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Topics: Industry, Tax

Stop Getting Overwhelmed in the Tax Season – Outsource Tax Preparation Services

8 MIN READ | Posted on August 12, 2021
Written By Indrajeet Pradhan

Stop Getting Overwhelmed in the Tax Season – Outsource Tax Preparation Services

Success in a business can only be achieved by ensuring all its processes and verticals perform seamlessly and achieve ideal efficiency standards. Every business process is interconnected. Hence, the performance of all the systems directly or indirectly causes a ripple effect across verticals. For example, accounts receivables enhance the cash flow and improve liquidity. This ensures vendor payment on time and improves vendor relationships. It also enables the company to maintain a well-stocked warehouse to serve customers better. Ultimately the company profits and revenue generation improves.

Similarly, tax preparation is an essential aspect of every accounting firm. There are certain statutory compliances to be met, rules and regulations to follow, forms to be filled up, calculations to be done, etc. These are all time-bound tasks. If a firm, fails to prepare and submit their client’s tax returns within the due date, the client becomes liable for penalties, and interest charges are levied. Individual Tax Preparation Outsourcing is one of the ways a firm can optimize its tax preparation services.

Nevertheless, before going into the benefits of outsourcing, understanding the nuances of tax preparation is essential.

Tax preparation—a brief guide

Tax preparation refers to how the tax return for an individual or a company is prepared. This preparation is generally done for compensation—the complexities of taxation force many taxpayers to seek outside help and guidance in their tax preparations.

As per the statistics released by the IRS, about 80 million people use the services of tax professionals to calculate and submit their taxes. However, even before going to the tax preparer, specific steps need to be followed. These steps include:

  • Choosing an excellent third-party tax preparation service provider
  • Gathering all relevant documents, including the previous year’s returns
  • Rounding up all receipts
  • Listing out personal information
  •  Tax calculation
  • Understanding the urgency of seeking an extension
  • Planning for refunds, if any

Need for tax preparation services by businesses

The fact that humans run businesses cannot be denied. But despite having an excellent staff, the presence of pitfalls cannot be negated. Tax preparation is one such complicated and time taking pitfall that is fraught with challenging calculations. Management and owners of most companies find themselves muddling through it at the end of a rough day. Consequently, their estimates are riddled with mistakes and errors. Taking such a chance with tax preparation is foolhardy at best since the authorities highly value the accuracy of tax returns.

This is why they ask accounting firms or enrolled agents to prepare taxes and file them on time. Unfortunately for accounting firms, the amount of work coming their way overwhelms them irrespective of their level of preparedness. This is where outsourcing tax preparation services helps them out.

For any accounting firm, additional work in a busy tax season will mean extra overtime pay for the concerned accountant (this is just one example of additional costs incurred by accounting firms in the tax season). The peak season would see the accounts team work late at night for days on end. In a worst case scenario, this might result in employee dissatisfaction, resulting in attrition. By delegating this work to a third-party service provider, firms can overcome all work-related issues and face the troughs and peaks of the tax season with ease.

Hence, while business growth is a much-preferred option, the unforeseen expenses and risks associated with it need to be considered beforehand.

Collaborating with an outsourced tax preparation services provider is a lucrative option. Opting for the same is essential for dealing with the increased tax preparation workload associated with business growth. By doing away with hiring accountants and other trained people for the in-house team, the firm reduces its expenses considerably. Moreover, skilled outsource tax preparation service providers can help a business in many different ways like:

  • AP/AR, bookkeeping
  • Tax preparation and filing of returns
  • Roles of the treasurer, controller of accounts, CFO, etc
  • Dealing with payroll and taxation
  • Offering expert advice on financial strategic planning, debt collection, budgeting, and internal controls, etc
  • Management accounting reporting
  • Audit preparation and compensation consulting
  • Cash management
  • Profit analysis etc.

With so much to gain, opting for accounts and tax preparation outsourcing services seems to be practical. The benefits associated would also enable better ROI.

Benefits of using tax preparation outsourcing services

The current global economic scenario is forcing companies, including accounting firms to cut additional costs. With companies being forced to operate using a leaner staff, the accounts-related administrative tasks are taking a backseat. To maintain all updations and to embrace cost-cutting measures, outsourcing of the tax preparation process is now a necessity.

Some essential advantages associated with the same are:

  • Time efficiency: Tax preparation tasks are not only time-consuming; they also need to be completed within a specific time. Insourcing the tax preparation service would result in an excessive amount of time wasted to crosscheck data, obtain the relevant tax deductions and finalize the same with the company’s top management. Outsourcing optimizes the process, making it time-efficient.
  • Returns focus back on business: By taking over the responsibilities of tax preparation and all its associated hassles, outsourcing helps a company to focus back on its core competencies. As a result, the firm can experience consistent growth, improve conversions and enhance revenue generation.
  • Cost reduction: Maintaining an in-house department exclusively for accounting and tax preparation requires a lump-sum initial investment. The addition of an experienced workforce and process automation also increases the operational costs considerably. Outsourcing provides an accounting firm with all related benefits but at a relatively lower investment. Thus, the money a company would otherwise spend on the recruitment process, selection of the candidate, onboarding and training, gaining automated software, etc., is saved and is added to the company’s working capital. This makes outsourcing a beautiful means of cost-cutting.
  • Expertise and advanced skillset: When companies outsource tax preparation, they gain access to experienced personnel specifically trained for the purpose. The outsourcing service provider also keeps updating the skills of its employees by organizing regular training sessions for them. Outsourcing also gives companies access to different professionals related to accounting and tax preparation.
  • Technical expertise: Process automation is the only way to improve the speed and quality of work output. But it requires a very high initial investment. The software purchased also needs to be maintained and updated with frequent regularity. These costs also add to the company overheads. By outsourcing, a company can take advantage of the technical brilliance of the chosen outsourcing service provider without having to pay for anything extra.
  • Employee scalability: Tax preparation suffers from seasonal peaks and troughs. Hence, there are times when a firm needs extra employees while the requirements die down at other times. To ensure employee scalability, firms would have to employ additional accounting staff working during the lean period but enjoy a period of official bliss at different times. This further increases the operational costs. However, by enabling employee scalability at the exact pre-decided cost, outsourcing helps to ensure better company flexibility and growth.
  • Increased accuracy: Tax preparation services demand a higher level of accuracy than that required by other business processes. By enforcing good quality internal checks, these third-party service providers enhance the quality of their output. They ensure timely updations, accurate calculations, and relevant formats of reporting for the client.
  • Security risks: Two types of risks force businesses to opt for tax preparation outsourcing services. One type of risk comes from its internal employees in the form of fraud within the company. The other kind of risk comes from a data breach. Taxation and accounting deal with highly confidential data. If proper security measures are not implemented, the accounting firm will have to bear its consequences. However, when the same business processes are outsourced, maintaining data security lies with the outsourced service provider. Thus, the company faces a lower security risk.

Two significant cons or disadvantages generally associated with tax preparation outsourcing are:

  • An inability to keep track of the actions and work of the outsourced service provider
  • The added risk of a data breach

Running a business is a challenging task. Hence, back-office tasks that add relatively more nominal value are often delegated for the quintessential tomorrow. Hiring a qualified tax preparation service provider is the first step toward the delegation of both lower and higher value workloads. However, this outsourcing can only be successful if the choice of the service provider is made appropriately.

Choosing the outsourced tax preparation service provider

Certain factors determine the choice of the service provider. These include:

  • Experience in the relevant industrial sector, significantly if they have been associated with similar kind of work
  • Verification of the service provider’s credentials like PTIN or preparer tax identification number, CPA license, etc.
  • Professional record and customer reviews, especially by clients that they have served in the past
  • Services offered including the facility for e-filing of taxes, generating reports based on the criteria set by the company management
  • Asking for the fees charged from at least three different service providers and comparing the same vis-à-vis the services offered
  • Seeking out hidden charges by asking relevant questions
  • Skills of communication etc

Even after the selection of the outsourced tax preparation service provider, their work needs to be monitored. In the instance of any discrepancy, the same needs to be reported to the IRS.

Tax preparation outsourcing is steadily becoming a ubiquitous business process. As companies begin to understand the advantages associated with the same, they start to initiate the switch. The sooner this switch is made, the better will be the company’s growth, revenue generation, and profitability. Hence, choosing a tax preparation service provider is the best decision that a company can make. Outsourcing accounting and tax preparation is no longer a distant dream; it is now a reality.

Indrajeet Pradhan

My name is Indrajeet Pradhan and I am the Marketing Manager for QX Accounting Services – North America, and wordsmith behind the QXAS blog. Hope you enjoyed reading this piece. My job is to help accountants access the knowledge they seek through blogs, guides, and other content assets that are meaningful and actionable.

Originally published Aug 12, 2021 07:08:31, updated Dec 21 2022

Topics: Industry, Tax

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