Easy and quick? Tough and slower? Preparers say both have their advantages when it comes to doing returns. But future changes in tax law and taxpayer behavior may force the trend in one direction.
According to a recent survey by the National Association of Tax Professionals, some four out of five preparers do a mix of simple and complex returns, and most earn the bulk of their practice’s revenue through tax prep.
“At the end of this never-ending tax season, I look forward to the easy returns so I can feel I accomplished something,” said Bill Nemeth, executive director of the Georgia Association of Enrolled Agents.
“I do a mix of tax returns, all personal returns. I like them all,” said Jeff Gentner, an EA in Williamsville, New York. “They’re like a puzzle to me — all the pieces have to fit together.”
“Those easy returns with the lower fee are prepared for some of my favorite people,” said Mary Kay Foss, a CPA in Walnut Creek, California. “Neighborhood clients whose families you’re familiar with. I enjoy seeing them — except that didn’t happen in 2020.”
“The complex returns are more fun. I like a challenge and making sure some of the changes brought about by the [Tax Cuts and Jobs Act] are correctly reflected on the current return is satisfying,” Foss said, adding that some returns are complicated only because of an investment in publicly traded partnerships. “Every preparer I know hates them. Lots of little numbers scattered all over the return – I add an additional charge for those,” she said.
Twila Midwood, an EA at Advanced Tax Centre in Rockledge, Florida, prefers a mix: “Easy returns for those days when the brain needs a break and complex returns when the brain needs a challenge,” she said. “From a monetary standpoint, a firm should have a mixture of clients.”
“It is faster to prepare three easy returns than one complex return, and thus the revenue per hour is greater,” Nemeth added.
‘Comfortable’ with fees
According to the NATP survey, the average cost to prepare a return based on complexity ranged from about $188 on the East and West Coasts to $138 in the Great Plains region.
“I prefer the returns with some complexity as long as information is organized,” said Kerry Freeman, an EA at Freeman Income Tax Service, in Anthem, Arizona. “Dealing with small business, depreciation and rental issues allow my creative juices to flow and allows me to feel comfortable for the fees that I charge … My average 1040 often has a Schedule A and investments like stocks, dividends and partnerships, which are the easier return for my community clients. These fees still rise north of $400, compared to peers with single W-2 clients with fees of $100.”
Preferences — and fees — change, of course, as services evolve. “As financial advisors, we prefer larger, more complicated clients, as that type of client offers more opportunity to show the value we can provide,” said Bruce Primeau, a CPA and president at Summit Wealth Advocates, in Prior Lake, Minnesota.
“My fees are based on my knowledge and experience more than on the complexity of the returns,” said Gentner in Williamsville.
Paper chase
Gentner said he sees the “easy” returns mostly during February, from clients “ready for an early appointment because they aren’t waiting for things like brokerage statements or K-1 forms,” he said. “I pre-appoint my clients a year ahead so I can create a schedule. In February, I can squeeze in several appointments each day because [the appointments] aren’t complex. By the time we reach the second week of March, I need more time because the returns become more complex.”
Preparers say some client behaviors are consistent across all types of returns.
“The complex ones are made more challenging by many taxpayers’ reluctance to give me all the income docs,” Nemeth added. “I’m relying more and more on pulling IRS wage and income transcripts to verify that I’m filing a complete return with all the income. Taxpayers seem to edit out the cancelations of debt forms since their trusted source — plumber, yard man, nail girl — told them it was not taxable.”
Preparers who reported decreasing prep numbers didn’t cite more complex returns as a factor, according to the NATP survey. (They did cite the increasing availability to the public of tax prep software.)
Changes in tax law were also expected to increase the overall complexity of returns prepared, especially among CPAs, the NATP survey added.
Terri Ryman, an EA at Southwest Tax & Accounting, Elkhart, Kansas, also likes the challenge of a complicated return, adding, “I’m not sure there are any ‘easy’ returns any longer. I used to whip through [Earned Income Tax Credit] returns quickly, and they were very profitable. With all the due diligence, it [has become] a very long and drawn-out process. But doing it up front is much easier than trying to track down this information two or three years later.”
