Tax Season Workload Shift

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#1
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Michigan
Hope everyone is taking time for themselves while they can or will be soon.

I'm currently in the process of buying into a CPA firm where 95% of the work is pushed to be done by 4/15 which is completely not sustainable to me. Just to use round numbers: if we have 2000 returns they push to have less than 100 extensions.

With the change in broker statements, K-1's, and COVID delays almost all the clients are showing up in March creating a really really small nasty tax season and a really really bare off-season.
I've had some progress pressing to extend but I'm not confident I'll gain much more ground on that.

Has anyone else had and solved this problem?
Any suggestions?
If you have a solid chunk of extensions how did you build that?

I enjoy SOME time away but I'm trying to build a book of business to keep myself busy. I'm poking around for 990's and extensions. I have a big nonprofit background so I've considered outsourced CFO/Controller services.

What's the most profitable off-season work that you do?
Suggestions on finding those clients?

Really appreciate any feedback, I've had some great conversations with a couple of you already and really appreciate this community.
 

#2
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845-NY
You'll likely have extreme difficulty in shifting the processes there now as a non-equity member, and even when you do obtain equity it will be a hard sell.

My best recommendation right now is to network. Invite people out to lunch, or ask if they have any time available that you can stop by and introduce yourself (with some business cards in your pocket). My biggest referral sources are bookkeepers who like working with me, attorneys, and CPA firms who are not looking to expand or take on any more work. I would start with the local CPAs in your area. The referral network with local bookkeepers will be built over time, just prove yourself an asset to them and never "throw them under the bus".

If you can find a boomer in your area that is looking to cut back, has no transition plan, and is not super greedy it might work out well for the both of you. I have encountered 2 local tax preparers that were just looking for a good place for their clients to land, and not necessarily looking to get paid for the clients.

The more clients you can bring in on your own, the better off you will be, especially if the equity position doesn't shake out like you had hoped. Then you can just take your clients and hang out a shingle and hit the ground running. The amount of work in my area that is just floating around is truly incredible, and hopefully you find the same in your area.
 

#3
ATSMAN  
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I don't want to kill myself because of a lack of planning or some other issue with the client. I set firm deadlines for submission of the proper paperwork and if clients can't make the deadline it is an extension. Also extended returns generally incur some added charges also. I get to plan when to finish the returns and I am not that stressed after tax season.

So what will be your workload? Can you set deadlines? If things are out of your control and you have to work as a robot run for the hills!
 

#4
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Arkansas
This was me 7 years ago and it’s been a difficult battle. Setting a date (of say 03/25) just meant most everyone showed up by 03/25. We just didn’t have the manpower to get it done. The CPA I bought the business from tried to finish every return that came in, even if on 04/15. He worked 80 - 90 hours a week and put a lot of crap out the door.

We ended up losing and/or firing about 20% of the clients and feel like we are close to an ideal situation.
 

#5
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WA State
RazorbackCPA wrote:This was me 7 years ago and it’s been a difficult battle. Setting a date (of say 03/25) just meant most everyone showed up by 03/25. We just didn’t have the manpower to get it done. The CPA I bought the business from tried to finish every return that came in, even if on 04/15. He worked 80 - 90 hours a week and put a lot of crap out the door.

We ended up losing and/or firing about 20% of the clients and feel like we are close to an ideal situation.


This is where I think I am as well. I'm happy to hear there is a way out, but I don't think I have the energy for 5-7 yrs of effort. I need to shorten that timeline.
~Captcook
 

#6
smtcpa  
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Richmond, VA
I can't help with the book of business you are acquiring (other than don't do it or accept a lot of attrition), but I started a process last year that will help me reach a goal of a much easier tax season in a few years.

In a nutshell, I stopped taking new clients during tax season, instituted a 50% surcharge, and told a lot of clients they would be automatically extended.

Here's what I did:

In 2021, I began a process of shifting work outside of tax season in order to “flatten the curve” and work less during tax season. I also wanted to start transitioning my practice to focus on tax planning and ultimately financial planning and investment management (that is a separate story). I started by quoting new prospects two levels of pricing: normal pricing for doing the work from 5/1 – 9/30, and a 50% surcharge for work done from Jan 1 to Apr 15. I knew I had to do this in order to make my tax season more manageable, but that it could take a decade for it to have an impact on tax season. So, I started the process of moving current clients that normally filed before April 15, to dates after 5/1 and started to schedule the work out, roughly by week. Here is that process.

In October 2021 I sent a letter to about 40% of my clients that traditionally submit their info with an expectation of filing by 4/15. This section of my client base were lower fee clients who I wanted to keep but I could not justify keeping them if they absolutely had to have their return done before 4/15. These were also clients that, if they went elsewhere, I would not be too financially impacted.

I explained that I am making some changes and that I would like to automatically extend their returns to a week after tax season and have them choose a time frame in which they were comfortable having us work on their return, after 4/15. I let them know they also had the option of us preparing their return during tax season, but there was a 50% surcharge for doing so.

About 50% accepted an extension and allowed us to file after 4/15. About 15% decided to terminate and find someone else. Three percent accepted the 50% premium and 35% never responded for which I dealt with them individually when they submitted their info. More importantly in my mind, I had many clients who congratulated me for taking control of my business and my life and who spoke highly of the move.

I explained how estimated payments and late payment penalties worked and told them I would be happy to do a very high-level tax projection at a cost of 25% of last-year’s tax-prep (subject to additional complexity). I told them if they were concerned or needed estimated tax payment vouchers and instructions, to let me know before 1/1.

For prospects that contacted us during tax season, I explained we were only taking clients who needed tax or financial planning in addition to the compliance work, and I told them we did not have room for new clients from Jan 1 – Apr 15. Many declined an appointment, some made appointments after 4/15, but I have about 100 names I can market to for planning services in the summer.

Overall, it was a success. Clients understand and appreciate my business model. I know it is the first step in making tax season a “non-event”, it is not perfect, and it will evolve over time. But I felt I had to take back control of my life. For the first time since I started my firm 20 years ago, I spent 5 days on the beach in March with my father. I worked part-time from the condo, but I spent a lot of downtime too. I could only have done this with these changes. Next year, I will send out more letters and repeat the process. Hopefully, in 2 years I will have met my goal: working fewer hours during tax season, working with fewer clients but doing a lot more for each one.
 

#7
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North Shore, Oahu
I have faced the same problem as the other posters.

For a variety of reasons, none of them good, there are a certain percentage of individuals who are absolutely against filing an extension under any circumstance.

It is very hard to get them to change and I have had limited success with that.

I have been raising their prices, allowing them to go away through normal attrition, and flat out sent them letters well in advance that "our turnaround time will be as much as 8 weeks next year and most clients will require an extension".

I even make them check a box on the yearly organizer acknowledging that they are aware of our turnaround time.

It's a struggle.

For new clients, I explain that we are extension only. I lose a lot of new business, but there are some clients that don't mind at all and they onboard at a nice trickle.

I'm currently in the process of buying into a CPA firm where 95% of the work is pushed to be done by 4/15 which is completely not sustainable to me. Just to use round numbers: if we have 2000 returns they push to have less than 100 extensions.


I'm VERY sorry(!), but this doesn't sound like a good purchase to me. You will be working 16 hour days, 7 days/week, diluting your quality and customer service, and you will face very stressful situations with the many clients that you can't finish. Many will hold off on providing data for a week and throw it on you on the 12th of April, and still be livid with you for suggesting an extension.

OR

You will be paying for 1000 clients and only be keeping a portion of them as you try to ween them off of filing in April. Whether that is 200, 500, or 800, I don't know - but I would guess around half or less.

If I could go back and start over, I would set the expectation that ALL tax returns will require extensions - even if I only had 10 clients. I know that sounds a little ridiculous or extreme, but to run a marathon and not a sprint is less work, better service, a more accurate product, and a bigger bottom line.

Most importantly, it's been hard to get our current clients to change their minds - while others could completely care less about an extension. I should have built a book out of the folks that don't mind right from the start - my life would have been easier.
 

#8
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300
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Los Angeles
ItDepends wrote:I have faced the same problem as the other posters.

For a variety of reasons, none of them good, there are a certain percentage of individuals who are absolutely against filing an extension under any circumstance.

It is very hard to get them to change and I have had limited success with that.

I have been raising their prices, allowing them to go away through normal attrition, and flat out sent them letters well in advance that "our turnaround time will be as much as 8 weeks next year and most clients will require an extension".

I even make them check a box on the yearly organizer acknowledging that they are aware of our turnaround time.

It's a struggle.

For new clients, I explain that we are extension only. I lose a lot of new business, but there are some clients that don't mind at all and they onboard at a nice trickle.

I'm currently in the process of buying into a CPA firm where 95% of the work is pushed to be done by 4/15 which is completely not sustainable to me. Just to use round numbers: if we have 2000 returns they push to have less than 100 extensions.


I'm VERY sorry(!), but this doesn't sound like a good purchase to me. You will be working 16 hour days, 7 days/week, diluting your quality and customer service, and you will face very stressful situations with the many clients that you can't finish. Many will hold off on providing data for a week and throw it on you on the 12th of April, and still be livid with you for suggesting an extension.

OR

You will be paying for 1000 clients and only be keeping a portion of them as you try to ween them off of filing in April. Whether that is 200, 500, or 800, I don't know - but I would guess around half or less.

If I could go back and start over, I would set the expectation that ALL tax returns will require extensions - even if I only had 10 clients. I know that sounds a little ridiculous or extreme, but to run a marathon and not a sprint is less work, better service, a more accurate product, and a bigger bottom line.

Most importantly, it's been hard to get our current clients to change their minds - while others could completely care less about an extension. I should have built a book out of the folks that don't mind right from the start - my life would have been easier.


Wow!, that is really eye-opening. We are really set up for failure, with brokerage stmts getting sent out so late, and having to get tax info from some clients that provide everything all at once, and others that will dole it out one piece at a time, plus K-1s come in whenever...

It totally makes more sense for extending to be the norm. I am absolutely going to push extending more.

The only hiccup, is that you will always be trying to take a guess at their 4/15 tax liability...
 

#9
ATSMAN  
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MA
Wow!, that is really eye-opening. We are really set up for failure, with brokerage stmts getting sent out so late, and having to get tax info from some clients that provide everything all at once, and others that will dole it out one piece at a time, plus K-1s come in whenever...


Please don't make that your stress. As part of the engagement you need to set strict deadlines and stick by them if the return is to be filed by 4/15. This tax season 90% of my returns with K-1s are on extension. Right now I am catching up on returns with delayed or corrected 1099-Bs, K1 etc. These clients knew he deal. I told them to pay sufficient estimated tax to avoid underpayment penalty and interest. Most took my advice. Some did not and they were told in no uncertain terms NOT to complain when IRS bills them interest and penalty.

I think a lot of us want to please the client/or wish they would go away so they start charging extra or raising fees to shoo them away etc. At best it is a hit or miss strategy! I still think a better solution to manage your stress is to manage the case load and let the client know before you engage them what the terms are. If they don't agree let them go elsewhere. If you analyze your book of business you will find it is the same culprits that cause the most stress.

Last tax season a friend of mine 62 yrs old suffered a mild heart attack because of the added stress and he was not managing the workload. His clients would drop off incomplete paperwork expecting the return to be ready by end of week and he tried to please them by having brokers e-mail him statements etc at a great cost.

I too have a few clients that have their brokers e-mail me statements BUT that does NOT change the deadline. That is made very clear to both the broker and client. Also I do NOT accept any text messages with tax information.
 

#10
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10
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10-Dec-2021 3:17pm
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Michigan
Thank you all - lot of good food for thought in here to think on.

Just to add some additional perspective to the situation:
-Current culture is that every extension is treated like a full return to get as close to full liability expected as possible

-We value bill and bill additional for all planning which is done with the return + some during the year

-My primary reason for going this route is for the mentorship from the retiring leadership, I have a really solid background but didn't feel confident enough about the financial risk or knowledge base aspects of opening my own place

ReckedCPAEA wrote:My best recommendation right now is to network. Invite people out to lunch, or ask if they have any time available that you can stop by and introduce yourself (with some business cards in your pocket). My biggest referral sources are bookkeepers who like working with me, attorneys, and CPA firms who are not looking to expand or take on any more work. I would start with the local CPAs in your area. The referral network with local bookkeepers will be built over time, just prove yourself an asset to them and never "throw them under the bus".


Thanks for the reminder to check my own backyard. I got rolling on that recently and hopefully those contacts produce some interesting work. We have a ton of referral sources for tax work but leadership's fear is that a return we take now will turn into another return needing done March of next year but I think that's where we need to up front tell that new client they'll be an extension every year forward if they choose us.

ATSMAN wrote:So what will be your workload? Can you set deadlines? If things are out of your control and you have to work as a robot run for the hills!


It's hard to say right now but looking at the current process I could end up having 600 returns dumped on me to get done by either my hand or with help. I would say on average each person including leadership process about 200 by 4/15 but some folks have more entities and some are heavier with individuals.

I've brought up setting deadlines and they don't care for that for themselves because they like as much free-time the rest of the year as possible, but for myself I can mold my portion of the work so I'm going to look at my chunk of clients and think about what deadline would make sense. There's a chunk who could file in February but choose to come in March, I need to communicate with those folks that it's either get in earlier or file after 4/15 going forward.

RazorbackCPA wrote:We ended up losing and/or firing about 20% of the clients and feel like we are close to an ideal situation.


I think as I get a better handle on the numbers and more say this will be what we do. There's a fear that so many of our clients are connected that cutting one will = losing 20 but maybe that's the point. We turn away around 10 new client inquiries a day during the season so I really don't share that fear.

smtcpa wrote:Here's what I did:

In 2021, I began a process of shifting work outside of tax season in order to “flatten the curve” and work less during tax season. I also wanted to start transitioning my practice to focus on tax planning and ultimately financial planning and investment management (that is a separate story).


I think I'm moving along that same thought with looking for other complimentary work such as Controllership/Outsourced CFO services, something to add revenue/value and dilute the season a little bit. Thank you for sharing your experience working through that shift.

ItDepends wrote:I'm VERY sorry(!), but this doesn't sound like a good purchase to me. You will be working 16 hour days, 7 days/week, diluting your quality and customer service, and you will face very stressful situations with the many clients that you can't finish. Many will hold off on providing data for a week and throw it on you on the 12th of April, and still be livid with you for suggesting an extension.


I understand that concern - it's typically 12-14 hour days every day of March, maybe the first week of April for leadership due to the high level of review plus their own prep work. I will say starting April 1 we communicate that everything is a week+ out so there is some extension warning in that regard. A lot of the extensions are mostly K-1 folks which these days everyone has at least one so that's helping push people to extending.

ATSMAN wrote:
I too have a few clients that have their brokers e-mail me statements BUT that does NOT change the deadline. That is made very clear to both the broker and client. Also I do NOT accept any text messages with tax information.


I'm huge on electronic everything so I press for broker portal access which we do have for a large number of folks where I can pull what I need when I need it. We don't meet with clients during the season if at all and are migrating towards a completely paperless operation which helps. We need to look more at deadlines for sure.
 

#11
ATSMAN  
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MITAXGUY just my personal opinion based on your responses to other suggestions. I don't think this is a good fit for you. I think you will always end up with the short end of the rope. If I am going to be in business for myself and responsible for profitability I want to be in control !
 


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