Reviewing Tax Returns – A Necessary Evil That Doesn’t Have To Be Evil
Does anyone really like reviewing tax returns? As the most time consuming part of the preparation process, it may also be the most important.
How many hours have you already spent tediously reviewing inputs on tax returns this tax season? The tax code is naturally complex, but when you add in the moving target of change from the American Rescue Plan Act, the complexity magnifies.
It’s 8 pm and you’ve been at it since 6:30 this morning. You haven’t been able to scratch the surface of your growing email box in days. You are chasing down clients for one…more…document who swear they’ve given you everything in 14 emails despite the portal you have for them. Perhaps you just realized that you still have dozens of clients who haven’t yet gotten you their information yet. Your team is maxed out and starting to get a little testy. And, the most beloved phone calls don’t help…
“Is my return ready yet?”
“When will I get my refund?” (As if you own that crystal ball)
How do you know it’s right?
Tax software is generally right, right? Arguably, I’ve spoken with accountants every year who tell me they’ve found incorrect calculations in whatever tax software they are using. And, this year, whew! A LOT has changed! If there was ever a year to question your tax software, this may be it.
EITC, CARES Act stimulus payments, the unemployment tax break, PPP… how do you stay on top of all of the new legislative details and individual scenarios?
And how about the clients who owe? Wouldn’t it be peace of mind for them to know that the amount they owe is actually correct? Or, for the clients who come to you for a second opinion because their CPA dropped the bad news on them that they owe?
How confident or knowledgeable are your people?
You can probably gauge that by the number of errors you’re fixing or questions you’re getting. There are almost always more preparers than reviewers in a firm. How many hours have you spent this week fixing mistakes? Mathematically speaking, if your billing rate is $300/hour and you spend 6 hours per week fixing errors and/or teaching preparers how to fix and avoid those errors, that’s $1,800 of unbillable time. Or, 6 hours you could have spent at home with your family – or focusing on bringing in new clients.
Here is a simple process enhancement that will give partners time back in their day, train staff automatically, and most of all…verify that the return is right.
If you are the only reviewer in your firm, implement a process whereby a peer preparer is checking the other preparer’s work before it gets to you. It’s pretty easy to do this if you have them create a completely independent expectation of the return and then compare the results of that against the results of the tax software. We can help you with this part at TaxExact.
If you have a first level reviewer who gets the return after the preparer finishes preparing it, same thing. That first level reviewer prepares a separate independent instance of the return using the same source documents that were used to prepare the return. When he or she gets the return from the preparer, he/she is simply verifying the totals on the summary page match. No ticking or tying or re-calculating.
Errors or discrepancies show up immediately. This is where the training comes in. If a number on the tax return doesn’t match the number on the independent expectation, you have to find out why by digging into the calculations and learning what isn’t correct.
Here’s a quote from a TaxExact user:
“I’ve learned more about the tax code in the past 2 weeks using TaxExact than I have in my entire 10 years doing taxes.” — Liz.
This is where electronic peer collaboration comes in, too.
If the person who prepared the independent expectation could route it electronically back to the preparer with review notes on areas that need to be addressed, returns are flowing more efficiently through the process.
And, when either both preparers – or preparer and reviewer- are able to get the tax return independently verified, they can electronically approve and re-assign it for final review.
This is where it gets beautiful. Yes, a tax return can be beautiful when it’s right by the time it gets to the final review level!
In either case, the goal is that by the time the return gets to you- the final reviewer- you are giving it a look- not to find errors because you know it’s already right- but to uncover key indicators that warrant a higher valuable (potentially billable) discussion with the client.
The math doesn’t lie.
Now let’s look at the math. Using the same example above of 6 hours in a week at $300 per hour. Let’s make an assumption that your preparers may bill at $175.
If you shifted even 4 hours of your 6 that you spent this week fixing errors down to the preparer level…(again, remember, there are more preparers than reviewers and we are removing the bottleneck at your level)…you save $1200 in your billable time to reclaim for other higher value activities (or less hours in the office). If there is a 4 hour add at the prep level, $175 X 4 = $700.
What’s your net gain in this example?
- $500 in profit + 4 hours of priceless time on your end
- Immeasurable learning and tax code knowledge for your preparer to accelerate his/her development to a higher billing, trusted advisor.
Either way, when you shift the accountability of the 1040 review to a peer preparer or to a first level reviewer, you win:
- Time…priceless time…to invest in your business or your life.
- Training and acceleration of the development of your staff.
- The peace of mind in knowing the returns you file are right.
Put yourself in the driver’s seat with your time, your team, and your clients.
