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Zagging to Tax Returns

By: Jason L. Ackerman, CPA, CFP, CGMA

 

The trend in today’s modern CPA firm is to pursue business cloud accounting services (CAS) and only offer tax returns as an “add-on” service. Many firms will not take one-off individual tax clients anymore, seeing them as unprofitable and time consuming. I think this move away from tax to bookkeeping is a mistake for the long-term success of CPA firms.

 

Complexity is Here to Stay

Taxes are not getting easier, and there is no reason to think that the tax structure in the United States is going to change anytime soon. It takes a lot of expertise to prepare most tax returns correctly, even ones that used to be considered “simple.” I tell our new team members that it takes three years for anyone starting out to become competent in completing a tax return.

 

With CPA firms moving away from tax services and tax returns becoming more and more complex, there is a void being created for competent tax preparers and advisors. Online retailers such as Intuit are trying to fill this void by offering professionals to help people with their taxes, but this service is on the low end of the return spectrum and cannot handle more complex returns.

 

This leaves CPA firms that have not abandoned the tax return in a great place; with less competition in the market and more complex filings, the demand has never been higher. This should create higher margins and profitability for competent CPA firms.

 

The reverse is true for CAS. More and more players are coming into the field every day, with large private equity backing and more resources than a small or medium-sized CPA firm could ever have to develop automated technology. CAS also has a much lower barrier to entry then a preparing tax return. Training someone to competently prepare someone’s books takes a lot less time than training someone to competently prepare a tax return. This is leading to the commoditization of bookkeeping across the landscape for small and medium-sized businesses at a much faster pace than tax.

 

Obviously, good bookkeeping is extremely important and still lacking by many small businesses, and there can be room at a CPA firm to provide these services. But I think firm owners need to carefully consider how they implement CAS into their practice and whether it makes more sense to partner with a local bookkeeper or CAS provider and focus on the higher margin tax return work.

 

Another contributing factor to why CPA firms are leaving taxes behind is they are not currently profitable. I don’t blame any firm that is frustrated with tax services when it is charging its clients $250/return. The profession needs a complete overall of pricing for tax services. CPAs are the only professionals who have the expertise and experience when it comes to preparing returns, and need to charge accordingly. CPAs are not competing with H&R Block—if someone can do a return with H&R Block and doesn’t understand the value that a CPA can provide, then that is not a client that a CPA should be servicing, and it should be priced out of CPA firms.
 

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I think CPA firm owners need to take a hard look at the tax work that is being performed at their firms, and think long and hard before moving to a new service area like CAS without trying to optimize the tax department that already exists. If done correctly, tax can be the most profitable and lucrative part of a practice.

 

Jason L. Ackerman, CPA/CGMA, CFP, is an accountant with Bernard N. Ackerman (BNA), CPAs, PA, in Rock Hill, S.C.

Company The CPA Journal
Category FREE CONTENT;ARTICLE / WHITEPAPER
Intended Audience CPA - small firm
CPA - medium firm
CPA - large firm
Published Date 10/17/2022

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The CPA Journal is known as the “Voice of the Profession,” and is The New York State Society of CPA’s monthly flagship publication and top member resource. An award-winning magazine and finalist for excellence in journalism (2018, 2017 FOLIO magazine awards), The Journal has over 95% nationally focused content written by thought leaders in the accounting and finance industry.

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