Is this a good time to get into tax prep?
Reform. Refund fraud. Deadbeat clients. Too many tax credits, too little guidance and another DIY software on the market every week. So is this a good time to get into tax preparation?
“I’ll be better prepared to answer after we know that everything is set for the 2018 to 2025 returns,” said Jeff Gentner, an Enrolled Agent in Amherst, N.Y. “My gut tells me that it might not be a good time to get into the strictly 1040 business, but then again, many of my clients come to me for the convenience and satisfaction of knowing their return was completed correctly and that I took every tax advantage available to them.”
On the other hand, uncertainty can intensify the need for professional advice.
“With the many changes effecting the 2018 tax returns, it may be a good time to enter tax preparation. On the other hand, it may be a good time to sell your practice,” said Andrew Piernock Jr. of Piernock Accounting and Tax Services in Philadelphia. “With the upcoming changes, it’s going to be a bottle of aspirin per week. You know you are going to hear: ‘Well, that’s not what I heard from my buddies at the bar. They did it this way or that way, so how come my return is this?’”
“Over the past few years, an increasing amount of responsibility has been placed on the shoulders of tax professionals,” noted Manasa Nadig, an EA at MN Tax and Business Services and a partner at Harris Nadig, in Canton, Mich.
“Starting with due diligence reporting for those who get the Earned Income Tax Credit and Child Tax Credits … tax pros’ recordkeeping requirements have doubled,” she said. “The Affordable Care Act increased this burden. This may have reduced unscrupulous tax professionals but has definitely increased due-diligence requirements for those of us who are in it for the long haul. With reform, I think tax prep is going to get even more complicated.”
No time for dabblers
“It’s a terrible time to get into the tax preparation business because the new law is so fresh and there isn’t much guidance,” said EA Nayo Carter-Gray of 1st Step Accounting in Towson, Md. “A new preparer without any prior experience could easily become overwhelmed and make a ton of mistakes.”
Added Nadig, “For those who rely completely on tax software or if this is a side-hustle for four months of the year for pocket money, this may be time to actually step out of the game.”
Unless a preparer feels confident branching out. “I do think it’s a great time to … get into representation,” Carter-Gray said. “With the implementation and changes in the new law I foresee an uptick in audits, especially because the new tax law had a vast number of changes the average DIY taxpayer may not be aware of.”
“It is [a good time], because I believe we are going to see an increase in the number of returns done by paid preparers,” said Laurie Ziegler at Sass Accounting in Saukville, Wis. “While more taxpayers will use the standard deduction – which may lead them to think their taxes got simpler – elimination of exemptions is going to confuse many who may have self-prepared in the past.”
‘Full Employment Act’
Even before reform, many Americans admitted befuddlement over the tax system: more than seven out of 10 called the U.S. system complex in a recent survey from The James Madison Institute. A quarter of respondents didn’t even know if they took the standard or itemized deduction, and only a third expected reform would produce a simpler Tax Code.
“It may well be that more taxpayers will opt to self-prepare or will be shopping for the lowest priced preparation,” said New York EA Phyllis Jo Kubey. “New preparers will have to understand and present themselves as adding value. New preparers should market to the clients who understand value versus cost.”
“Prep may move towards tax planning for most folks. It appears that with the onset of the TCJA, professional preparation of basic 1040s with a Schedule A will be deeply impacted in a negative way,” said EA Twila Midwood at Advanced Tax Centre in Rockledge, Fla. “A lot of taxpayers who previously filed Schedule A will no longer meet the standard deduction threshold and will more than likely qualify to file 1040A. Taxpayers who’ve been entitled to claim unreimbursed expenses and filed Form 2106 as part of Schedule A will no longer be afforded those deductions. My concern is that once this initial year passes, professional tax preparation will be impacted.”
“If your niche is simple returns, I would say it’s not a good time. Because of the increase in the standard deduction and the elimination or severe limitation of several itemized deductions, many more people will use the standard deduction going forward,” said CPA Robert Seltzer, of Seltzer Business Management, in Los Angeles. “If you have a specialty in other areas, then I think it is a good time. I have seen the tax legislation referred to as the ‘Tax Attorney and Accountant Full Employment Act.’ For more complex clients, that rings true.”
Business advising seems to present some of the most-promising areas of post-reform prep – starting with the headline changes to pass-through income and deductions. “It’s possible that for the 2018 tax season, taxpayers may seek professional help just because of the changes and lack of complete knowledge of the impact to their individual returns,” Midwood said. “Taxpayers who have pass-through entities may also seek professional help due to the new qualified business income rules.”
“The Tax Code becomes more and more complicated for tax preparers to work with and yet they seem unable to pass along the cost of their increased time investment in individual tax returns to their clients,” noted Bruce Primeau, a CPA with Summit Wealth Advocates, in Prior Lake, Minn. “Most prep firms do now seem to be focusing on business tax preparation, since that’s where the larger fees are available. I’ve reached out to a few local tax firms and found that they’re really not even taking on new individual tax prep clients.”
“It’s always a great idea to get into an advisory area where you can help people with tax and financial issues,” said EA Morris Armstrong, a registered investment advisor with Armstrong Financial Strategies, in Cheshire, Conn. “There will always be tax issues for small businesses, larger businesses, individuals with trusts and estates and of course the ex-pat community.”
Good or bad right now, this atmosphere too shall maybe pass. “Doing a 1040 for mom and pop may become less interesting, but the other aspects are absolutely fascinating,” Armstrong said. “Look ahead to 2026.”