In an attempt to control for the extended filing season, I compared the filing pace for 1040, 1065, and 1120-C segments as of the 2019, 2020 and 2021 filing deadlines – April 15th, 2019, July 15th, 2020 and May 17th, 2021.
It should come as no shock that the 2020 tax filing season outstrips the 2019 and 2020 tax filing seasons – after all, the 2020 season had a 60+ day advantage over the 2021 and 2019 seasons. What was surprising, though, is how small the gap was, and when looking at the data for later months, how quickly that gap disappeared. Take the percentage of completed returns, for example. For the 1040 segment, 61.6% of returns were complete at of July 15th, 2020 – only 7.6% more than the percentage of returns completed as of April 15th, 2019. For the 2019 tax filing season to match the 2020 pace by 07/15, we would need to see right about 4.5% growth every month for the next three months. We know from the data (see the 07/15/2020 update) that by July 15th, completed returns for the 1040 segment sat at 63% - above the July 15th, 2020 percentage of returns completed.
The other key piece of information that stands out to me when looking at the data in this manner is the gap between the 2019 and 2021 filing paces – namely, that there isn’t much of one. Looking across segments and filing statuses, we see 3.4% - 0.5% differences between the two years. This is especially significant when we consider that the 2021 season started 12 days late and that for most of the 2021 season, much of the accounting industry worked somewhere other than in the office – and yet the most significant gap between the 2019 and 2021 tax seasons is the 1040 segment, with returns not started sitting at 3.4%.
The filing deadline over filing deadline analysis above, combined with the period-over-period analysis I’ve performed over the past three months, clarifies and reinforces how significant late-season compression can be, with roughly 50% of returns being processed in one month (for the 1040 segment). These high compression periods are exacerbated by significant upheaval in the accounting industry over the last three years between the Tax Cuts and Jobs Act, the effects of COVID-19 and two years of extended filing deadlines, and coronavirus relief tax legislation, leaving little time for firms to reflect and implement process improvement.
Take time now to reflect on how your firm responded to events over the last three years, and how your people, processes, and technology worked together to support changing circumstances and shifting deadlines. Celebrate how your people adjusted to support clients and maintain productivity, and ask how your staff adapted existing processes and technology to support themselves in a different working environment.
This is also the time to ask what progress looks like for your firm. As you consider the answer, ask yourself these questions:
- How has your staffing model supported the firm over the past two years? Where has it fallen short? If you firm is having difficulties finding and retaining quality staff, consider reviewing your outsourcing strategy.
- How did your technology vendors and partners support you? What efforts are they making to implement automation and other emerging technologies into their solutions? In particular, if your collaboration and workflow tools they fell short, this is the time to consider moving to a solutions that better supports your firm needs.
- What processes are no longer working, and how can they be improved upon? This is a perfect question to ask your staff – what changes would they make to improve productivity?
This past year has been a journey in operating in an industry that relies on technology as much as it does people as much as it does process. Consider the year over year comparisons and how you outperformed or underperformed against the national averages What will your next move be?
I look forward to updating you on 09/02 with the tax filing pace as of 08/15. Until then, stay safe, healthy, and productive.