Posted January 21, 2017
The Personal Approach to Tax Returns
This article was original published in the January 2017 CPA Journal, The Voice of the Profession, a publication of the New York State Society of CPAs. It has been posted here with permission of the Publisher.
As the tax profession becomes more and more technology-focused, there seems to be a trend among CPA firms preparing tax returns to move away from personal meetings with clients to a “drop off and put the return through the factory” approach. This approach tries to remove the client from the process, only engaging them when there is something wrong—a 1099 is missing, or charitable contributions were not provided. This approach often involves outsourcing the key entries to a new hire or administrative employee, an offshore company, or auto-flow software. This process, from drop-off of the client’s information to delivery, tends to take on average between 16–25 days.
This author’s firm takes a completely different approach to the tax return process, which allows the preparation of more returns, quicker and more efficient preparation of those returns, and a higher level of quality than most firms.
Getting Clients Involved
The main process centers around meeting with clients and preparing their tax returns while they are in the office with us. There are a few reasons for this. The first is that the firm wants client interaction. During the initial meeting and as the tax return is being prepared, CPAs can personal connections with clients. Not only does this allow both sides to become more familiar and trusting of each other, but it opens up dialogue for tax planning opportunities. If a client says that he just had his first grandchild, he might want to contribute to a 529 plan or set up a grantor trust. Or the client might have recently changed jobs and may not be contributing enough to her 401k plan. The planning opportunities are endless.
This time also gives CPAs opportunities to cross-sell other products. If someone needs an IRA or retirement plan set up, the in-house financial advisors are right down the hall and will take care of everything in just one meeting. If the client is looking for a different payroll or bookkeeping solution, CPAs can go over those options as well and bring in the department that can help directly.
While meeting with clients, many issues that most CPA firms take dozens of emails to resolve are handled right on the spot. If a client forgets to bring a mortgage interest statement, CPAs can stand by while he logs into the account online or calls the bank to get the missing information. There still might be some follow-up information needed after the meeting, but the overall number of follow-up items needed for the engagement is greatly reduced, often to just one or two items.
Speed and Quality
The quality of the firm’s product is also much higher. The person doing the tax return is a CPA or seasoned professional rather than a new hire or a software program, which assures the client that the return is being handled by someone with knowledge and experience. It also decreases review comments, since there are fewer errors on the data entry side. The data is also better when it comes directly from the client; instead of making potentially flawed assumptions from incomplete documents, CPAs can ask questions and get immediate answers.
Processing time at the author’s firm is also substantially less than most, normally averaging 3 days. This is mostly due to the reduction in the amount of back and forth between the firm and the client and the precision of the returns.
Benefits of the Hands-On Approach
Because of this improved efficiency and quality of work, as well as the ability to provide consulting and advice to clients during face-to-face meetings, the author’s firm can also charge more for the work. The firm’s average individual tax return is $741, compared to the national average of $273 (“Tax Return Preparation Fee Averages $273 For Typical Individual Tax Returns,” National Society of Accountants, Jan. 14, 2015, http://bit.ly/2gBJhPT).
It should be emphasized here that the author’s firm is not trying to make the individual tax return process a manual one—far from it. The firm utilizes a paperless review and workflow process. The main efficiency savings comes from the fact that the CPAs are personally typing the data into the tax return instead of having an administrator or auto-flow system do it. In the firm’s opinion, the time spent reviewing inexpertly entered input would be longer than the one hour or less spent with clients preparing their whole tax returns, at least for now. Over time, optical character recognition technology and Big Data will become much more efficient so that less review is needed, but the technology is not here yet.
There are a few exceptions to this practice of meeting with clients, mainly with K-1s and 1099s. There is obviously no way anyone can complete an individual tax return with 30 K-1s or 10 1099 brokerage statements in it while clients sit there and wait. Such matters are handled after clients leave, but the rest of the tax return can still be done while they are in the office.
Above all, the most important part of the process is the firm’s relationship with the clients. In this author’s opinion, many firms want to eliminate the client from the process altogether; whereas the author believes they should be the focal point. By doing this, firms can offer an alternative to the mass-produced, commoditization of the individual tax return that is happening with most firms in the marketplace.
By Jason Ackerman, CPA, CFP®, CGMA