A Dozen Tips to Prepare for Tax Season


Are you gearing up for tax season yet? You should be! There’s a lot to do in preparation and the holiday season can sometimes get the best of us. Here are a dozen tips to help you prepare for tax season.

1. Tax Office Policy & Procedure Manual  

Developing a detailed P&P Manual is very important for tax firms that employ more than a couple of No-Cryingpeople and essential to operate more than one office effectively. As more employees are added, communication and management becomes more complex.  Tax preparers and other tax office employees can no longer turn to the tax business owner whenever they have a question about how a particular situation should be handled.  Yet, the owner wants things to be done his or her way.  Employees need standard answers to scores of questions such as:  

  • How should the telephone be answered?
  • How should client problems be resolved?  
  • How should tax returns be priced?
  • How are tax returns prepared, checked, processed and e-filed?
  • How are IRS Due Diligence requirements met?  
  • How are payments and bank deposits handled?  
  • How are daily results reported?  
  • How are tax preparers paid?  

The list goes on and on.  The cornerstone of best tax business practices is the use of systematic methods of documented in writing in a “Policies & Procedures Manual.”  This “P&P Manual” serves as an essential training tool, as well as a reference guide for tax preparers and other tax office employees.

2. Tax Preparer Employment Agreements 

Employment agreements should be prepared or updated prior to interviewing and hiring or rehiring tax preparers.  Tax business owners who do not bind tax preparers to certain restrictive contractual agreements are risking the tax preparers taking clients with them should they leave.  A non-compete provision that is construed as being unreasonable will not be upheld by most courts.  In fact, non-compete agreements that extend beyond the employment term may not be legal in some localities and some states, such as California.  However, tax preparers should not be permitted to compete while employed.  Developing an independent tax practice while employed as a tax preparer is a conflict of interest and should not be allowed.   If an experienced tax preparer applies for employment and has a handful of long-term personal clients, buying the clients might be an option.  Another alternative might be to exclude existing clients specifically by contract addendum from your non-compete provision.  The most important contract provisions are “Non-Solicitation” and “Confidentiality” clauses that survive beyond the term of employment.  Such restrictive covenants can effectively prevent tax preparers who leave from taking clients with them.  It is not necessary to reinvent the wheel.  A copy of the employment agreement of one of the national tax firms might be obtained to provide insight.   Or a standard tax preparer employment agreement could be obtained from a provider of tax practice management products such as Peoples Income Tax www.peoplestax.com.  In any case, a qualified labor law attorney who is familiar with the state and local laws should be engaged to ensure the employment contract is likely to be upheld by the courts in the localities in which the tax firm operates.

3. Tax Preparer Compensation

During an economic crisis like we are experiencing now, employee compensation should be reviewed.  This is certainly not the time to increase pay rates and it might be necessary to make careful reductions to ensure profitability and positive cash flow.  If tax preparers are paid based on a percentage of revenue, one option is to increase prices and reduce compensation by an amount equal to the increase in prices.  This would result in employees realizing the same pay as last year and the price increase going to the bottom line.

4. Pricing Policies 

The Schedule of Charges and/or hourly rates should be reviewed and any changes made prior to training tax preparers.  If possible, prices of local direct competitors should be determined through “competitive espionage.”  Alternatively, the results of a national tax preparer price survey might be obtained by becoming a member of a professional association such as the National Association of Tax Professionals www.natptax.com. In this economy, pricing also becomes an important consideration for both clients and tax firms.


5. Recruiting & Training Tax Preparers  

The best practice used by every national tax firm is to operate a tax school.  This ingenious method of recruiting and training seasonal tax preparers was invented by Block more than 40 years ago to support its continued growth.  People-oriented students are recruited and pay a modest fee to cover the cost of books and materials.  There is no obligation for students to work for the tax firm and no commitment for the firm to hire graduates.  The teacher has the opportunity to observe students during the tax course and determine which ones would make good employees.  This screening process can enable the tax firm to avoid costly hiring mistakes.  Qualified graduates who have demonstrated competency in tax preparation and who also meet the tax firm’s employment criteria are hired.  This process provides the tax firms with a pool of qualified entry-level seasonal tax preparers who have been pre-screened and are likely to fit in with the company culture.  A good source for tax course training materials and e-learning courses is The Income Tax School www.theincometaxschool.com.


6. Office Site-selection & Leasing (if applicable) 

Income tax office site selection is a critical decision processes that can make the difference between success and failure.  When planning to open or relocate a tax office, the target community must include enough taxpayers to provide the number of clients needed at a market share that can reasonably be attained to realize the required revenue for a successful office. Once the market is determined, the office location is the next crucial decision.  A professional office building might be appropriate for an executive-level tax service; but a retail storefront with high visibility will usually be necessary for a successful mass-market tax service.  Site selection involves many key considerations such as type of shopping center or office building, population and demographics of drawing area, traffic, visibility, parking, access, etc.  


Once a desirable office is identified, lease negotiation is the next major challenge.  There are many pitfalls in negotiating a lease, and hiring a lawyer to help is not necessarily the best approach.  Economic considerations include rent and pass-through charges, security deposit, up-fitting cost, rent abatement, cost of utilities, repairs & maintenance, signage cost and any other expenses the tenant must pay.  Occupancy considerations include permitted use, sign privileges, hours of operation required, tenants rules & regulations, and other factors.  Legal considerations include the lease term, options to renew, default provisions and the ability to cure, notice required, venue, casualty provisions, personal guarantee, right to sub-rent and assignment rights.  There are many leasing pitfalls; and there are strategies to counter these land mines.

7. Ordering Tax Season Equipment & Supplies

When purchasing is put off until the last minute, the result is often inferior quality, higher costs and late delivery.  The first step is to take inventory of all existing equipment and supplies to determine shortages and avoid ordering excess items.  Estimates for each item should be obtained from several suppliers and purchase decisions should be based on value for the quality desired. For printed supplies, it might be cost-effective to order a supply for two years, if the incremental cost per additional unit (e.g., 1,000) would result in the average cost per unit being much lower.  


8. Tax Office Set-up

Everything that will be needed for a tax office to operate efficiently should be in place before the start of tax season. Exterior signage should be cleaned and illuminated.  Windows should be cleaned and all interior fix-up and cleaning should also be completed.  A good practice is to prepare and complete a pre-season checklist of all necessary tax office equipment, fixtures and supplies.  Tax preparers should start the tax season in a clean, professional environment with everything they need to do the job efficiently.

9. Tax Preparer Pre-work Training

Obviously all tax preparers should continue their professional tax education and learn the new tax laws annually. However, tax preparers also need to know more than just how to accurately prepare tax returns.  They should also receive training prior to each tax season in tax office policies & procedures and client service.  The P&P training can be based on the P&P Manual, which they should be asked to study before coming to the training session.  P&P training should be a review of the most important P&P topics and, possibly, a test to make sure employees have read the Manual.  Client service training would include a review of the firm’s client service policies & procedures and, ideally, exercises in resolving typical client complaints and problems.  Training in tax software should also be provided, including tips and shortcuts to increase efficiency in tax preparation.


10. Tax Season Marketing

A tax season marketing budget should be determined and a plan should be completely formulated 4- 6 weeks prior to tax season.  This will ensure that marketing strategies and tactics are budgeted and well thought out, and will allow time for refinement as tax season approaches.  The plan can then be implemented in a timely manner during tax season. Employees can also be informed about all marketing activities during pre-work training so they will be aware of special promotions, discounts, etc., and will understand their roles in implementing the plan.  The marketing plan should consider the following:  (1) advertising, including electronic and print media, direct mail, directory, and Internet pay-per-click; (2) public relations, including news releases, writing articles, speaking engagements, radio & TV appearances and community service; (3) sales, which includes networking, seminars, cold calling and telemarketing; (4) promotions such as grand openings, group tax programs and client referral programs; and (5) local Internet marketing including search engine optimization, link building, article marketing, etc.

11. Client Retention 

Year-round communication is essential.  Tax organizers should be mailed or e-mailed by mid-December to clients with more complex returns.  A January client newsletter should be produced with tax tips and articles (purchase from your professional association or other source), as well as information about services offered, features and benefits, guarantee, locations, hours, website, etc..  A procedure should be developed to call prior clients before the dates they were in last year to schedule appointments.  Letters or post-cards should be sent to prior clients of any offices that are being relocated. Procedures should be developed to obtain client e-mail addresses. The firm’s website should include valuable resources such as tax calculators and links to IRS sites and services. Ideally, an interactive e-commerce website will be developed.

12. Year-end Tax Planning

Tax clients who have more complex tax returns could be invited to come in for a year-end tax planning session.  This meeting provides another “touch point” opportunity to ensure client retention.  Tax planning can also be a source of additional revenue if fees are charged for the session or if fees or commissions are earned for financial planning.  A tax and financial planning checklist could be used to conduct these sessions, with consideration for such strategies as: (1) deferring income, (2) prepaying deductible medical, business, education and employee expenses, unless the impact of AMT would be negative, (3) selling securities to book paper losses and offset any capital gains and realize a capital loss of up to $3,000 to offset ordinary income.  Consider the different tax treatments of the sale of long and short term stocks, and the taxability of December mutual fund payouts; (4) if applicable, consider a “bond swap” to increase your bond rating and book a loss to offset other gains, (5) making charitable contributions of stock or other property (be aware of AMT), (6) maximizing contributions to retirement accounts; (7) ensuring compliance with IRS withdrawal rules for taxpayers who reached age 70-1/2 by June 30th of the current year; consider making the required distribution a qualified charitable distribution (QCD) from your IRA account in order to avoid reporting the additional income; (8) consider the tax advantage of gifting stock to children before selling to reduce tax to the Kiddie Tax rate; and (9) capitalize on income tax and Social Security tax savings through employer Flexible Spending Accounts, if applicable.