The Future of Direct File
What CPAs Should Expect
Have you heard about the IRS’s Direct File program? It’s creating a buzz, and if you haven’t looked into it yet, now’s the time. This program lets taxpayers file their federal and state taxes for free directly with the IRS, cutting out the middleman — and some folks in the industry aren’t too happy about it. But before you start panicking, let’s break down what this means for CPAs and how you can turn this into an opportunity to level up your game.
This is what I learned from a tax panel I moderated at the ADP Accountant Connect Summit that included Taxgirl Kelly Phillips Erb and Ron Ulrich, retirement services executive, and Amy Miller, senior director of government affairs, both with ADP.
What Is Direct File?
Direct File is a free, IRS-created platform where eligible taxpayers (think: simple W-2 earners) can file their taxes without needing third-party software or services. The initial pilot program got solid reviews in 2024, and now it’s expanding to include more states and mobile filing options. It’s a sleek and straightforward solution for people with uncomplicated returns, and honestly, it’s a great tool for taxpayers who just need to get their taxes done fast and cheap.
Why Some People Are Nervous
Some tax software providers and preparers are worried that Direct File is the beginning of the IRS doing it all — prepping, filing and possibly replacing parts of the tax industry. Plus, there’s the “fox guarding the henhouse” argument: can we trust the IRS to offer a service where they’re both helping you file and potentially auditing your return?
But Direct File isn’t for everyone, and it’s not replacing CPAs any time soon. Let’s focus on what this means for us in the profession.
1. It’s Time to Pivot
If your bread and butter is 1040 prep for simple returns, Direct File might take a bite out of that business. But guess what? That’s your signal to pivot. Tax preparation is just the tip of the iceberg. Now’s the time to lean into advisory services, like tax planning, wealth management or business consulting. The more complex the client’s needs, the more valuable you become.
2. It’s Not for Every Taxpayer
Direct File is designed for basic filers, those W-2 earners with little to no deductions. Got a small business? Rental income? Crypto? Forget it. Those taxpayers still need a pro to navigate the complexities. And as tax laws keep changing, even the “easy” stuff will likely get harder for those going it alone.
3. Educate Your Clients
You probably don’t want to spend time on a $100 return for someone’s teenager anyway. So why not use this as an opportunity to educate your clients? Tell them about Direct File as a free option for their kids or for those super-basic situations. It’s a goodwill gesture that frees you up to focus on the clients who need real help. Plus, when those basic filers eventually have a more complicated situation, who do you think they’ll come to? The CPA who looked out for them.
4. Watch for State-Level Impacts
The big innovation in 2025 is that Direct File is adding state tax filing for more states. That seamless integration is going to appeal to a lot of taxpayers. But every state’s tax system is different, and you know the devil is in the details. Be prepared to help clients who might get tripped up on state-specific rules or deductions.
5. Funding and the Future
Let’s not forget that Direct File’s future depends on funding. It’s part of the Inflation Reduction Act, and if those dollars dry up, so could the program’s expansion. For now, keep an eye on how Congress handles this, and be ready to pivot if Direct File gets scaled back or revamped.
6. The Real Opportunity for CPAs
Direct File is a chance to elevate your value. While the IRS is helping the simple filers, you can focus on offering:
Tax strategy and planning
Multi-state compliance
Business consulting
Navigating new tax laws and credits
These are the areas where CPAs shine. Direct File can’t replace the nuanced advice and support that only a trusted advisor can provide.
Don’t Fear Change
Change is inevitable, but it doesn’t have to be scary. Direct File is just another tool in the tax ecosystem, and it’s not here to take your job. Instead, it’s your nudge to double down on your strengths and shift toward more value-added services. Your clients need you now more than ever, and this is your time to show them why.
So, let’s not fear Direct File. Let’s embrace it and use it as a springboard to take our practices to the next level. After all, we’re CPAs — we’ve got this!