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1040s for W-2 employees

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#1
Posts:
1125
Joined:
28-Jul-2017 12:08pm
Location:
North Country, USA
trying to get a sense...do many on this forum have a significant number of 1040-only clients with relatively simple tax situations; W-2 in the $150k - $300k range, few or nominal investments, married with dependents, maybe itemizing.

in lower-cost regions, $150k household income is decent, and many folks in the range don't want to go to Block (in my experience). Have you had any luck with growing a practice with clients in the bandwidth? From my own guesswork, return prices would need to average $350-550, and take no more than 2 hours to get through each year.

any positive experience with this fact pattern?
 

#2
Posts:
1552
Joined:
21-May-2018 7:50am
Location:
SC
I live in a wealthy area. My experience is even individuals in the income range you mentioned that only have W2s with standard deduction or at least very basic itemization typically still do their own taxes, especially when they hear minimum fees (mine is $400 even if one W2 and standard deduction). Once you start getting involved in asset dispositions, investment activity, business ownership, etc., then they are far more willing to pay a tax pro.

Just my two cents and experience. I do not pursue 1040 only clients, but will take them on if they seek me out and are willing to pay.
 

#3
Posts:
2041
Joined:
24-Apr-2014 7:54am
Location:
Wisconsin
Everything is very dependent on location. A $350 return in my area might not be a $350 return in yours. However, $150k household income in a lower-cost region is probably only about 10% of households, if that?

I started my practice as a part-time, nights-and-weekends practice and for that, 1040-only clients are great. As I'm transitioning my practice to full time, they're still a staple, and they still have a role to play. There's some overhead sharing and cash flow that they contribute and they can be a great referral sources to their friends, and for the most part they will leave my summers more free to do things I want to do. At some point in the future I will have to phase out accepting new 1040-only clients but until then they're certainly a part of my business model.
 

#4
Posts:
292
Joined:
1-Sep-2020 2:47pm
Location:
845-NY
I picked up a new client this year, just like you are mentioning.
MFJ, 300k ish combined, Int Dvs brokerage, etc. Home mortgage but not enough to itemize.
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Client was referred to me, and was a current client of a local bank/financial "warehouse".
They do everything from banking, payroll, insurance services, taxes.
Do all of the above, but nothing especially well. Non EA/CPA preparers.
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Client was paying $500 and I quoted $600-750 <as 2-2.5 hours, without stating the time or $/hr>
(which would be realistic when including the input of prior year etc.)
Client was iffy about the price, asked for an explanation of pricing, and why they would pay more for a tax return.
I outlined an emailed explaining the differences between un-enrolled, EA, CPA and the hoops one goes through to obtain those designations. How some firms bill by the form, or by the "value" or by the time.
At the end of the email I said I would agree to match the price as a favor to the referral and because I wanted the relationship to work. I mostly matched the price because I had already spent the time inputting the 2019 returns for any carryovers, etc. and I felt like it would be a good fit and I could make money on it moving forward. Also didn't want bad word spreading back to my client that refereed who I handle 6 businesses and 2 personals for.
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I also pointed out that if someone is happy with their current preparer, I typically encourage them to stay with that preparer, and he was likely talking to me for one reason or another. (That reason was because his old preparer verbally sighed when he asked a question and said we already talked about this, it's not deductible.)

Hopefully this is a long term client and I can squeeze the COLA increase into the price every year, but based on the above interaction, he might also be a bit high maint. and then after the first year he's going on the clock for calls, emails and questions.

Bottom line, easy 1040s that take 30-60 minutes that you can charge 500-750 are a lot of firms bread and butter.
I like to knock them out during tax season so I can play more golf in the summer.
Pros and cons to all things.
 

#5
Posts:
902
Joined:
24-Jan-2019 2:16pm
Location:
Honolulu
We have our share of these (about 15%-20% of our clients) and they are well worth it.

The clients are nice to see each year, our admin can enter most of their data for me to check, and the delivery/advice given with them are easy and stress free.

The clients are getting the value and the answers they want, and they don't want to take the time to Google and read.

I can change my own car battery, but I'd rather not, for example.

We get $220 for a single filing "1040EZ", up to $310 for a family with dependents and the associated credits.

Add $40 to itemize, $60 for a simple D, $90 for some solar credits (our state has them and they are complicated) ,and $110 for a rental.

I track time and headaches on a spreadsheet and these clients have a high hourly income rating and a low headache rating.
 

#6
Posts:
495
Joined:
30-May-2014 1:43pm
Location:
MA
I think you can build a very nice practice if you have a majority of what I will call upper middle class wage earners. We are in Massachusetts, which is a high cost state but we are far from Boston. I would guess that a husband wife wage earner, no Itemizing, a good biller could get $375 to $450 around here. I doubt you could get $750 unless you are look8 g at stock options, multiple schedule D items.

I often wonder would my time be better spent on 4 of these $450 type returns rather than a complicated $2,000 return.

About 70% of our revenue is corporate billed but the majority of our clients are 1040 taxpayers. We rely on those upper middle class taxpayers. I think it helps to be a CPA firm as many middle class taxpayers assume a CPA firm is too pricy when in reality Block or Liberty are quite high.

They key is to keep those $400 return coming back each year and with annual increases they become $500-$600 down the road and they are not going anywhere
 


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