I had some downtime recently while I was in Wesley Chapel, Florida, which is just north of Tampa. I was scheduled to speak at a cannabis event and was also there to tend to our booth that we had set up in the exhibit hall. I was reading some stats that I wanted to share with the world about this past tax season. Put out by Drake Software, these stats come right from the IRS.
First of all, 128,789,000 returns were filed and processed between January and April 18. Of those, 95 percent were e-filed and a whopping 5 percent were paper-filed. Which begs the question: Who is still paper filing?
Tax professionals prepared 70,401,000 of the total returns, which is down 0.7 percent compared to last year. Self-prepared returns accounted for the balance and were up 0.2 percent.
There were $268.296 billion in refunds issued by the US Treasury Department, which is frightening because if that earned interest at the rate of 2 percent, it would be an additional $5,365,920,000 the government could have made on your money. The average refund was $2,763.
Eighty-four percent of all refunds that were issued were direct deposited. Again, begging the question: In today’s world, who is waiting for a refund check? Word about IRS.gov hasn’t spread like the agency had hoped. There were only 312,255,666 visits to the site, which was down 4.1 percent from 2016.
I guess what can be gauged from these stats is that more and more people each year are doing their own tax returns. That’s a little disconcerting.
During tax time, we send our clients an organizer that asks basic questions about how do-it-yourself tax software works. However, when going through those organizers, other questions crop up that I end up needing to ask the client. The off-the-shelf software companies are starting to address this by hiring accountants to answer inquires, but it still isn’t the same. So, how do we as tax professionals address that issue?
Then the average refund amount drove me crazy. During tax time, we are inundated with commercials from the big chain tax-preparation companies acting as if a tax refund is found money. It isn’t. It was always the client’s money. All they did was give the government an interest-free loan.
Years ago, I had a client who would overwithhold on purpose. They told me that they viewed it as a savings account. They were actually getting refunds of $15,000 a year.
So, one day I put it to them this way: Why don’t you give me $15,000 now? With that money, I’ll put some in the stock market, a CD, or even go to Vegas and triple it at the blackjack table. Then one year later I will turn around, keep the earnings I made on the $15,000, and give you the same $15,000 back. This was how I convinced them to do a payroll withdrawal into an IRA. I would much rather have a client owe $2,700 then get $2,700 back
Then we have the simple fact that filling out a tax return isn’t simply filling out a form. It is the culmination of all of the tax planning that you have been doing with your clients all year long. I realize that most accounting firms just focus on compliance, but we concentrate on tax planning – and charge for it. In fact, if we don’t save a client at least double what our fee is for tax planning, we refund it.
I have been in practice for 23 years, and when I look at how the industry has changed, I get very happy. When I first started in practice, QuickBooks was just getting its footing. Today, it is cloud-based and we can feed information from banks and credit card companies directly into the system. All the bookkeeper has to do is sort the info. The hard work of getting bank statements and credit card statements has become easier, as well. We just get our client to grant us accountant access to their bank account, which allows us to pull their bank and credit card statements only.
The question begs: Do I think that every tax return should be done by a professional? No, I don’t. I have two children, ages 16 and 19, and I make them do their own tax return because I believe that everyone should have a basic knowledge of the tax code. Obviously, I check the returns before submitting.
Then there are the clients who I meet with. When I went on my own five years ago, I promised myself that I would never charge a fee higher than what I am saving someone in taxes. My wife, who is also my business partner, says I am too honest and I end up turning business away, or I find myself changing someone’s tax type on their tax return because it’s no longer saving them more than what my fee is to do the return.
I take my job very seriously, as we all should. When someone is an S corporation and it makes no sense for them to be one, instead of charging $1,300 to do a corporate return, I nullify the S election.
I guess that I wish people would be that honest with me in business. My wife always tells me that they won’t be, but I believe that there are good people out there like me, who are honest, and who won’t just take my money for no reason.
Craig W. Smalley, EA is the CEO and Founder of CWSEAPA®, PLLC, located in Orlando, Florida, with clients all over the country in every industry. He has been admitted to practice before the IRS as an Enrolled Agent, and has a Master's Certificate in Taxation from UCLA. He has been in practice since 1994, specializing in individual, partnership...