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2019 Tax Season in Data: 05/20/2020

5/25/20 9:00 AM

Looking for the most recent Tax Season in Data update? Click here.

"Don't put off until tomorrow what you can do today."

Benjamin Franklin is responsible for that piece of advice, and it's as accurate now as it was when he first said it in the eighteenth century. Rarely is postponi

ng something that can be successfully completed now a plan for growth. In many cases, it's a missed deadline, increased inefficiencies, and more work down the road.

This quote came to mind while reviewing the data for this update, our fourth installment of the tax season in data (for the period ending 05/20/2020). In the 05/04 update, I told you that overall the data was neutral, with a theme of "wait and see." Well, we waited two weeks, and the results are mixed – there is some progress, but it's slower than I would have liked to see. And one of the return types that previously performed well is showing signs of easing off the gas too soon.

In previous updates, one firm segment within each return type seemed to stand out (positively or negatively). This time, the data is showing individual firm segments performing on par with the national average. That's why I haven't highlighted any – we're following the data.

 As always, I hope that this information helps you make data-driven decisions.

Our Data Source

In case you're new to the series, I want to share what data is driving these analyses before diving into the results. These reports are the results of millions of unique tasks processed through the XCM system annually. We leverage the resulting data points to obtain insight into the pace of filing seasons. Our customers, who receive these types of analytics during tax season, have told us that one of the most significant benefits they receive is the comparison of their firm against the national average of similar-sized firms.

Utilizing XCManalytics, I have compiled this years' data for 1040, 1065, and 1120-C returns, benchmarked against 2018 returns to provide the tax community with insights into the pace of the 2019 tax season.

Individual Tax Returns (1040)

1040 20200520The graph above shows the current pace of individual (1040) tax returns, as compared to the prior tax season on the same day last year.

When I said in the introduction that some return types are showing painfully slow, I was referring to 1040 returns. While there is some positive movement since my last update, it is incremental at best, averaging 3.2%. Completed returns saw the greatest movement, at 4.7%, and returns in progress the least, with a 1.7% increase.

This incredibly slow forward momentum is most likely a combination of the extended filing deadline overlapping with what is usually "summer" hours, and a lack of firm contact with clients.

We can see from the data that, for those clients whose returns fall into the "work not started" category, there is no movement. No documentation of calls or other touchpoints, with no task interaction, it's almost as if they've been forgotten, or pushed to one side.

If you are seeing a similar trend in your firm, make it a point to perform some outreach by phone or email. Start with a general check-in, and offer some insight that may help them in the current climate. Ask yourself how you are engaging your clients. Do they need insight into government programs and legislation such as the CARES act? What about a cashflow discussion? During these discussions, make it clear that waiting until July to deal with their tax return might not be the best strategy. Few clients will want to be hit with the double whammy of last year's tax payments and estimated tax payments.

The other factor that may be affecting the 1040 filing pace is our deviation from the traditional busy season. During a typical tax season, workload compression spikes in late March / early April, as tax staff, for all intents and purposes, live at the office and consume vast quantities of coffee and energy drinks to power through those last returns and extensions.

The carrot at the end of tax season is the relative calm that descends upon the industry during summer months. Usually, by this point in the year, CPA firms have stepped off the throttle, taking May-August to focus on training, conferences and events, and vacations.

However, this is the year of COVID-19. Extended filing deadlines, extensions, the usual fall workload, and modified stay at home orders are combining to reduce or remove the summer break. With a little less than two months before the new federal filing deadline and a great deal of work left to be done, firms may be struggling to maintain momentum while providing their staff with the mental health break that many so desperately need – and it must be done without the usual tools of retreats, travel, and PTO.

Partnership Returns (1065)

1065 20200520The graph above shows the current pace of partnership (1065) tax returns, as compared to the prior tax season on the same day last year.

For partnership returns, this updates takes us into extension season (in a non-coronavirus year). Previously, the data showed this segment essentially keeping pace year over year. However, we are seeing the first subtle indicators that the pace of work is potentially beginning to slip, with returns in progress making no forward movement. While it is too soon to tell if the 3% decrease in returns not started ties to the 3% increase in completed returns, it is something to keep an eye on.

As with individual returns, a deviation from the normal busy season is no doubt causing some of the slippage we're seeing. Part of the reason for the summer slowdown is the extreme amounts of fatigue that can occur during busy season. Staff depend on summer break time to refuel and come back ready to work.

One good thing that has come out of COVID-19 is the focus on team motivation and mental health exercises. Industry leaders and training programs have offered a plethora of tips to stay positive and work effectively in the current climate. As we push forward in this middling period between the typical first busy season end and the ramp-up to the second wave, keep these concepts in mind. Utilize all of your resources and allocate workload so that all staff can take advantage of those mental breaks to complete the rest of the tax season.

Corporation Returns (1120 C)

1120C 20200520The graph above shows the current pace of C-corporation (1120-C) tax returns, as compared to the prior tax season on the same day last year.

Corporate (1120-C) returns seem to finally be gaining some forward momentum! Unlike our last update where there was little to no positive change in the numbers, each category has shown movement of more than 1.5%, with returns not started decreasing the most, with a 4.2% drop. I believe that this segment is beginning to bridge the gap – slowly chipping away on inventory leftover from March / April.

Unlike individual and partnership returns, those firms and departments processing corporate returns seem to be heeding Benjamin Franklin's warning and focusing on getting the work done now. Maintaining this momentum over the two months or so is imperative. As I warned in the individual and partnership return sections, firms need to find ways for their staff to take mental health breaks over the remainder of the season.

Concluding Thoughts

Conference and vacation season has been taken over by extended filing deadlines and COVID-19 movement restrictions, flipping the traditional busy season and accompanying workload compression on its head.

It's a long-standing tradition embedded into the bedrock of public accounting. Tax staff members work incredibly hard through that April 15th deadline, take the summer to relax and focus on individual improvement, and then dive back in come August / September. Unfortunately, the extended filing season has co-mingled everything together – there isn't the opportunity for that traditional post-busy season break.

As an alternative, find time to appreciate what has been accomplished thus far. Check-in with your staff and see how they are doing - especially the extroverts. Encourage your staff to dedicate time to their mental health. View this time as an opportunity to spread the workload amongst your resources and reduce compression over the remaining season.

Regardless of segment or size, every firm should be focused on getting everything done now that can be done. Creating and maintaining momentum right now will be critical to surviving the summer without many of the traditional methods of relaxing. For firms already doing this, don't take your foot off the gas; and for those who haven't, it's not too late to start.

Now is also the time to offer an excellent customer experience. The emotional baseline for the country is set somewhere on "low-level anxious" – how you handle that client will have a lasting impact. You have an opportunity now to move from vendor to business partner and trusted advisor. Reach out to those clients who have returns sitting at not started, and initiate the conversation.

As we look for advice during this unusual time, many of us are finding guidance in history and great leaders from our past. Whether it's filing that extension, reaching out to a client, or calling a family member to tell them that you love them, don't wait – do it today.

Until the 06/15 update, stay safe, healthy, and productive. 

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Mark McAndrew

Written by Mark McAndrew

Mark is XCM’s Vice President of Consulting Services and responsible for workflow advisory consulting and productivity enablement software deployments. His consultative approach has helped optimize productivity with dozens of Top 300 public accounting firms and Fortune 1000 corporations.