentially alleviates this risk. Your data is stored in multiple secure data centers with continuous backups. Even in the event of a local outage, your data remains intact and accessible.
Client Experience Matters
Client expectations have evolved, and they want transparency and instant access to their data. They want the flexibility of sharing documents digitally, tracking progress in real-time, and communicating securely without lengthy email threads.
On-premises tax systems are not designed to meet such expectations. Adding such functionality often requires extra add-ons or costly customization. Modern cloud tax platforms include secure client portals, real-time status tracking, and integrated messaging tools. That not only improves efficiency but also strengthens trust, as clients can see their filings progressing and know their information is handled securely.
Final Thoughts
Cloud hosting doesn’t mean giving up security; it means upgrading to enterprise-grade protection without incurring the overhead of maintaining it internally. Most cloud tax software providers offer migration tools, data import assistance, and training resources to support seamless integration.
The sooner your firm moves, the sooner you start saving time and operating with confidence. The cost savings is the icing on top.
And for tax firms that want to stay competitive, the choice can no longer be between on-premises and cloud. The real choice is between staying stuck in the past or moving forward with confidence into the future of tax technology.
Disclosures:
Feature content has been adapted from information provided by Ace Cloud Hosting on behalf of Dr. Sangeeta Chhabra, co-founder and executive director of Ace Cloud Hosting. Content within this Insightful Accountant feature is provided for informational and educational purposes only
The *State of Backup and Recovery Report 2025, was produced on behalf of Unitrends, a Kaseya Company, and the URL is furnished here solely for reference purposes by our readers.
Any other trade names or references used herein may refer to registered, trademarked, or copyrighted materials held by their respective owners; they are included in the content for informational and educational purposes only.
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