Columnist Michelle Singletary at the Washington Post recently wrote that a “tax tornado” has been heading our way. Between the pandemic, aging IT systems, and IRS staffing issues, we’ve reached yet another messy tax season.
The IRS delayed tax season to February 12th this year, but tax professionals are still bracing for new challenges. One challenge they may not be ready for? The “sticker shock” effect, sparked by rising tax prep fees.
Here’s how you can beat back the storm and get paid what you’re worth every time.
Rising Preparation Fees for the 2020 Tax Year
In 2019, the NATP found that a third of all tax professionals raise their preparation fees every year. Tax prep prices also tend to rise naturally for complex needs, which means business owners will pay more if they had financial complications in 2020. Just a few Qualified Business Income (QBI) deductions or TCJA compliance issues can boost the price.
The rising fees don’t just apply to business owners, either. In July 2020, another survey found that the fees to prepare a non-itemized 1040 had increased by 26% in the last two years. This represents a shift from previous years when fees only changed by about 5% annually.
At the same time, there’s a powerful appetite for professional tax guidance right now. As IRS Commissioner Chuck Rettig shared with Yahoo! Finance: “This is one of the nation’s most important filing seasons ever.” Many individuals and business owners are turning to qualified tax professionals for the first time, thanks to 2020 tax law changes.
That’s pretty good news for CPAs and tax preparers. But it also means that you could be dealing with an influx of new clients. Those same clients could have reduced cash flow and a healthy skepticism about tax prep pricing.
Understanding the Sticker Shock Effect
Sticker shock happens when a client’s price expectation doesn’t match with the going industry rate. It’s also common when the demand for a service or product is much higher than the supply (as may be the case for overwhelmed CPAs and tax preparers right now.)
As MIT researchers confirmed in 2007, the human brain perceives costs as painful, but treats products like a “reward.” For an essential service like tax compliance, there’s no warm and fuzzy brand nostalgia to offset the “pain” of costs. Your fees may be less painful than a sweeping IRS audit, but at the time of purchase, your clients won’t see it that way.
Finally, there’s a huge temptation for clients to file their own taxes, with the continued growth of e-filing services like TurboTax and TaxAct Business. For 2021, the IRS has even urged everyone to send in taxes electronically. While some still seek tax guidance before filing electronically, the low costs for those services can set a false expectation too.
Getting Paid What You’re Worth
In a previous blog, we discussed how you can answer common fee objections. But how can tax professionals overcome the “tax tornado” when they’re already in the thick of it?
After serving over 30% of the IPA Top 400 firms, we learned that tax professionals needed a flexible payment plan option that wouldn’t put their firms at risk. That’s why QuickFee has a financing option designed for accounting professionals: Pay Over Time.
This option makes it possible for your tax clients to get the financing flexibility they need today, with the option to pay their invoice back over 3 to 12 months. Meanwhile, your firm gets paid upfront and in full. Because it makes fees more manageable, you get a chance to bypass the awkward conversation about your prices (especially if they happen to be higher right now.)
Please contact our team at (844) 968 – 4397 to learn more, or request a demo here.
