Tax season has changed over the years, but it has always had its own rhythm. Most accountants and tax professionals stay occupied all year long, but, depending on the nature of the practice, some are faced with a long lull after the final return is in.
“We’re a year-round business, but I know accountants that shut down as soon as the last return is finished in April, and don’t open until next filing season,” said Roger Harris, president of Padgett Business Services. “It depends on the overall structure of the business.”
“There’s also the extension deadline in October. We keep busy all year long with accounting, payroll, tax filing and tax planning, but there are peaks and valleys,” he said.
“The basic rhythm to tax season has changed due to the increasing complexity of the Tax Code,” Harris added. “You have to wait for more forms to come in, and you may start a return a bit later while waiting for all the forms. We’re not as comfortable starting a return as we were years ago, because we’re not sure we have everything we need.”
Some typically put the bigger investors on extension, according to Harris. “You might get four versions of a K-1, so rather than doing the return four times, you routinely go on extension,” he said. “Fortunately, technology has kept up with the complexity of the code. I can’t imagine doing a complex return today, such as one with passive activity transactions, without software.”
One change the modern era has brought to the tax season is the ever-growing issue of data security, according to Harris. “Now we’re not just in the tax preparation business, we’re in the security business,” he said. “At our annual tax conference, we never allocated time to data security. Now we have people from the IRS Criminal Investigation Division put on a two-hour seminar on how to combat the challenges we face.”
Chuck McCabe, president of Peoples Income Tax and The Income Tax School, agreed. “Tax prep software didn’t exist when we started, and that has made a tremendous difference,” he said.
“Preparers should be involved in IRS representation during the off-season as well,” he said. “To represent someone other than their own client, preparers need the CPA, Enrolled Agent or attorney designation,” he noted.
Non-credentialed preparers can use the off-season to study for the EA credential, or take the IRS-sponsored annual filing season program, McCabe suggested. Anyone with a PTIN can prepare tax returns for compensation, but the IRS recommends continuing education for all preparers.
“And this may eventually be a step toward representation before the service, since interest is picking up in Congress to allow preparer regulation,” McCabe said.
The off-season is a good time to explore the purchase of a practice, McCabe advised. “A lot of elderly preparers are approaching or exceeding retirement age,” he said. “We recommend an installment sale based on a percentage of revenue over a period of three, four or five years.”
“For smaller preparers, it’s a good idea to provide multiple services,” said McCabe. “The more services you provide, the less likely your clients will be to leave. Retention rate is critical. If you have 1,000 clients with a retention rate of 90 percent, every year you won’t have any growth until you replace the 100 clients that left. For fast-refund practices, the retention rate is typically lower, closer to 75 percent. For a practice that’s a combination of more complex individual and small-business returns, the retention rate should be 95 percent.”
McCabe recommends that smaller and sole practitioners add services such as bookkeeping and payroll to stay active year-round.
TRY FINANCIAL PLANNING
“As long as I can remember, tax season has been nine-and-a-half months,” said Barry Picker, a New York-based CPA. “It’s not a constant. We’re very busy until the April deadline. It slows during the summer, and it picks up as we get close to October 15. There are definitely times between April and October where adding financial planning services would be a good fit for CPAs who are not running at full speed.”
Most accountants involved in tax preparation are already involved in financial planning, according to Picker, a member of the New York State Society of CPAs’ personal financial planning committee. “By virtue of doing tax preparation and giving tax planning advice, they’re already doing a component of financial planning,” he said.
“The accountant gets a good idea of the individual’s situation when they do the return,” said Picker. “When you do a return you’re looking backwards. The preparer already has so much information in front of them it seems natural to talk about looking forward — in many cases, CPAs do that anyway. They may not call it financial planning, but in terms of being able to monetize it, it is a separate service and it should have its own engagement letter and separate billing.”
Picker has both the Certified Financial Planner and the Personal Financial Specialist designations. He has a limited liability company that is a registered investment advisor, but doesn’t do any selling. “From the public perception, it’s better being fee-only,’” he said. “If you don’t sell anything, you have no axe to grind.”
John Vento originally set up his firm as a traditional CPA firm, doing accounting, audit and financial statements. “Quite often I would give tax planning and general financial planning advice, but my clients would have to go somewhere else to implement it,” he said. “And often they would get involved with people trying to sell them something they didn’t need.”
Vento is now a CFP and registered representative with H.D. Vest Financial Services, and provides financial planning through his wealth management firm.
As his practice has evolved, Vento uses the off-season to spend more time with each client. “It makes for better relations with clients when we’re not rushing them out the door,” he said. “Some of our clients are strictly tax clients that we see once a year. Those that take advantage of our full services we see or speak with four times a year, and we speak with our business clients on a monthly basis.”
“I know plenty of high-volume CPAs that work three months from January until the middle of April and close up for the rest of the year,” said Tom Wheelwright, founder and president of CPA firm ProVision. “But we do more returns during the summer because of the complexity of the return. Most people hate extensions, but most are sophisticated enough to understand the necessity. If they really don’t want to extend their return, we do all we can to get it done in April.”
Wheelwright prefers not to provide asset management services.
“The challenge I see is, can you be really good at more than one thing?” he said. “Being good at tax and being good at managing people’s assets are different. Some financial managers simply take money and put it into mutual funds. We think people should be able to do that themselves.”
A NEW KIND OF SEASON
For tax preparers who aren’t interested in extending their tax business beyond filing season, but would like to keep themselves and their staff employed in some meaningful activity, some accountants have found a solution — go into another seasonal business.
A number of accountants have bought Mosquito Joe franchises, finding that tax season and the mosquito season fit well together.
“It was a perfect marriage,” said Trey Powell, a South Carolina-based franchisee and area developer for Liberty Tax Service. “We knock off our mosquito business at Thanksgiving, just in time to ramp up for tax season. And when tax season ends in April, it’s exactly the right time to provide mosquito protection.”
Rita Blackwell, also with Liberty Tax Service, agreed. “Both have a peak that only lasts a few weeks,” she said. “They provide the same rush — there are people who thrive on the peak.”
It’s not just seasonal businesses that accountants and tax professionals pursue after tax season.
“The small-business expertise that accountants develop enables them to succeed in other businesses,” said Charlotte, N.C.-based CPA Karanda Osborne. “My husband and I bought a Right at Home franchise last year during the off-season. We provide companion care and personal care in an individual’s own home.”
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