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H&R Block Plans to Close 400 Tax Prep Offices


Elrod

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H&R Block intends to close 400 of its company-run outlets, as the tax prep chain foresees fewer customers coming in to have their returns prepared as a result of the new tax law.

Shares in the Kansas City, Missouri-based company plummeted Wednesday after Block cut its guidance during an earnings call, even though it reported mostly positive results for the quarter.

SEE MORE:   https://www.accountingtoday.com/news/h-r-block-plans-to-close-400-tax-prep-locations-after-tax-reform?brief=00000158-5504-dc42-a1fe-55d7045f0000

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That's very interesting. As you know HRB is in a position to due a market study and if they are doing this, it is because they know the market will shrink as a result of the new regulations.

What we see as an opportunity, the experts might see it as a threat, but with all the millennials in the workforce, no new customers coming into the market, I agree with them.

For my hispanic market, ITIN filers are shrinking too but my regular market might be stabled.

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I think that it depends on your niche in this business.  Most of my clients are probably either already filing short form, or they have businesses/farms/rental property and that won't be any simpler.  I do very few returns that have itemized deductions only.  I may lose a few clients, but I don't think that it will substantially impact my business.

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I trust that everyone on this forum knows their client base and how the changes to the tax law might affect their behavior.  But HRB is a large company with numerous resources to evaluate their business potential going forward.  I doubt they are making the decision to close those offices on a whim.  If I were following a business model which paralleled that of HRB in any meaningful way, I'd feel compelled to consider the implications of their business decisions and what their conclusions might suggest for my own future prospects. 

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I agree with you, John.  I think that if I did a lot of EITC returns, or returns with itemized deductions being the main separation from a short form I would be very concerned.   And even though I don't anticipate much impact on my business (at least not right away) I do suspect that if I want to sell my business and retire in a year or two, or four or five, this will probably impact the marketability of a tax firm in general.  Time will tell - and it would be interesting to see if they anticipate growth in 2025 when the laws for individuals will revert back to their current status.  I think it is 2025 - I don't plan to be in business that long.

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I have wondered whether VA and other states will allow itemizing even if the standard deduction is taken on the federal. 

This woke me up, from the article, "H&R Block, like many tax practitioners, tends to charge larger fees for more complex returns. "

I don't charge enough for more complex returns, so this is my gateway to step into reality. 

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I agree with John's insight that it is wise to pay attention to what Block is doing--they have the resources to do the number crunching and projections. I think that the upcoming season will be booming for everyone due to all the confusion, but once people get the realization that itemizing won't do them any good and their refunds are shrinking due to lower withholding, that business will drop off.

I read Block's conference call transcript, and there's a lot more going on.  Interestingly, millennials comprised something like 35% of their new business--evidence that young people are now working and don't have time or inclination to learn taxes or attempt their own?  I think the office closures are a response to competition.  Back in the heyday of RALs, Jackson Hewitt and Liberty were opening offices wherever they saw Block's busiest offices.  And where they opened anywhere else, Block opened to lure traffic away.  Those days are over and Liberty in particular is losing franchisees, closing offices, and may be delisted.  No need to have all those offices so close to one another if a competitor is gone.  Block said most of the closures are within five miles of other Block offices, more like the distance used to be before they decided to out-office the competition.

Block does know something, which is why they were on a mission to buy out small independents.  Are they still doing that?  They knew for some time that software would replace the easy-return market, and this week they acknowledged that they will do something about pricing.  Didn't say which direction they would move prices, but they do charge a lot and likely can't see a way to justify the fee when a large share of their clientele no longer will itemize.

When I worked there years ago, they said that changes in the tax law drew a lot of business.  They staffed accordingly, and they were always right.  I think this upcoming season will be crazy busy for all tax preparers.  While those who no longer itemize may DIY after that, I don't think anyone who is self-employed (including the part-time gig folk, those who sell occasionaly on the internet, etc) will ever attempt their own return.  Ditto for landlords.  And with the magnitude of the changes under the new law, I believe a lot of preparers who were thinking about retiring will just do it rather than try to learn all the new rules and unlearn the old ones.  That too will drive more business to those who stick it out.

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Next tax filing season is going to be "interesting".  I'm already working through a scenario with an extension client who has a HELOC which is partially acquisition debt and partially not.  Ironically he is hit by AMT in 2017, so I'm having to explain how the loss of part of the interest on the HELOC in 2017 will also be an issue in 2018 even though AMT won't be an issue for him then. 

In the past few days, another client asked a seemingly simple question about the tax benefits they would realize via a charitable donation of a car.  The opportunities to mess up that answer were almost unending, and trying to logically explain all the permutations made it sound as though I was deliberately trying to obfuscate the issue. 

We really are going to need to rethink the stock answers we're been able to offer in the past to a number of fairly routine questions. 

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On ‎6‎/‎15‎/‎2018 at 1:36 PM, cbslee said:

In Oregon, where you are allowed to itemize on the state return even when you are taking the standard deduction on the federal return

and the state standard deduction is very low, I anticipate no effect on my practice.

Ours (AR) is the same (standard fed/ item state if you want), but I think my practice will still be adversely affected.

We do lots of older folks who keep working after 62 at a diminished wage plus pensions plus the taxability of Social Security which keeps them filing.  They're empty-nesters so personal exemptions are irrelevant, but the doubled standard will render the SS non-taxable. Next time they can mark W-4s "Exempt" and they're done with it.  While SS isn't state taxable here, standard ducks are very, very low so while I may do a few, I can't charge full price for half a case.  Too, our state revenue offices still hand out printed tax books for middle-aged DIYers (the old heads mostly won't fool with it) and millennials can do it online for zero to $12.95 (I can't beat either of those prices).

But...the office building is paid for, so eviction's off the table.

 

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How many offices does HRB have?  Do you think they net more from company owned stores than the franchisee stores?

Makes sense for them to cut back.   The new tax law is going to attack many of their customers.

Me?  Not so much.  I have few customers like that.  But.  The big firms are going to muscle in a shrinking pool.  THAT is what we have to be careful of.

Quote

the office building is paid for, so eviction's off the table.

 This from Black Bart^^^  No yet... so I gotta work still.

Rich

 

 

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11 hours ago, BLACK BART said:

Ours (AR) is the same (standard fed/ item state if you want), but I think my practice will still be adversely affected..  While SS isn't state taxable here, standard ducks are very, very low so while I may do a few, I can't charge full price for half a case. 

 

 Oregon is the same, no tax on SS.  However itemizing for state only isn't less work, so I am not lowering my fees.

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Good luck if you are thinking that the new regulations will not affect your pool. I also think the way you do and that's why in 2016, I made $6.53 millions less than William C Cobb and he didn't even prepare a tax return for a client.

In the past, some people have posted here: "I got this [or a few of them] millennial who thought he was smart and filed his taxes for free on line and now I have to amend it" "These smart people increase my clientele". I have always answered with this type of comments: Do you know how many people are e-filing their own returns? You having to amend a few of them, is not match to the possible clients you lost to free efiling? I have added:  If you don't believe me... see how many people are efiling themselves. I believe free filing is our real enemy and not the big companies. As some one said "I believed that then and I believe it now".  Let go to the numbers with the new regulations:

Let say I have a couple with a high school student, age 17 or 18, who worked and can be claimed as a dependent by his parents. This millennial filed his return for free or by paying $12.95 as someone mentioned. In the past, when the parents come to us with their $100K W-2s, we cried out and said "we have to amend your child's return". Guess what.. not anymore. The child will get $12K standard deduction and the parents will get $24K standard deductions for a family total of $36K. As you know it is hard to sell to a client this statement "your child made a mistake, I can correct it but you will have to pay me $100 and you will have to pay $300 to the IRS", which is not the case on my scenario. Also someone said that ACA was a job security... guess what, ACA is a joke. People who make a lot of money most of the time have insurance and the ones that make less, don't mind paying the penalty. Of course ACA penalty will be non-existent soon so our "job security" will be kissed good-bye.

As we lose clients for our attitudes, for their age, illness, income and peer pressure, it will harder and harder to recruit new clients. Remember that the strength of businesses are the parent(s) with students on their first 4 years of college. That market is tiny and it becomes tinier when we have clients making more than $90K or $180K when MFJ.

So, if you don't prepare business returns, it is time to start taking some classes and start diving into that market. That market seems to be solid and it will always be.

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On 6/15/2018 at 2:36 PM, cbslee said:

In Oregon, where you are allowed to itemize on the state return even when you are taking the standard deduction on the federal return

and the state standard deduction is very low, I anticipate no effect on my practice.

More states either need to do this. I force a number of MD returns to itemize and pay more federal tax to save even more MD tax.

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On 6/15/2018 at 3:27 PM, JohnH said:

I trust that everyone on this forum knows their client base and how the changes to the tax law might affect their behavior.  But HRB is a large company with numerous resources to evaluate their business potential going forward.  I doubt they are making the decision to close those offices on a whim.  If I were following a business model which paralleled that of HRB in any meaningful way, I'd feel compelled to consider the implications of their business decisions and what their conclusions might suggest for my own future prospects. 

They are also likely moving to a cellphone app for millennials (and others) to do their taxes the same way they do everything else.

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56 minutes ago, Abby Normal said:

They are also likely moving to a cellphone app for millennials (and others) to do their taxes the same way they do everything else.

One millennial owed tax.  Told her to send a check with payment voucher; her response was "I'm a millennial; I don't have checks.  Now what do I do?"  LOL.  She got a bank check, because she didn't want to pay the credit card fee.  And she's going to get checks.

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The last two comments, while somewhat funny, they have a lot of truth. That's a business opportunity that we cannot take advantage of. So that's a big threat to us and believe it or not, it is around the corner. Millennials is not a market that we are going to be able to attract, but whey they come to your office, all you need is to have different type of charges and the password for your wireless. The spent all the time sitting in front of you on their phones and they don't ask you questions. When it is time to sign, I feel bad that I am going to interrupt their session but they sign, pay and leave.

Catherine is a fast shooter... I meant the last two posts before Catherine's.

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2 hours ago, Catherine said:

One millennial owed tax.  Told her to send a check with payment voucher; her response was "I'm a millennial; I don't have checks.  Now what do I do?"  LOL.  She got a bank check, because she didn't want to pay the credit card fee.  And she's going to get checks.

She could have used direct pay with no fee.

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I set my young clients up for direct debit, just like many of my clients of all ages.  And, I give them the link to Direct Pay, too.

HRB is not my competition.  CPA firms are my competition, but I'm less expensive than they are.  I'm still pricey, but don't have their overheard with OIH.  More importantly, I offer service 24/7/365.  Me, not the intern in the back room doing all the work while the partner only signs.  Even my millennial clients appreciate service.  They have no desire to learn a skill they'll use only once/year and won't improve their resume!  I sometimes have to go all maternal on them, but they thank me for it !!

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3 hours ago, Abby Normal said:

She could have used direct pay with no fee.

NY State.  Not available.  Direct debit only, and that only with e-file.  We could not e-file her because as part of their "security" to e-file you need a document number from NYS on some card or other.  She lost it.  It would take a long time to replace, while interest piled up.

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