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Tax & AccountingMarch 25, 2021

2021 Tax Season in Data: 03/15/2021

Welcome back to the Tax Season in Data, where we take a look at the 2021 tax season filing pace for 1040, 1065, 1120-C, and 1120-S returns compared to the same period last year.

A lot has happened in the two weeks since our last update. The single most significant legislative update is undoubtedly the American Rescue Plan Act of 2021, which we discuss in detail here. While many provisions may affect your clients, the most noticeable immediate impact as of 03/15 is the provision declaring the first $10,200 of unemployment income received in 2020 nontaxable. We do see some impact on the filing pace for 1040 returns (see Individual returns below).

There isn’t a period-over-period change in the filing pace gap between the 2020 and 2021 tax filing seasons, with a couple of notable exceptions. The Treasury and IRS announced a one-month filing and payment extension for 1040 returns on 03/17 – after this update’s cut-off, I expect to see the ramifications of the extended filing and payment deadline reflected in our 04/01 update.

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)

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 Returns (1040)

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)

As with individual and partnership returns, 1120-C filings are maintaining the same pace that we saw with the 03/01 data. The 03/15 filing pace gap for all four observation points has stayed within 0.5% of the 03/01 data. Also, as with partnership (and individual) returns, in the 2020 tax filing season, we saw a sudden jump in the filing numbers at the 04/01 update. Hopefully, we see the same jump in the 2021 04/01 update.

Corporate Returns (1120-S)

1120-S filings are also maintaining a similar pace to the 03/01 data, with a 0.7% average filing pace gap for all four observation points between the 03/01 and 03/15 data. Also, as with partnership (and individual) returns, in the 2020 tax filing season, we saw a sudden jump in the filing numbers at the 04/01 update. Hopefully, we see the same jump in the 2021 04/01 update.

Tips for a Successful Filing Season: Practice Proactive Client Communication

With the recent changes and media coverage regarding the various Act provisions and filing changes, clients want to know how the changes will affect them. Because of the number of changes and the continued uncertainty around the tax season, you and your staff are no doubt fielding client inquiries right as peak busy season compression hits.

Rather than wait for your clients to come to you with questions, why not save yourself some time and instead reach out proactively?

Whether you know it or not, your firm management, tax preparation, and workflow solutions have the information you need to understand how the American Rescue Plan Act will affect a potential client. By reviewing client information and splitting them into categories based on how the recent changes affect them, you can communicate with each client more effectively.

Yes, I know that manually reviewing each client organizer and return isn’t possible during peak season. But you don’t need to– with predictive intelligence tools like CCH Axcess iQ the data you already have can identify which clients need a quick email reviewing the recent changes and which clients may need a phone call to go over the Act’s effects in more detail.

Learn more about how iQ can help your firm handle conversations and questions around the American Rescue Plan Act.

 

Concluding Thoughts

This update was a lot of “same as last period,” but based on the previous year’s data, we know that the 04/01 period tends to set the curve for the rest of the season. Hopefully, on 04/08, when we report on the 04/01 data, we will see a significant jump in completed returns.

In the meantime, don’t forget to take advantage of our free tax-season resources!

In addition to the Tax Resource Center I discussed in the 03/01 update, we are tracking and updating state and federal filing updates on our post, Latest Impacts to 2021 Tax Season Filing Dates.

Check back to these pages regularly for insights and free resources to help you make the 2021 tax filing season successful.

Looking for the next installment? Read the 04/01 update for the 2021 tax filing season.

Mark McAndrew
Mark McAndrew, Author at Tax & Accounting

As the Director of Project Management for Firm Management (FM) at Wolters Kluwer, Mark focuses on the vision and strategy of all FM products and delivering customer and shareholder outcomes within the FM solutions set. Mark has extensive experience within both the Fortune 1000 and large public accounting firm spaces. He is a frequent speaker on business process management and workflow advisory consulting, tax and accounting outsourcing, and productivity enablement software deployments.

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