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Tax & AccountingApril 08, 2021

2021 Tax Season in Data: 04/01/2021

Welcome back to the third installment of the 2021 tax filing season in data! And with this update, we bring welcome news – the 04/01 update shows a significant jump in the 2021 filing pace, despite the IRS and Treasury extending the federal filing and payment date to 05/17/2021.

New to this period’s analysis is the 2019 tax filing season data as a non-COVID season benchmark. The 2019 tax filing season was the most recent year where tax preparers worked in what many of us would call the “old normal.” The tax season ended on 04/15, most of us were working in an office, and the words coronavirus, pandemic, social distancing and face mask were not common nomenclature.

As we review each of the segments, pay particular attention to the increases in “NC / Not Filing” section – we are seeing more work being moved into this not filing / no longer customer category than in years past. And with that, let’s dive into the data!

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 and benchmarked the data against 2019 and 2020 tax filing season to provide the tax community insights into the pace of the 2021 tax filing season.

Because this data is not static, some period-over-period shifts occur as work is entered and dates of action are backdated. Therefore, we assume a 1% - 2% error margin.

Individual Returns (1040)

The 1120-C national average filing pace for 2021 shows a similar surge as the 1040 filing pace, with a 31.8% decrease in returns not started and corresponding increases in returns in-process and completed. In addition, the filing pace gap for 1120-C returns between 2020 and 2021 has continued to decrease. For the period ending 03/15, the gap for returns not started was 2%, and as of 04/01, that same gap sits at 1.0%. The 03/15 gap was within the margin of error, and with the 04/01 data, it would be reasonable to say that purposes the 1120-C 2021 filing season is on pace with the 2020 filing season pace.

Corporate Returns (1120-C)

The 1120-C national average filing pace for 2021 shows a similar surge as the 1040 filing pace, with a 31.8% decrease in returns not started and corresponding increases in returns in-process and completed. In addition, the filing pace gap for 1120-C returns between 2020 and 2021 has continued to decrease. For the period ending 03/15, the gap for returns not started was 2%, and as of 04/01, that same gap sits at 1.0%. The 03/15 gap was within the margin of error, and with the 04/01 data, it would be reasonable to say that purposes the 1120-C 2021 filing season is on pace with the 2020 filing season pace.

Partnership Returns (1065)

As with the 1040 and 1120-C filing paces, the 2021 filing pace for 1065 returns has shown an almost 50% decrease in returns not started – a 49.2% decrease. However, this filing pace jump still leaves a 3.3% gap between the 2020 and 2021 filing seasons and a 3.9% gap between the 2021 and 2019 tax season filing paces.

Partnership returns were due on 03/15, and yet a little over one-third of returns being tracked in 2021 are still in a “not started” status. If your firm is showing a similar inventory, I’d recommend two steps – confirming your inventory (more on that in the tips section below) and reaching out to those clients whose returns are in “not started” status to clarify WHY.

Tips for a Successful Filing Season: Reviewing Your Inventory

As we rapidly approach the peak of busy season and its natural compression issues, now is the time to review your existing inventory sitting in not started and in-process. Ensure that your inventory list is accurate, forecast the remaining work, and process bulk update any issues or points with relevant planning topics. These usual late-season actions are even more critical, with the pace of individual returns consistently behind previous seasons.

If your firm hasn’t started reviewing your inventory, here are a few tips:

  • Ensuring your inventory list is accurate
    • Run your searches in XCMworkflow (or other workflow solution) to identify the “No Info In” status tasks
    • Consider if any are no longer active customers and remove them from your data set
    • Search on all of your in-process extensions and close them out
  • Forecasting the remaining work
    • Import budgets into your preparer and review task roles
    • Update projected start dates with the dates you anticipate working these returns
    • Run your lists by staff to see who is over-allocated or underutilized
  • Updating in bulk the issues and points with relevant planning notes
    • Note discussions with customers
    • Note instructions or obstacles for your preparers
    • Run open issues and points reports for your open inventory and work the jobs

Once you’ve completed your inventory review, take what you’ve learned and start organizing and completing as much pre-preparation work as possible now. Doing this work in advance will help you shorten the preparation cycle, create an environment for optimal productivity during the preparation cycle, and build a quality return to review.

Absent the opportunity for advance preparation I recommend your firm perform a forecasting exercise. Utilize prior years’ activity to help you line up resources and ensure you have capacity when work comes in the door.

Concluding Thoughts

The across the board jump in the filing pace, though anticipated, was welcome news. I am interested to see how the 2021 filing pace is affected by the COVID-19 vaccine becoming more widely available and states beginning to reopen / relax restrictions.

As I mentioned in the 1040 segment, I believe that there was a bit more of an expectation this year that the filing and payment deadline would be shifted. Last year, many firms and businesses were scrambling because of the impacts of COVID and large-scale stay at home orders, whereas this year many people planned for the extension, or preemptively extended returns because of the potential impacts of the American Rescue Plan Act on their clients.

Because of the expectation that the filing and payment deadline would shift, combined with the shorter extension for the 2021 tax filing season – May 17, rather than July 15 – I expect to see the 2021 filing pace overtake the 2020 filing pace in some areas with our 04/15 analysis.

I look forward to updating you on 04/29 with the tax filing pace as of 04/15. Until then, stay safe, healthy, and productive.

Looking for the next installment? Read the 04/15 update for the 2021 tax filing season.

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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