Tax Season 2020: The Lament of the Solo Tax Practitioner

Even before COVID-19 happened, I had said this was the worst tax season ever. COVID was just the rancid cherry on top of a moldy cake.

It’s easy to be negative and cynical — social media almost demands this attitude, I think. But I am not being cynical here.

I spent nearly 3 hours writing this post. Editing and re-editing, to try and tone down the cynicism. Because this is a heartfelt blog post, not one written in a cynical way just because it’s social media and being cynical and snarky is expected.

Too Much Work, But Never Enough Work

I have too many clients, needing too many things, but yet I can’t turn people away or I would go out of business.

“Just 10 more clients and it will all be good.” And 10 more clients come, and it’s still not all good.

It’s just more work on an already overflowing list of work to get done. And so the 10 more clients not only don’t make it “all good” but they actually make it WORSE.

Yet I can’t turn them away because I need the money so I can survive.

Compliance Work Woes

Taxes are HARD — and this terrifies me.

Did you know: I am considered a “tax expert.” I teach CPE courses to other tax pros. I receive emails and phone calls every day, including Sundays, from tax pros. Thursday I received 3 emails plus 1 message on LinkedIn. Some days I receive upwards of 10 emails, and a few phone calls. These tax pros ask questions of me. What do I think about this or that? What would I do in this situation?

It’s flattering, and I guess I probably know more about taxes than most out there. But I DESPISE being called an “expert.”

And here’s why I despise being called an expert: for all I know about taxes, and all the classes I teach, and all the crazy situations I have dealt with with my clients: I still learn new things about taxes every day; literally every single day. Usually it’s multiple new things that I learn every day.

This used to fascinate me and make me excited. But now, it just scares me.

What new thing am I going to learn that tells me I screwed something up on someone’s return?

What new thing am I going to have to investigate for a return I am working on, where the “guidance” is flimsy, non-existent, or horribly worded? And I have to muddle through the “guidance,” figure out what to do, and hope I am right.

Plus virtually 100% of the business clients I deal with are total disasters. Quickbooks files that are total dumpster fires (that describes probably 90% of the Quickbooks files I see). S-corps with “the books” being handwritten notes scrawled on the back of a piece of scratch paper. It’s all a compliance nightmare.

Now imagine living in this world and being a high-strung, type-A, analytic perfectionist such as me. It ain’t good!

It drains my brain.

And this is EVERYWHERE now, even on the seemingly “simple” individual non-business returns. And so tax work stacks up.

There’s only so much my brain can take in one day. This is why it takes me weeks and sometimes months to finish someone’s return.

I just CAN’T after a certain point because I have no brainpower left to give. I simply cannot process this junk anymore after a certain point each day.

From the horrible “guidance” to the horrible state of people’s records to the dumb situations people get themselves into. It all falls on me to figure it out and and the answers are almost always unclear.

Which feeds the RISK. Good lord the risk. Ever present, and growing constantly.

And because compliance work (i.e. tax returns) is low-value yet highrisk, there’s a limit to how much I can charge in fees.

Yeah I can “raise rates,” but not nearly enough to make me feel like the risk involved and the mental energy I use are enough to fairly compensate me.

There’s a limit to what clients will pay for tax prep work, and while I would love to move to more of an advisory capacity (and I am trying to switch to that) I still need to keep money coming in, which means I must continue with compliance work for now.

Some Money is Better than No Money

Yeah, my rates are ridiculously low for someone who is good at what he does and who genuinely cares about his clients. I often say the following: MY CLIENTS HAVE NO CLUE HOW LUCKY THEY ARE TO WORK WITH ME.

But my thought process has always been, someone paying me $150 or $175 or $250 for their return is okay, because it’s $150 or $175 or $250 more than I had before. Get enough of those strung together, and I can get enough money in the bank to hang on until tax season starts again in February.

Is the fee enough to compensate me for the brainpower I use and the risk I take on? Oh hell no, hell no, hell no!!!!

Can I raise my rates? I could, but not as much as you might think.

Market forces dictate the price of compliance work, and Iowa is one of the lowest states in the nation in terms of tax prep fees.

Bigger firms in the area can charge much higher fees for tax prep, because they make money in so many other ways because they are big, and so they don’t “need” tax prep work in the same way a small-time operator like me does.

With me, I may be able to turn that $150 return into a $200 return, but that’s it. The $175 return might turn into a $210-225 return. The $250 return might turn into a $300 or even $350 return. Guess what: those fees are still laughably low when you think of the brainpower required and the risk and the uncertainties on almost every return.

If I were to, say, double my fees I would run the risk of losing a significant portion of my business, which trashes my cash flow.

And so I trudge along — and trudge is the right word — taking $150 here and $225 there because it’s better than $0.

And all along I feel a growing resentment because so much risk and brainpower is used up for so little compensation, and since fees are pretty much rigid when you’re a solo operator, there’s really nothing I can do about it other than quit or try to get into advisory work in my firm instead of compliance work.

It’s a Big Problem

I know a longtime tax pro — an enrolled agent like me — who owned a tax practice for almost 25 years. Then one day last year, he just snapped — for the same reasons I have laid out here. He filed extensions for unfinished work, handed people’s things back to them, and said “goodbye.” He closed up shop and now works in a field totally unrelated to taxes.

He texts me now and then to say it was a great move and to tell me how happy he now is.

I know another person who did basically the same thing except she waited til December 31st to close up shop. She, too, reports that she is happier doing anything other than tax preparation and Quickbooks work. (NOTE: Quickbooks work is also craptasic low-fee-but-high-risk compliance work; not as risky as tax work but the Quickbooks crap feeds into the tax return, so the risk still exists.)

And I know a third person — a self-employed CPA with a business similar to mine — who told me she’s teetering on the brink of just saying “screw it” and quitting and doing something else. She feels the same pressures I feel.

This is a real problem, especially among us solo operators.

The Struggle is Real

And so I hope this explains my dissatisfaction: it’s not cynicism or negativity, where it would all be better if I just turned my frown upside down. No amount of “trying to be positive” will change things.

It’s just a basic fact: I (and anyone who is a solo tax preparer, really) am locked into needing to take on more and more tax work to survive. Yet I can never charge enough to adequately compensate me for the crap I deal with, and I can’t raise fees enough to ever be adequately compensated.

And there are no easy answers. I am trying to add advisory work to my service offerings, but I need cash flow from tax returns in the meantime, and so the struggle goes on and on.