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4 Things You Need to Consider When Creating a Tax Outsourcing Strategy

10/5/20 9:00 AM

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Having a successful partnership between the firm and its tax outsourcing partner takes more than just luck. It takes preparation and planning, even before the firm starts interviewing potential tax outsourcing companies. For those firms considering tax outsourcing services as part of their strategy, a tax outsourcing-specific plan should be made, as well.

Creating a tax outsourcing strategy, aligned with the firm's overall tax season strategy, can help smooth any bumps that may have otherwise happened during the outsourcing process. It also helps set both the firm and its tax outsourcing partner up for success.

So, what should you take into account while creating a tax outsourcing strategy? A few key points to consider include:

How many returns you anticipate processing during the season - and what types.

Identifying targets for the volume and type of returns that the firm anticipates processing during tax season may not be specific to creating a tax outsourcing strategy, but they are essential to overall busy season success. Another piece of information essential to a successful busy season is firm capacity levels. When calculating this, consider dedicated tax staff as well as staff from other service lines with the capacity to support tax staff during busy season.

Armed with this information, your firm should be able to quantify the gap between incoming returns and firm capacity. Knowing this number, and what types of returns have those gaps, allow you to determine the volume and types of returns you may need to outsource.

What types of returns you will be sending. 

Will you be keeping your most straightforward returns for Interns? Will you outsource only 1040's? How many entity returns will you send? 

The rubric by which firms decide which types of returns to send this varies from firm to firm because not all firms have the necessary visibility into prior-year data (hint: there's an Analytics solution for that). We recommend starting with what returns are the largest capacity drains for your tax staff and consider sending those to your tax outsourcing provider first.

The type of returns you send may also depend on what you learn from your tax outsourcing service provider during the discovery process. When interviewing potential outsourcing partners, ask them what types of returns their staff has experience with, and find an outsourcing partner whose staff have strengths that compliment your staff.

How many returns you will need to outsource.

Much as with return types, how firms set this number can vary widely. Not all firms have the necessary visibility to identify firm capacity levels (hint: there's a workflow solution for that). You may or may not have easily accessible prior-year data to create the necessary return volume projections.

Some firms will send a pre-determined number of returns. Others will decide to send a certain percentage of their total returns. And some firms choose to utilize their tax outsourcing provider to level internal staff workload. Choose the option that works best for your firm.

How to talk about your firm's "secret sauce."

What does your firm take pride in doing for every client? What are the key steps you take to ensure client satisfaction and keep your clients returning year after year? How do you differentiate yourself from the rest of the crowded tax preparation market?

Identify what differentiates you from your competitors so that you can share the information with your tax outsourcing partner. With this information, they can have a similar focus when preparing returns for your clients and can help ensure a successful tax season.

It is critical to have your plan in place, communicated to the tax staff, and ready to go before February 01. The good news for firms is that experienced tax outsourcing partners can work with you on many of these decisions and help you communicate with clients about the decision to utilize tax outsourcing.

Taking the time to create a tax outsourcing strategy as part of your overall tax season strategy can help with internal discussions about required staffing levels to support your clients. And when the tax strategy, and tax outsourcing strategy, is shared with your tax outsourcing provider, the firm will see a better product.

Ray Barlow

Written by Ray Barlow

Ray is XCM’s Senior Vice President of Xpitax Tax Outsourcing and CAS Remote Staffing Services, helping public accounting firms optimize client service, balance workload compression, and maximize profitability His 30+ years in the tax, accounting, and finance industry include years spent with Wolters Kluwer, Thomson Reuters, and Sage.