The Tax Season in Data series started last year as an offering during the COVID-19 pandemic to share our understanding of its effects on the 2020 tax filing season. As a business, we can see the filing pace for various filing and firm types and compare that information to previous years. While our existing customers could self-report on this data within the product, we wanted to provide tax preparers across the country with guidance on overcoming some of the challenges that appeared due to the sudden shift to remote work.
This year we'll be trying to understand how firms are taking the lessons learned last year and applying them to the 2021 tax filing season. We'll also be considering how firms can leverage their tax filing season and turn annual engagements into monthly, recurring revenue.
We already know that the 2021 tax filing season isn't going to be usual; the IRS decided to delay the first day of filing to 02/12 and extended the filing and payment deadline for Texas residents and Oklahoma residents to Jun 15. Meanwhile, the AICPA sent a letter to Treasury and the IRS requesting that the tax filing and payment deadline for individual filers be extended to Jun 15. And with extended PPP loan deadlines and employee retention credit, not to mention other legislative packages being debated and finalized, have you considered how you and your staff will keep up with increased client demand? Hopefully, we can provide insights to help ease some of your filing season compression.
Our Data Source
Before we start, I want to share what data drives the Tax Season in Data. These reports are the results of millions of unique tasks processed through the XCMworkflow 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 the tax filing season, have told us that one of the more significant benefits they receive from the data is when they compare their firm against the pace of the national average or similar-sized firms.
Utilizing XCManalytics as a Service, I have compiled this years' data for 1040, 1065, 1120-C, and 1120-S returns benchmarked against 2020 tax filing season to provide the tax community insights into the pace of the 2021 tax season.
Partnership Returns (1065)
The graph above shows the current pace of partnership (1065) tax returns compared to the prior tax season on the same day last year.
Partnership returns are due on 03/15 (for all states except Oklahoma and Texas), which is 15 days after this data was pulled, and four days after this publish date. Hopefully, the 2021 filing season statistics will show a similar jump to the 2020 filing season – on 03/01/2020 returns not started sat at 75.8% but dropped to 40.1% by 03/15/2020.
To see your filing pace match the drop seen between 03/01/20 and 03/15/20, I recommend increasing (or starting) on client outreach and getting as much of the pre-preparation work as possible organized and completed now.
The more you can prepare in advance, the more you can shorten the preparation cycle, create an environment for optimal productivity during the preparation cycle, and quickly build a quality return to review.
Individual Tax Returns (1040)
The graph above shows the current pace of individual (1040) tax returns compared to the prior tax season on the same day last year.
The filing page for 1040 returns is being watched closely by many, with the national average at large seeing a significant reduction in pace from this time last year. Per the IRS filing season statistics as of 02/19/2021 (the latest report as of this publish date), the total individual income tax returns received are 30.5% below the number of returns filed in 2020 (34.69M in 2021 versus 49.89M in 2020).
However, in a sign of good news, the filing pace gap for customers using XCMworkflow is significantly less than the nation at large, with the filing page gap between 1.7 % and 0.6% depending on which metric you consider – returns not started, returns in progress, or completed returns.
If your firm is experiencing a filing pace gap similar to the IRS reported national averages rather than the XCManalytics data reported above (As of 03/01), focus on communication with your clients. Start early, and maintain contact. Consider quick to implement collaboration tools that can help streamline your client communications – such as CCH Axcess Client Collaboration – and automation opportunities to simplify your document transfer and eSign process – such as CCH Axcess Document. These tools may help you engage with clients more quickly to better identify those who may need more time or those prepared and ready to file.
Corporate Returns (1120-C)
The graph above shows the current pace of corporate (1120-C) tax returns compared to the prior tax season on the same day last year.
With the latest due date of the returns being discussed in this post, the graph above shows what I would consider logical for 03/01. The approximately 2% year over year filing pace gap for returns not started is most likely smart prioritization by firms, focusing on returns with earlier due dates.
However, that does not mean waiting to reach out to clients. Now is the time to start discussing significant changes to their business; did they take advantage of PPP loans, the employee retention credit, or experience shifts in their business due to COVID? The earlier you can start collecting client information, the better you and your staff will be prepared when it comes time to file.
Corporate Returns (1120-S)
The graph above shows the current pace of corporate (1120-S) tax returns compared to the prior tax season on the same day last year.
Due to their status as pass-through entities that affect their shareholders' returns, the increased percentage of returns in progress compared to 1120-C returns makes complete sense. There is a more significant year-over-year filing pace gap in returns not started (3.7%) than with 1120-C returns. However, this early in the filing season, this gap could be a matter of only having 16 filing days rather than 32 (the 2020 tax filing season for 2019 taxes started on Jan 27).
Tips for a Successful Filing Season - *FREE* Tax Resource Center
As I mentioned earlier, every tax season is different, but 2021 – much like 2020 – is shaping up to be a doozy. Between the CARES Act, ongoing PPP loan extensions, employee retention credit changes, and pending legislative changes, an easy button sure would be nice.
And while that easy button may not exist, the right tools and technology solutions can help make the burden lighter. To help streamline your busy season and hopefully take some of that weight off, Wolters Kluwer put together a Tax Season Resource Center with analysis, quick reference guides, and complimentary access to CCH® AnswerConnect through Apr 15.
In the Tax Season Resource Center, you have access to:
- 2020 Tax Year in Review Tax Briefing
- Free Access to CCH AnswerConnect through Apr 15
- Free Registration to One CPE-Accredited Webinar
- PPP Resources Library
- PPP Estimator (Powered by Paychex)
- 2021 Federal Tax Key Facts and Figures Card
- 2021 Depreciation Key Facts and Figures Card
- Prewritten Client Letters on Critical Topics
16 days into the 2021 filing season is a little early to make generalizations about how the filing pace for 2020 taxes will go. One thing is clear, though – the coronavirus's effects are still being felt today, more than a year after the first case of COVID-19 was reported in the US. And with many of us still working in a remote or hybrid environment, communication and collaboration tools will continue to help firms be more successful – but more on that next time.
I look forward to updating you on 03/25 with the tax filing pace as of 03/15. Until then, stay safe, healthy, and productive.