Tax season went well, according to the Internal Revenue Service and most stakeholders. "The biggest distraction this year was the weather," said Roger Harris, president of Padgett Business Services. "There were some minor glitches that we've come to expect. The start was delayed but not by that much, and it was the first year for some of the [Affordable Care Act] taxes, which caught some people off guard."
"The biggest complaint was the brokerage house statements," he continued. "Preparers never knew if they had the last one because these were constantly being amended and sent out. Preparers didn't know when they could start a return and be confident that they had everything they needed. We got a corrected one on April 14 this year. But this isn't unique - practitioners have been complaining about this for years. There needs to be a better way to fix the problem than not having to wait till the last minute to file or pay additional fees to amend a return that was filed earlier, or give everyone an extension and hope by October you have everything you need. One of the suggestions to fix it is if it is under a certain amount, allow the taxpayer to correct it the following year."
Keith Spritz, managing director at Top 100 Firm CBIZ MHM, agreed. "Part of the reason it was a challenging busy season was that a lot of it was beyond our clients' control," he said. "The K-1 reporting for a lot of our individual clients was very late this year for returns that aren't normally extended. The lesson learned is to be flexible and expect the unexpected. Get as much done as possible, and get as far along as you can in the work so you can anticipate items that might come up unexpectedly."
"For 2013, there were not a lot of changes to forms or reportable securities," said Bob Linville, director of product management at Scivantage, a software provider to the financial service industry.
"In years where there are not a lot of changes to reporting requirements, brokers look to improve on their overall accuracy and efficiency," he said. "This translates to raising the bar on getting statements out to clients earlier, to reducing corrections rates, or both. The questions from taxpayers were not dramatically different from the last two years. One topic that came up more frequently than it has in prior years was corporate actions. I don't know if there were more taxable corporate actions in 2013 than in prior years, or if there were just more questions about how those transactions are reported."
THE PERENNIAL PROBLEM
"One of the things that is always a lesson that firms should be gleaning is that often Congress likes to change its mind at the last minute, and this turns into delays when it comes to the IRS reacting to it," said Jordan Kleinsmith, product manager of the enterprise segment of the Tax and Accounting business of Thomson Reuters. "The IRS needed more lead time than Congress gave them to react to changes in the tax law made at the end of last year. Due to the delay, the IRS wasn't prepared to process tax returns until the end of January."
"This poses a staffing problem," he observed. "If we're going to encounter this same problem going forward, how should firms staff in the month of January? How much can they do from a preparation standpoint? There may be a significant part of forms that the IRS hasn't finalized yet, so do you bring on temporary staff and wait until February, and have the staff do clerical work until then? This will be more significant as margins on tax work continue to decrease. We need to carefully assess what we're spending our money on when it comes to staff and when it makes sense to bring in additional staff."
Kleinsmith noted that the 2014 filing statistics show that as of April 18, the professionally prepared market increased by a mere 0.7 percent from 2013 to 2014, while self-prepared returns increased by 6.5 percent for the same period. "The market is shrinking and firms are competing for a smaller piece of the pie than in past years," he said. "There's a greater need for advisory services and less of a need for CPAs to file taxes on their customers' behalf. It's a troubling development. Right now it's only a few percentage points shift each year, but we'll see it ramp up, with a shrinking of the market and a decrease in overall demand. There will be a decreased price that practitioners can command in the market for tax preparation services, so we'll see margins shrink."
The big challenge for a lot of firms is how they communicate value, Kleinsmith indicated. "We're finding a lot of firms are being held back from moving toward an advisory service model because they are trapped in the hourly billing system. There's a danger in equating time with billing, since when you peg directly to time, you have set a cap on how much you can make unless you add more staff. If you value price, you can spend a little time on something that's hugely impactful for the customer, but it's a hard transition for the average practitioner to make."
ON THE BRIGHT SIDE
The good news for CPAs is that not everyone in the do-it-yourself category was pleased with the experience, according to Ryan Himmel, a CPA and president of BIDaWIZ Inc.
Himmel conducted a survey of 3,500 users throughout the country that visited BIDaWIZ for tax help or to find a preparer to file their personal tax return.
"The majority of [DIY] respondents indicated that they would explore changing filing methods or providers," he said. "Specifically, there were TurboTax and H&R Block users that articulated dissatisfaction with the level of support and access to relevant knowledge base data. While the cost for using a professional was a concern when we asked, many of these respondents commented that they would consider using a professional due to the inability for DIY software programs to provide adequate support."
Mark Luscombe, principal analyst at CCH, noted the same phenomenon: "The numbers for everything went up except for paid preparer returns. It's an anomaly. Are we seeing some trend that as we go electronic, people are just buying their own software?"
Beyond the shrinkage in the overall return preparer market, the season went well, according to Luscombe. "Because of the sequester, there were some delays in the start. There were some complaints about not being able to file and get refunds. Significantly, the Net Investment Income Tax form instructions were late."
On the plus side, more people e-filed, and the IRS got the refunds out in a fairly timely manner, Luscombe noted. "There hasn't been negative statistics on ID theft, although there were some fraud alert warnings that people were phoning taxpayers and pretending to be from the IRS."
On the negative side are the extenders that expired at the end of the year. "People were not able to plan well for whether those will be around - they may be reinstated," he said.
All things told, "It was a quiet year in terms of new developments for most taxpayers," Luscombe said. "However, for some higher-income people there were higher rates with the expiration of the Bush cuts, and the new Medicare taxes from health care reform."
"Tax season went really well," said Jerry Connor, product line manager for CCH Axcess. "Our support calls were down this year, with fewer 'how to' calls, and fewer 'Why isn't this working?' calls. And we had the digital Form 8879 [e-signature form] ready to go as soon as it was approved. It will be a huge game-changer in the future because without it, it's a very inefficient process."
MAKE YOUR OWN SEASON
"What we really learned is that tax season is as good or as tough as you make it," said Jason Barnes, senior manager in the Tax Group of Top 100 Firm ParenteBeard LLC.
"At the end of the day, not only can we as CPAs help ourselves to be less stressed by understanding our clients better, we can also help them become less stressed," he said. "It's also a stressful time of year for them, too - they're getting documents from all over and trying to get them together, and sometimes we lose sight of the fact that it can be just as stressful for them."
"Just because the tax deadline or busy season deadline is over for the year, it doesn't mean we should lose sight of what we can begin to work on now, rather than wait until next busy season," he said. "Your relationship with clients is no different than your relationship with your spouse or friends. If you know what's going on in their lives, it can make the process so much smoother."
Finances are high on the list of concerns for most clients, he observed. "When I first started, one of my senior-level people told me that although we're not performing brain surgery, people need to have comfort in knowing that their finances are secure. They might have control over their house, they can exercise more, and eat the right foods, but when it comes to finances, many feel that it is out of their realm of control. It ranks high on areas in which they look for outside help - they look to us to handle an area they can't control themselves."
Barnes recommends that CPAs aim to be an external partner with their clients' business: "We may not have ownership of the business, but we're a partner with them to make sure it continues to grow and prosper." A lot of the stress during busy season comes from trying to balance at-home pressures, Barnes indicated.
"I've had over 30 busy seasons, and I like to think I get smarter every year," said CBIZ's Spritz. "The key is prioritization. It's key in everything, particularly in terms of trying to keep all the balls in the air -- everyone has a personal life too."
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