By William Hamilton
“It doesn’t take a genius to do your taxes.” Wow.
This is a direct quote from TurboTax's 2016 Tax Season Ad. And what a statement TurboTax is making that the American public is buying into.
According to the IRS, 2014 self-prepared returns filed were up 5.8% over the same date the year prior. Professionally prepared e-files were down 2.2%. Self-prepared e-files represented 44% of all e-filed returns.
Yup, TurboTax is telling a powerful story and America is buying it.
What does this mean for you – the tax pro? To hear most tax professionals (and H&R Block) tell it, the story will be about “wailing and gnashing of teeth” when the taxpayer finds out he left $1 billion on the table and the IRS “comes a-calling.”
The truth is actually very different. As the IRS’s numbers show, our market (taxpayers using professionals to file their returns) is shrinking. The reasons are pretty logical.
- The aging population needs us less. Because their returns are getting simpler and the tax code isn’t offering “creative” assistance, and they are reaching the end of their retirement when they cease needing to file.
- The taxpayers replacing them (today’s wave of youths entering the workforce) are not only comfortable in an online DIY model, they expect it to be that way.
If not for the shrinking tax professional population, this phenomenon would be more obvious. But as our fellow tax pros (average age 58) retire and expire, their remaining clients are redistributed, giving us artificial buoyancy.
The message here isn’t one of defeat
The lesson is not what you think. TurboTax’s success is proof of our need to grow. Our industry is changing and the imperative is “change or quit.” Here are the lessons and what YOU need to do about them:
- Today’s client will no longer happily pay you for putting a number in a box. They used to line up and all we had to do was fill out a form. Technology is now good enough to fill that void, and machines will always do repetitive work better than humans. If this is all you do – take their forms and transfer the numbers into a software program – you’re done. Tax professionals now have easily accessible tools that we can use to scan client documents and auto populate tax software. That type of work is no longer valuable to today’s taxpayer. Knowledge and experience are valuable.
- Clients have never paid us to prepare accurate returns. They pay us to help them pay less tax, and not get into trouble with taxing authorities. A tax return is a point-to-point retelling of a taxpayer’s life using tax specific data points. You need to learn how to recognize those data points and take action when they demonstrate a financial need in your client’s life.
Example, you see that a client is making really good money, but is putting very little in their 401k, or a client has large amounts of interest income from their investments. These data points warrant conversation and are opportunities for you to pick up the ball where other so-called “financial pros” may not really be helping your client.
Let’s connect the dots from these two data points:
Scenario A) Client is making really good money but is putting very little away in their 401k.
Action Step – Talk to the client about their cash flow. Do they need help with a budget? Are they overextended with consumer debt? Can you roll some of that consumer debt into a tax deductible mortgage? Could the savings from rolling that debt be put into their 401k, lowering their taxes and creating even more savings? These are all things that can be addressed when you start looking for what the data is telling you instead of just putting numbers in boxes.
Scenario B) A client has large amounts of interest income from their investments.
Action Step - Help the client understand how to manage these investments. Obviously, the client has invested a large sum of money into some investment vehicle(s). Is this vehicle optimized for tax savings? Can it be? Does the client have a long term plan for this money? Is the client realizing the highest amount of return with the least amount of risk?
In both of these scenarios, having the conversation with the client and helping them with whatever the issue is, immediately elevates your value in the client’s mind and puts you in a position where you're no longer competing with TurboTax.
According to a new survey by BMO Harris, 83% of consumers who prepare their own returns are confident they will take advantage of all tax deductions and credits, however, 45% admitted they are not so knowledgeable about tax-favored or advantaged investments. That’s one of the big the opportunities where you can differentiate your value.
Now sure, maybe you’re only used to doing taxes and you don’t know much about other financial areas. Well guess what – at one point you didn’t know anything about taxes either but you took the time to learn.
If you’re not providing this help to your clients now because you lack the knowledge, now is the time to prioritize learning.
If you’re not providing additional help to your clients now because you just don’t want to, the data shows that it will only get more difficult to run a profitable tax practice as time progresses.
The moral of the story here is that you have to do more for your clients than what TurboTax can if you want to be a viable alternative.
What you do doesn’t really matter. It could be business consulting or financial planning or just making clients feel really good about themselves when they come into your office, but whatever it is you have to start doing it, and you have to start doing it NOW.
The tax profession can be an amazing, rewarding and fun business. What’s happening in our industry can be an exciting platform for change, but you can’t fight it. You have to be smart and adapt.
Those that are smart and are willing to adapt are going to realize tremendous success and help mold what the tax preparation industry becomes in the future.
Thanks for reading.