How We Can Compete vs. TurpoTax

[OtisMozzetti]

In another thread dealing with Medicare, AuditorTurnedGood said the following:
[QUOTE=AuditorTurnedGood;85469]...Actually doing the return is going to become secondary to keeping our clients out of the weeds, to the extent we can, on both compliance and overall tax burden. ...[\QUOTE]

What reasons make the most sense to clients and to prospective clients to come pay a Tax Professional instead of using TurpoTax, etc.?

[dsi]

I too would like to know how to retain my clients. I use lacerte tax software, and many of my clients are now buying turbo tax and doing their own tax prep.

[AuditorTurnedGood]

Not that I have all the answers,

not even close! But here is my experience with retention.

The clients that I have are about 90% professionals (real estate agents, engineers, consultants, etc). These are the types of people that value the idea that people come to them for their expertise in a certain area, and are happy to provide the service for a fee. They feel the same way about their relationship with me. They understand even though they are intellegent, well educated, and accomplished, they know effectively nill about the tax code, and don't want to. Likewise, they have listed my home for sale, helped me develop marketing plans, etc, because I know nothing about those areas. The clients I have lost do not value professional relationships for whatever reason, and couldn't see the value in me. Mostly, the feeling has been mutual.

In short, it's all about the relationships. IMHO, the days of the 500 return per year sole prop that sees each client once a year for a half hour are on their to history.
ATG

[joanmcq]

Well, I see lots & lots of TurboTax audits. My clients are often people that, like you said, realize they don't know tax law & don't want to know tax law or are people that COULD do their own returns, but don't want to spend the time and aggravation to do so. They recognize there are things they would rather be doing and would rather pay me a few hundred bucks than stress about it. Just like I would rather pay someone to clean my house every few weeks than do it myself.

[Uncle]

[QUOTE=OtisMozzetti;85473]In another thread dealing with Medicare, AuditorTurnedGood said the following:

...Actually doing the return is going to become secondary to keeping our clients out of the weeds, to the extent we can, on both compliance and overall tax burden. ...[\QUOTE]

What reasons make the most sense to clients and to prospective clients to come pay a Tax Professional instead of using TurpoTax, etc.?

In my practice, the retention problem is entirely with my "middle" clients. My low income clients are usually illiterate, have no idea of how to read or follow tax forms, and are primarily interested in refunds/EIC/RALs. These are my most profitable clients, and they stay with me. My high income clients are financially astute, ask a lot of questions, and consult with me during the year. They want a knowledgeable professional and are prepared to pay for one. The ones in the middle think they can do their own tax return and are primarily interested in my price. They will switch preparers on the slightest whim or rumor of a lower fee. They are my retention problem. Since they do not value my services and are only interested in price, I offer them free or almost free tax preparation through my website. My thought is that if they actually prepare their own taxes on my website, I have lost them as a client for that year anyway. Having them prepare their own taxes through my website gives me the opportunity of advertising to them directly through email and phone calls, hopefully keeps me in their minds when they inevitably run into problems, and establishes at least some connection to me or my practice.

[erchess]

Branding

Chris, how did you get into a situation where you have such a spectrum of clients? It has been my observation that people with very complex returns do not generally go to people who prepare simple returns.

It has also been my observation that the RAL crowd which includes nearly all the simple returns, goes where they think they will get the money fastest and don't care about the fee but that the "middle crowd" generally assumes that anyone who has the nerve to call him- or herself a tax professional will do a fine job on their return which they consider to be simple. If tax preparation is a generic product where one is as good as another then it makes sense to buy the cheapest available and to change brands to save a penny a year.

I find that my not being a CPA scares away most of the complex returns. I don't do RALs because if I wanted to deal with "where's my refund?" I would still be with the firm where I started in this business. Therefore most of my clients are people in the middle group who ran into a problem with self preparation or with another preparer, usually one of the fly by nights. (There is a lady I do not know who drinks from a bottle in a brown paper bag and pops pills while doing returns. Her work seems merely incompetent with the errors cutting both ways but there is another firm that appears to make up numbers out of thin air in addition to having mysterious glitches where things like accurate mileage deductions get calculated but mysteriously don't carry to the front of Sch C Note that I do not consider the majority of storefront firms to be fly by nights.)

[OtisMozzetti]

Enrolled Agents

I find that my not being a CPA scares away most of the complex returns.

Enrolled Agents are the only tax professionals whose authorization to practice comes directly from the U.S.Treasury Dept. Enrolled Agents have expertise focused primarily upon taxes and have passed somewhat rigorous exams (or have been an IRS employee) to demonstrate that expertise.

[S T]

Cpa

While I respect CPA's and those CPA's practicing in Taxation, I have been asked the question whether or not I am a CPA, and I have to explain the EA designation.

I do not find in the least that NOT being a CPA drives any client away, once the level of expertise is communicated. I have been fortunate to work with non-practicing CPA's in the financial arena, and actually have a few clients that have a CPA designation. They just don't work in the field of taxation.

Sandy

[Black Bart]

TurboTax

Regardless of bracket/status, much of the market's price-driven (they want it CHEAP). Haven't you ever avoided a pro's fee figuring you can do it yourself? I have.

Computers are everywhere; even impulse-oriented dopes who can't buy groceries have 'em. A W-2 guy gets a TT box ($30-fed/$40-fed/state) thinking "What can I lose? That tax guy wants $75-$150. If I goof it up, let 'em bill me." Shaky EIC/dependents + overstated mileage/donations year after year puts him ahead of the game. If kicked back, then so what? Simply say (unlike us) "I don't know anything about taxes. TT figured it -- how much extra do I owe?" But odds are 90% aren't checked and tell friends "I always write off mileage for driving to work and never hear from IRS. Why mess with those high-priced guys who want proof and won't let you take anything off? TT justs asks yes or no."

As poster Snaggletooth has said, it's all about public perception. We know software's no substitute for tax knowledge, but taxpayers don't. And to a large extent, many don't want to know.

Snag also told us of a friend's contacting a congressional source regarding EIC fraud. Basically they said "We know there are lots of errors, but Congress wants EIC money put in taxpayer hands because it's good politics. If preparers suspect fraud, it's their responsibility." Talk about passing the buck! I think government probably feels the same way about the millions of TT returns.

What can we do except keep doing quality returns and repairing foul-ups? TT makes too much money to worry about tax pros and their advertising keeps growing (it's on my bank's website now). Our only ally is congressional tax-tinkering which continually increases complexity; making it harder for even TT's "simple as A-B-C/1-2-3" style to keep taxpayers from screwing up. Then we can fix 'em.

[joanmcq]

And when they screw 'em up, and they will, they'll see me. And often pay a 20% penalty on top of the interest.

I know most of 'em get away with it. But you never know who will get busted, and once you do, its really, really messy.

[Black Bart]

Hey Joan,

And when they screw 'em up, and they will, they'll see me. And often pay a 20% penalty on top of the interest.

I know most of 'em get away with it. But you never know who will get busted, and once you do, its really, really messy.

Just curious, but when you say it's really, really messy, do you mean almost everybody whose audits you handle gets penalized? And the 20% penalty you mention -- is that the accuracy-related one?

I know you've described your job previously for us, but if you don't mind, would you refresh my memory about what kind of audits you handle, what are the circumstances are, who for, what's done, etc. (just TT audits or others too?). Thanks.

[joanmcq]

Yeah, the 20% penalty is the accuracy-related one. Usually its only assessed if the tax is over 5k, but if the person is a 'repeat offender', like the guy that refuses to put his stock sales on and just lets us address the CP2000 each year....now they are assesing the penalty regardless of the tax amount. I have had sucess lately in getting penalties abated in some instances, usually when the taxpayer had reason to believe the income was nontaxable.

The company I work for provides the 'audit insurance' you can buy through TurboTax when you prepare your return. Actually, a lot of the people we do CP2000s for we can help in some manner; like with the stock sales, we just have to figure out basis, etc. Sometimes we can't help them; the notice is just correct. I'd say about half end up with refunds or no changes. Since we do mostly TurboTax audits, the returns can be really bad. Sometimes people with rentals will put all of their mortgage interest in every time it is asked for in the program; under sch A, every Sch E, etc. Same thing with cars or duplicating Sch C expenses on the 2106 or vice versa. But now I've been moved from the CP department to the correspondence, office & field audits & you no longer have someone in AUR looking at one item on the return. So whereas with a CP notice, we can warn them about their zero income Amway biz when the issue is a stock sale & tell 'em to amend, but the Amway isn't the issue. Now, the Amway is the issue, and the auditor is looking at unreported income, overstated expenses and you'd better have all your ducks in a row. Unfortunately, a lot of these folks don't, or if they do, don't understand why the Amway guy told them they could deduct all their Amway conference expenses of 12k a year on $100 bucks of income and all of a sudden its being reclassified as a hobby.

The company does individual & business income tax audits, but not payroll, sales, excise & other pesky taxes. We do federal & all states (at least the ones with income tax), & have two offices in CA, & independent reps for office & field audits all over the country. Its a pretty interesting business. We don't do OICs, amend or prepare returns, although a lot of us have outside tax prep businesses where we prepare returns. We instruct the client how to fill out an installment agreement if they want and/or need one, unlike the OIC mills that charge thousands for a simple form. The job has definitely come in handy when my own clients get those notices!

[tacks]

The clients that I have are about 90% professionals (real estate agents, engineers, consultants, etc). These are the types of people that value the idea that people come to them for their expertise in a certain area, and are happy to provide the service for a fee. They feel the same way about their relationship with me. They understand even though they are intellegent, well educated, and accomplished, they know effectively nill about the tax code, and don't want to. Likewise, they have listed my home for sale, helped me develop marketing plans, etc, because I know nothing about those areas. The clients I have lost do not value professional relationships for whatever reason, and couldn't see the value in me. Mostly, the feeling has been mutual.

Very good post, ATG. I can relate. I do have a few educated professional clients like the ones you describe -- valued clients. They're very interested to hear my thoughts and never question my bill.

But i also have some low income clients. I have found some good low income clients that are willing to pay me well. But the one common trait about my good low-income clients is that they're all older. While not very well educated, I believe that they've been around long enough to have seen someone get in a heap of trouble with the IRS and/or city. Either that, or I have had the opportunity show them exactly how much more money they get using me -- i calculate the exact dollar difference between my work and the work of the goofball they used in the past.

There's actually been a few times that i've extended credit to mature low income folks. And I have not gotten burned.

But when dealing with the young and dumb, i have, at times, been baffled as to why they would not seek me out.

"The problem is that for every one good client that you find you have to spend time speaking with seven people who are complete ****heads!"

I think that fellow summed it up well.

(thanks for listening to me vent. i need to stop now before this post becomes a novel.)

[tacks]

Joan McQ,

I also find your post most interesting. There've been a few times that i've wanted to rep a client before the IRS during an audit.

thanks for sharing

[AuditorTurnedGood]

slightly off topic,

They're very interested to hear my thoughts and never question my bill.

This makes me wonder: I have had issues with my clients and billing at times. How do others handle the question "What happened here - I don't feel like it took that much time!" I bill by the hour, not a fee basis. At times, I feel almost embarrased to send the bill out, stupid as that may sound.

Thoughts?

ATG