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Learn from last tax season to improve this coming year

Will Hill, MBA  Product Manager — Tax Professionals Advisory, Thomson Reuters

Will Hill, MBA  Product Manager — Tax Professionals Advisory, Thomson Reuters

In this week’s Pulse of the Practice podcast, ”Tax Season Recap,” we want to offer some relevant ideas and inspiration to help you navigate through the challenges that you face as you steer your firm into next year’s tax season by looking at last year in an impactful way.

For many accounting firms, last tax season was a challenge. A big tax season shift was seen in the impact of many tax reform changes. Some firms knew it was going to be a challenge going in and were very prepared for all the tax law changes. Much of the focus was related to being as efficient as possible while maneuvering around those changes from a time and workflow perspective.

Paul Miller noted about last year’s tax season, “These are the most significant changes I’ve ever seen, and I’ve been in this business for over 25 years now. There’s this muscle memory you go through when you get things down. Of course, every client’s a little bit different, but you have this routine when it comes to processing taxes, and that just didn’t exist.”

The impact of TCJA on tax return processing

The TCJA made a significant impact on tax and accounting firms. From the clients’ perspective, many firms teed up quite a bit of information ahead of the game by telling clients that their taxes were going to be more complicated. Small business clients, for example, were affected by qualified business income because they deal with rentals, real estates, and partnerships, so the changes became pretty huge. It may have taken awhile to catch up, and some firms definitely didn’t complete what they would normally do by April 15th. Accounting firm staff were trying to find their rhythm around all the changes through February and March and into April of 2019. Many  firms found they weren’t really producing at the rate that they did before the changes came from the Tax Cut and Jobs Act (TCJA).

The key going forward is getting in front of the changes with transparency and providing client education by telling them that taxes were and will continue to be more complex. That transparency may seem counter-intuitive, the anti-message of all of the propaganda about keeping things simple with clients. Last year’s tax law changes were highly politicized and charged. It doesn’t matter which end of the spectrum you fell on. Of course the message you want to be able to give clients is that their taxes would be easy, but that was far from the case for many accounting clients this past year.

Utilize tax reform to boost the profitability of your firm

Even the new 1040 was confusing for clients as it appeared completely different. Forward thinking firms felt it was important to get in front of those changes and to pull back the curtain on their firm to be upfront about the challenges. If you’re going to present yourself as an expert and be able to tell clients you will see them through these changes again next year, you could feasibly charge anywhere from 20% to 40% more for the work, but you have to justify that message to the client.

Keep in mind if you do charge your clients more this coming tax year, remind them that they are going to get more out of your firm because of the work that you do. Last year you may have had to decide ahead of time how you were going to cover those more complicated changes around taxes. Now is the time to consider what could you do differently to prepare clients for this coming year. This coming tax season you may have to consider how you are going to cover the extra steps with more education and training.

Last year, all of the tax changes added to the time it took to complete just one business tax return. In that way you were helping clients optimize their taxes to reflect the changes, but the complexities took more time, and that’s how you positioned it with your clients. This isn’t just about extra work, rather, it’s about reinforcement of value and showing where that value comes from as your relationship moves forward.  Without realizing it, you were really setting up an even longer running relationship with your clients as they saw potential for what you could do for them over the long haul, for next tax season and years to come.

Transparency with clients is crucial to the client relationship

The word that comes to mind here is transparency. In an industry that’s built on trusted relationships as part of where your business comes from, that transparency is critical for understanding billing and for setting up future conversations. The whole premise about selling advisory services to your clients is about showing your value to clients. As an industry, we have to move away from selling a transaction and getting more into selling the relationship, the knowledge and the planning. If you duck out of some of those conversations now, because it’s simpler to just not talk about it, the problem is compounded for next time. Frankly, there will be a next time.

As we start talking through this series of themes it’s clear that the tax industry is changing. This is going to be the common theme for next year as well. The expectations that are put upon your firm to produce quality work shows that tax preparation has become more complex in recent years. Your firm has to decide, are you going to be in the transaction business, or are you going to be in the knowledge transfer business? The best case scenario is to position your firm with clients to teach them values and concepts to prepare and manage them better moving into next year.

A parting thought is that when you see challenges in the tax and accounting industry, this is not the time to say, “Oh, things are too hard.” This is the time to remind your clients of why you serve them, and that you’re bringing more value to them by staying ahead of ever-changing laws by navigating them through these tax complexities with your expertise. You can’t hesitate to be more transparent about the work that you’re doing for clients.  Being proactive through that conversation builds trust and longevity into the client relationship. We have to bank those trust opportunities, even as we move forward to next year.

Listen to the “Tax Season Recap” episode of the Pulse of the Practice podcast on your preferred platform (Google PlayAppleSpotifyStitcher) or here.

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