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Shrinking Customer Base


Edsel

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The Tax Laws are not simpler - but for most people they are. 

It has been reported that the number of people itemizing deductions has shrunk from 25% to 8%.  I believe that means the IRS can avoid complicated returns and process most people's taxes simply by compiling information returns.  They have been at war with itemized deductions my entire career - the standard deduction was called "low income allowance" and hardly anyone took it back then.

An increasing number of taxpayers can now very easily file taxes themselves, online, or TurboTax.

I am recommending for taxpayers to engage in a sideline business, or buy rental property, or otherwise complicate things.  Not so I can continue with their tax preparation, but for their own benefit to deduct expenses that are now lost.  And I expect in the near future, the IRS will swoop down and reclassify legitimate consulting businesses to employees.

I have enough clientele left to sustain me - for most of mine have rental property, small business, exotic investments, etc.

But as an industry, I see a shrinking customer base.  One telling look-around at CE seminars reveal most people at those seminars are 55 or older.  It is a new year, and we've got to pay attention to handwriting on the wall.

 

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A few years ago (for a couple of times), there have been similar postings and I have always argued that this market is going away faster than the aging tax preparers.  I have said in the past that Turbo tax is a very strong competitor and if you add the IRS free efiling, we are going to be out of business really soon as clients die or stop working.  The response I have gotten on this forum has been: "this year I had to amend 3 returns that were prepared in Turbo Tax.... Turbo tax keeps my business busy".  Internally, I have laughed because amending 3 returns is nothing is comparison to the millions of people that used Turbo Tax. We normally amend 3 returns of our own every year, don't we?
Other.... "incredible" tax preparers said "I provide service and personal care for my clients"... I told then that when Amazon came on board, retailers said that they provided personal care and Amazon was not a threat to them because of the personal touch that was provided to clients with each purchase.  YOU know the answer to that.

I will add something... My daughter is faster on her Iphone than myself on a computer with keyboard, mouse, keypad and huge monitor.  Millenniums just click and click and can efile their simple returns while I am still verifying numbers and that the address is correct. Think about this... millenniums don't like to to wait on line at a restaurant regardless of how good the food is and what makes you think they will be willing to wait for this old man to prepare their taxes? It is like me hiring someone to help me and can only type 5 words per minute with two fingers and looking at the keyboard.

In any event, I do believe this line of work if fading away and suggesting my clients to have another extra line of work is an EXCELLENT idea and we should do the same.

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10 hours ago, Pacun said:

I do believe this line of work if fading away

One that's growing, however, is representation work.  As the IRS shifts more of its "analysis" to computers and low-end office drones, more returns are going to appeals - which people can't handle themselves.  All the folks I know in rep work are busier than one-armed paper hangers, and getting busier.

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TT and freefile have been around a good long time, yet the percentage of taxpayers using paid professionals has hovered just under 60% for years.  Perhaps young tech-savy people will never use us so they won't replace the older and middle-age clients who would never touch their own returns.  I actually had a couple of young guys who chose to do their own partnership return after the first year to save money.  (As a professional, I didn't touch a partnership return until I had 10 years of experience under my belt and a zillion courses on the topic.)  They have no fear of technology until the audit letter arrives.  After another year or so under TCJA, I do foresee more clients who no longer come close to itemizing drifting away too.

That said, the tax rules have gotten insanely complex, especially for the self-employed, and lately they change on a weekly basis.  How many Uber drivers even know what QBIA is?  Heck, people can't even do their own W4s without professional help anymore.  (For the first time ever, we are going to start charging for the new version.)  And more and more people are willing to pay for things they can do themselves like car washes, lawn care, food delivery instead of driving to the grocery or McD's to get it yourself.  So I don't see all doom and gloom but think we'll have to wait to see how it plays out.

Disclaimer:  Most of our clients are like Edsel's with complex investments, businesses, trusts, etc.  If we had more of an early-season crowd I'm sure I'd think differently about the future.

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Good comments from those who have ventured opinions.

The IRS has not improved their level of quality either.  You would think after the cuts of 2013-14 they would realize just how bad they have become.  More support for Catherine's comment about representation.

The speaker at my last seminar was from Illinois, and he stated their were NO trained IRS auditors south of Springfield in his state.  The IRS has issued a requisition to hire one college graduate to fill the need.  The graduate needs a degree in anything, not necessarily a degree in accounting or taxation.  This level of expertise explains why you have to be referred to a couple tiers of supervisors in order to intelligently discuss anything when you call in.

I'm thankful for the clientele that I have - I have not gravitated to the February crowd, and leave myself exposed to the fleeing public described by Pacun.  He emphasized with several examples that our customers' own interests would prevail over personal service.

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I did not venture an opinion because I don't really have one.  We don't have very many younger clients, but then we don't have very many clients with simple,straight-forward returns either. And it seems like every year I lose a few clients, and I gain a few clients so that we stay in about the same place.  I also send a few away every year, but that is another topic. 

That said, I am also getting older and starting to think about getting out of the business myself.  I don't mind being responsible for putting the information on the return that the client provides me, and asking reasonable questions, but I am tired of being an unpaid auditor for the IRS.  Too mush stick and not enough carrot these days, IMHO.  The only thing that I am really sure of is that change will continue.  When I first started, it was with paper and pencil.  Then computers came in,, followed by the competition from folks who offered refund anticipation loans. 

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I, too, don't mind the attrition as I am in my last 3 years of work.  I renewed my license in December for those 3 years and, at 77 then, will call it done.  I spun off all business returns, save one partnership, and payroll and bookkeeping a few years ago when the other CPA working for me retired.  I didn't want to continue any year round work.  I kept 50-60 individuals and have let nature take its course.  I still have about 50 losing a couple each year yet somehow gaining at least one. 

This keeps my brain involved and engaged and gets me enough money to go on great dive trips so I'm pretty happy with the situation for me.  I do wonder about the future for accountants and tax preparers, however.  Different world ahead, for sure.

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13 hours ago, Sara EA said:

They have no fear of technology until the audit letter arrives.

This one is key!  (And leads to representation cases, but put that aside for now.)

We have one new company, set up by existing clients.  They set up a partnership, they thought.  Hey, they're high-tech folks doing engineering, they can figure out these filings and stuff; we don't have to ask about that!  Got a bookkeeper who they thought was competent (she's fine for data entry, but in no way a "full charge bookkeeper" which is a profession we really need to see come back).  Put both "partners" on payroll.  Wanted to be a non-profit "seed technology" (as in, seeding technologies, not little things to put in dirt in spring) source, so they have sourcing "arrangements" with another group.  Put in asset funding from this other group (investments for acquiring some expensive tech equipment) as income, 'cuz that's what the "partner" told the bookkeeper, who doesn't know enough to question him.  All kinds of little gotchas like that one, and they were in it for a year before they thought to tell us anything.  

It's going to take us a couple of *years* to fix the mess completely and properly.  Step #1:  a "partnership" that ends up being taxed as a c-corporation, as that was the only choice left once we got our hands on this mess at tax time last year.

Will these people ever blink before checking with us, ever again?  Nope; they are good enough engineers to see the mess they made by not asking first.  (We hope and pray, and so they say.)

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This isn’t something I worry about much. My client base is aging as I do, and as each retires to a state that isn’t CA, I jump for joy since that’s another return I won’t have to pay CA tax on! I consider myself semi-retired. Last year was the first year I had steady work through the season, but wasn’t overwhelmed. My assistant didn’t need to come from Sacramento to help.  Yet surprisingly enough, I seem to have made a about the same amount of money!

i say,if someone finds me, fine. If someone leaves, also fine. I’ve got other sources of income, but need the tax biz cash for a few years yet.

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On 1/1/2020 at 10:23 AM, Edsel said:

The Tax Laws are not simpler - but for most people they are. 

It has been reported that the number of people itemizing deductions has shrunk from 25% to 8%.  I believe that means the IRS can avoid complicated returns and process most people's taxes simply by compiling information returns.  They have been at war with itemized deductions my entire career - the standard deduction was called "low income allowance" and hardly anyone took it back then.

An increasing number of taxpayers can now very easily file taxes themselves, online, or TurboTax.

I am recommending for taxpayers to engage in a sideline business, or buy rental property, or otherwise complicate things.  Not so I can continue with their tax preparation, but for their own benefit to deduct expenses that are now lost.  And I expect in the near future, the IRS will swoop down and reclassify legitimate consulting businesses to employees.

I have enough clientele left to sustain me - for most of mine have rental property, small business, exotic investments, etc.

But as an industry, I see a shrinking customer base.  One telling look-around at CE seminars reveal most people at those seminars are 55 or older.  It is a new year, and we've got to pay attention to handwriting on the wall.

 

Ed, I couldn't agree with you more. I've been saying for several years that if were 40, I'd be looking for a new career in HVAC. Sure, AI will only be able to handle the 20% most difficult returns, but how many practices can survive an 80% reduction in clients/revenue?

 

Peter

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On 1/2/2020 at 10:04 AM, Pacun said:

A few years ago (for a couple of times), there have been similar postings and I have always argued that this market is going away faster than the aging tax preparers.  I have said in the past that Turbo tax is a very strong competitor and if you add the IRS free efiling, we are going to be out of business really soon as clients die or stop working.  The response I have gotten on this forum has been: "this year I had to amend 3 returns that were prepared in Turbo Tax.... Turbo tax keeps my business busy".  Internally, I have laughed because amending 3 returns is nothing is comparison to the millions of people that used Turbo Tax. We normally amend 3 returns of our own every year, don't we?
Other.... "incredible" tax preparers said "I provide service and personal care for my clients"... I told then that when Amazon came on board, retailers said that they provided personal care and Amazon was not a threat to them because of the personal touch that was provided to clients with each purchase.  YOU know the answer to that.

I will add something... My daughter is faster on her Iphone than myself on a computer with keyboard, mouse, keypad and huge monitor.  Millenniums just click and click and can efile their simple returns while I am still verifying numbers and that the address is correct. Think about this... millenniums don't like to to wait on line at a restaurant regardless of how good the food is and what makes you think they will be willing to wait for this old man to prepare their taxes? It is like me hiring someone to help me and can only type 5 words per minute with two fingers and looking at the keyboard.

In any event, I do believe this line of work if fading away and suggesting my clients to have another extra line of work is an EXCELLENT idea and we should do the same.

Amen, brother.

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If your client base is the person who's return takes 15 minutes and it's Schedule A and B - you might be in trouble.

If your client base is schedule C, E, F and 1041s, 1120S, 1065s..... you'll always have a client base.

It's like accounting, for many small businesses doing the books is ultra easy and you don't really need a professional. When it gets complicated at all, they likely will need help. Just got the books on a long term client and I'm reminded about this. His revenue is a negative expense account and he deducted his principal loan payments as an expense. This guy is EXCEPTIONALLY bright.

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I want to shrink my client base at my age and think that clients moving, passing away, and not itemizing will accomplish that. But, I remain wrong. Just had another client ask me if I can take on a new client, her fiance (they've been engaged forever, so it'll never end up one MFJ return). I continue to add at least as many as I lose. Family members. Clients opening businesses/separate entities. And, I like almost all of my clients, so I'm not looking at firing anyone this year. Maybe a couple of healthy price increases...

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I used to argue that jerks go high increases so that I was okay putting up with their jerkiness.

About 3 years ago I fired all the jerks (only a few really) and oh my goodness life is more enjoyable. I can't think of a single client I wouldn't want to sit down and have a beer with.

Have a client who did freak out that I had a 1099 on his tax return for a dividend. It was a mutual fund he insisted he didn't own and had no clue where it came from. About a month later he called to apologize, he'd found it. How does one forget a $50k account?

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I didn't lose too many, and I fired all the ones I didn't want. They paid me a lot of money, those PITAs, but it just wasn't enough to keep them. My business will probably disappear in a few years when I'm ready to retire because I do a lot of simple returns. They weren't so simple before last year, but they are now. 

So, prices went down, average per return went down, volume is still high, many more extensions, and I'm a happier individual. 

The tax law changes certainly hurt my business. While they helped most clients, they hurt my business. Reductions in withholding caused horrible results in my office. 

In short,  I'll keep my full time assistant employed for the season, I live small, so life is good. 

And hey, isn't it time for another gathering? 

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11 hours ago, Possi said:

And hey, isn't it time for another gathering? 

Yes, time for another gath'ring after tax season and warm weather is here.  I thoroughly enjoyed being at Rita's and meeting many of you in 2018.  Rita had a great and spacious place, but unfair to expect this from her again when there may be other places we can meet.  I have a smaller house, and have 45 unimproved acres about 60 miles from home, but the acreage doesn't have facilities.  Depending on location, I'll make an effort to meet.

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