THE GOP TAX ACT AND THE TAX PREPARATION INDUSTRY

The tax filing season is off to a relatively slow start, as usual.  As I receive returns in the mail I am getting them out, with only a 1-day turnaround.  So, I have some time to comment on this topic.

My fellow tax blogger Jason Dinesen has posted his thoughts on how the GOP Tax Act will affect tax preparers in “How Will the New Tax Law Affect the Preparer Industry” at DINESEN TAX TIMES.

I do agree for the most part with his comments on “What I Think Will Happen”.  Any tax law change, good, bad or indifferent, results in increased business.  So, 2017 and 2018 will see an increase in the use of paid tax preparers.  However, I agree that what follows, at least until 2025, will be a drop in basic 1040 and Schedule A clients.

However, the increased complexity of the new Section 199a deduction will most definitely increase business from self-employed taxpayers, be they Schedule C filers, partners, or owners of closely-held corporations.  This will more than make up for the loss of itemizers.  And the complexity of having 2 separate tax rate schedules for investors who benefit from the lower qualified dividend and capital gain rates will keep investors in “the fold” and perhaps add new ones.  So, tax preparers will lose clients on the lower-end of the fee schedule and gain clients on the higher-end.  And existing business clients will be paying higher fees for the increased complexity and calculations.

So, the bottom line is that the tax preparation industry in general will benefit from the new Act.  How it will affect the industry is that preparers will need to increase their continuing education and training in the area of business returns – sole proprietorships, partnerships, “regular” and sub-S corporations – and become conversant with Section 199a, and focus their practice development efforts on these self-employed taxpayers.

I do still think there is a market for the returns of those who cannot itemize.  I have always said I would make more money, have less GD extensions, reduce the potential for error, and experience much less agita and aggravation if I did nothing but 1040A returns all day during the tax season.  Preparers will need to be aware of pricing issues, and keep their fees for these simpler returns reasonable.

From a personal standpoint, the GOP Tax Act will not affect my 1040 practice one iota.  None of my clients will leave me to prepare their own returns due to increased simplicity.  I do not accept any new clients, period, and am actually attempting to “thin the herd” as I head toward retirement after 4 more filing seasons (once I can say I have been preparing 1040s for 50 tax seasons).  I am actually somewhat pleased that the Act will actually reduce the complexity, and potential for agita, of the returns for many of my clients (I have truly minimal business clients).   

So, what are your thoughts on the subject.  Will the GOP Tax Act help or hurt your practice?

TAFN