Welcome to the ninth installment of the tax season in data, for the period ending 10/15/2020. Congratulations, tax filers, the last deadline of the year has passed!
By the time this publishes, you’ve hopefully had a chance to take a breath and appreciate the hard work you did. So, before delving into planning for next year’s busy season, let’s take a look at how the nation handled this extraordinary tax season with a look at the last tax season in data update of the year!
Our Data Source
Before we dive into the results, let’s review how we collect the data driving these analyses. These reports are the results of millions of unique tasks processed through XCM Solutions® 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.
Throughout the tax season, we’ve utilized XCManalytics to compile this years’ data for 1040, 1065, and 1120-C returns and benchmark them against 2018 returns, providing the tax community with insights into the pace of the 2019 tax season.
Individual Tax Returns (1040)
The chart above shows the current pace of individual (1040) tax returns as of 10/15/2020, as compared to the prior tax season on the same day last year.
At the 07/15 and 09/01 updates we started to see signs that the filing gap for completed returns was closing. Unfortunately, as of 10/15, our data shows that gap has widened again, and as we end extension season there is a 5.4% difference between 2018 and 2019 completed returns. In our experience, year-over-year differences in work left uncompleted typically arise because:
- The return is not being filed by the firm this year, but this hasn’t been noted in XCMworkflow
- The return is complete and has been filed, but firms processes haven’t been followed to “complete” the return in XCMworkflow
- The return is being filed late
In general, the difference is usually traced back to one of the first two bullets.
We should note – and celebrate – that 1040 returns have made significant gains throughout the entire extended filing season, going from a 22% gap in returns not started on April 01 to 3% on October 15. Below is a year-over-year comparison of the percentage of returns not started throughout the 2018 and 2019 filing seasons at various points from April 01 through October 15.
The chart above shows the percentage of individual (1040) returns not started at various points throughout 2018 and 2019.
As we begin to look towards the 2020 busy season, it will be interesting to see how firms apply the lessons learned during this unique season to better support clients and staff. For more on this, see my concluding thoughts.
Partnership Returns (1065)
The chart above shows the current pace of partnership (1065) tax returns as of 10/15/2020, as compared to the prior tax season on the same day last year.
As mentioned in the 09/01 update, partnership returns have maintained a consistent year-over-year pace throughout almost the entire extended 2019 filing season. However, as with individual returns, as of 10/15, we see a slight gap – 4.5% – between 2018 and 2019 completed returns and a 2.9% gap in returns not started. As with individual returns, the gap in uncompleted returns is most likely due to the return not being accurately accounted for in the workflow solution or because it is being filed late.
When looking at the broader trend of returns not started (see the chart below), there is a clear pattern. For most of the season, the filing gap for unstarted returns was less than 4% (with April 20 being the single exception at 4.3%).
The chart above shows the percentage of partnership (1065) returns not started at various points throughout 2018 and 2019.
We know that much of the early success can be attributed to the combination of a March deadline and COVID-19’s appearance in the US. However, with the level of consistency partnership returns experienced when other return types were not seeing the same success, firms may want to review partnership processes. Consider how these processes can be applied to other tax workflows for the 2020 busy season. For more on what to look for, see my concluding thoughts.
Corporate Returns (1120 C)
The graph above shows the pace of corporate (1120 C) tax return as of 10/15/2020, as compared to the prior tax season on the same day last year.
As with both partnership and individual returns, 1120C filings, after a strong 09/01, have dropped back slightly as of 10/15, with a 4.8% gap year-over-year for completed returns and a 3.8% gap in not started returns. We can see from the tax season’s data that there is a similar gap between the 2018 and 2019 filing seasons (see the chart below).
The chart above shows the percentage of corporate (1120C) returns not started at various points throughout 2018 and 2019.
As I mentioned in the 09/01 update, we are past the tax season window where the percentage of unstarted returns could be attributed to returns identified as needing an extension. It would behoove firms to research those clients who have stalled in “not started” and determine how to correct this.
Concluding thoughts – preparing for next season.
Now that extension season is finally behind us, it’s time to turn the focus to 2021 and the next busy season. By now you have no doubt started planning to review, or have already started reviewing the last busy season with a critical eye. During the review process, make sure to consider:
- Workflow processes and possible areas for improvement.
- Current technology configurations. Determine if your current stack is supporting your staff the way it needs to be supported.
- New and different collaboration tools with an eye towards your current tech stack to see if there are newer and/or better tools available to support your staff.
- The current status of all data. Now is the time to be cleaning up data.
- Opportunities for tax automation.
- Potential tax outsourcing as part of your overall tax season strategy.
- The types of review points and evaluate training programs related to those themes.
- Staff evaluations based on work outcomes.
- Analytics programs specific to operational excellence and business process metrics.
When looking for areas of improvement, pay special attention to client communication and outreach programs, staff productivity, and workflow process effectiveness. Now is the time to makes those changes that will allow your staff to better support clients, whether they may be modifying existing workflows to increase productivity, additional training for staff, or investments into new technology.
Until next year and the next busy season, stay safe, stay healthy, and stay productive.