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Tax & AccountingApril 29, 2021

2021 Tax Season in Data: 04/15/2021

As we move into the last month of the 2021 tax filing season, the good news continues for the second update in a row! For the 2021 tax filing season, almost all of the segments have surpassed the 2020 tax season filing pace in one or more measurement points. While this is not surprising, given the shorter filing and payment extension in 2021, it is still welcome news.

One notable exception – discussed more below – is the 1120-S segment, with a particularly high amount of returns sitting in not started status, despite having a 03/15 filing and payment deadline.

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 1040 return segment continues to show forward momentum as we enter the last month before the filing deadline (technically 32 days before the filing deadline with this data). After not much movement between the 03/15 and 04/01 updates, for the period ending 04/15, we not only saw a 6.6% decrease in the 2020 / 2021 filing gap for returns not started, but the 2021 tax season filing pace for 1040 returns is ahead of the 2020 tax season filing pace by 3.8%. 

However, the 2021 filing pace is still 17.9% behind the 2019 tax season filing pace – the most recent non-COVID tax filing season. It's important to note that for the 2019 filing season, 04/15 was the deadline for 1040 returns, so a significant gap makes sense. If the 1040 segment can maintain these period-over-period filing pace gains, I would expect to see the 2021 filing pace match or even overtake the 2019 filing pace by the 05/17 filing deadline.

Corporate Returns (1120-C)

It's encouraging to see that, as with the 1040 filing pace, returns not started for the 2021 tax season filing pace for 1120-C returns has surpassed the 2020 filing pace (by 5.8%). After only slight movement between the 03/15 and 04/01 updates (1%), for the period ending 04/15, there was a 6.8% decrease in the 2020 / 2021 filing gap for returns not started– that decrease means that the 2021 tax season filing pace is 5.8% ahead of the 2020 tax season filing pace.

Another highlight for this segment is the 2021 filing pace for returns completed. Completed returns increased by 8.7% period over period, and is now 4% ahead of the 2020 filing pace. This comes after seeing a 12.6% increase in completed returns between the 03/01 and 03/15 updates.

As with the 1040 segment, the 2021 tax season filing pace for returns not started in the 1120-C segment is still behind the 2019 filing pace – 4.2% for returns not started and 5.0% for completed returns. However, unlike the 2020 tax filing and payment deadline, the 2021 tax deadline for 1120-C returns has not shifted, and I expect to see the 2021 and 2019 filing paces reach parity by the 05/17 update.

Corporate Returns (1120-S)

After skipping the 04/01 update, we return to the 1120-S segment for the 04/15 update because, unlike the other segments, the 2021 tax season filing pace for 1120S returns are still behind the 2020 tax season filing pace. Returns not started for the 1120-S segment filing pace for 2021 has consistently been between 3.7% - 4.4% behind the 2020 filing pace. 

Since the filing and payment deadline for 1120-S returns was on 03/15, I will be interested to see our 05/17 update. If there is no significant movement in the filing pace, I would expect that the bulk of returns sitting in not started status are returns extended immediately as part of the normal process. 

Partnership Returns (1065)

The 2021 tax season filing pace for the 1065 segment had disappointing growth, with returns not started dropping by 2.2% since the 04/01 update – a far cry from the 36.6% drop we saw on the 04/01 update. However, even with this small growth, the 2021 tax season filing pace has almost pulled even with the 2020 tax filing season (0.3% difference in returns not started) and is 4.3% away from parity with the 2019 filing pace. 

I will be very interested to see how the 2021 filing pace changes – in 2019, we saw a 26% drop in returns not started between the 04/15 and 05/01 updates, though in 2020, there was only a 3% drop. 

Tips for a Successful Filing Season: Communication is Critical to Success 

In our 04/01 update, I discussed tips for reviewing your existing inventory and how to start organizing and completing as much pre-preparation work as possible in advance.

Once you've taken these steps, it's time to communicate with clients. Use your client collaboration software for clear visibility into the status of your clients at-a-glance, including outstanding points and missing or incomplete documents needed to complete their return.

If your firm hasn't implemented an online, secure collaboration hub, consider CCH Axcess Client Collaboration, which offers firms a new way to move client work through their workflows. A more personalized collaboration hub improves client relationships and makes busy season easier. Firms that used CCH Axcess Client Collaboration saw an average of 40% completion rates on organizers they sent out, with completion rates as high as 67%. And with a step-by-step process that ensures everyone knows what needs to be done and when, both firms and clients benefit from a frictionless experience that provides clear visibility and accountability.

Concluding Thoughts

The IRS filing stats show the tax pros 3.4% ahead of their year-over-year filing pace (and that doesn't take into account the 18 fewer filing days in 2021), and looking at the 1040 data, we're seeing similar cause for celebration here. With the various legislative and regulatory changes in the last year, it would make sense that more people are relying on their CPAs rather than choosing to DIY their taxes this year.

And while none of the segments have overtaken their 2019 filing pace, most have surpassed the 2020 tax filing season pace (with the 1065 segment the lone outlier). Based on the 04/01 and 04/15 period over period gains we've seen, I wouldn't be surprised if, by 05/17, the 2021 filing pace is at or near the 2019 pace.

I look forward to updating you on 06/03 with the tax filing pace as of 05/17. Until then, stay safe, healthy, and productive.

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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