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Tax Preparation Outsourcing 101: The Ultimate Guide for CPA firms

Tax Preparation Outsourcing 101: The Ultimate Guide for CPA firms

The tax season remains one of the busiest stretches of the year, and accountants are hunkering down to meet tight deadlines and ensure client confidentiality. Suppose you haven’t introduced yourself to tax preparation outsourcing before the upcoming tax season. In that case, you might miss out and take up extra work that you don’t need anymore.

The world is changing, and your client’s demands are constantly growing. Top accounting firms have already taken the outsourcing path, and we need to accept the necessity of shifting all mundane tasks to the safe hands of offshore tax preparers.

Outsourcing is a handy tool for businesses looking to cut costs while improving their efficiency. It is often linked to overseas workers taking over the responsibilities of your in-house team, usually used when your firm is growing and you need a trustworthy resource who can identify deductions available to unlock higher refunds for your clients. Tax preparation services can give your accounting firm an upper hand during the busiest and most exhausting period of the year.

Statistics pointed out that the U.S. government collected $4.05 trillion in revenue from taxes in 2021. Of which, a whopping $2.04 trillion was raised only from individual income taxes. This clearly indicates the massive market and opportunity that lies ahead of CPAs and accounting firms. From keeping track of the changing tax regulations and connecting with clients to assembling the necessary forms and heaves of paperwork, accountants are constantly on their toes.

 

Tax preparation is a complex and tedious task, and outsourcing is an effective way to save money and time. Accounting firms in tight competition always look for effective and affordable tax preparation solutions. Tax preparation outsourcing services can benefit accounting firms of all sizes. Apart from cutting costs by up to 50% or more, by supplementing the in-house team with highly skilled offshore tax preparers, outsourced tax preparation services can help CPA firms to

  • Boost productivity & increase morale
  • Eliminate or reduce overtime costs
  • Refocus staff on high-value, revenue-generating tasks
  • Achieve faster turnaround times
  • Ensure data security

Let’s explore the scope of tax return outsourcing for accounting firms in the USA and understand the service in detail.

TAX PREPARATION OUTSOURCING: THINGS YOU NEED TO KNOW

Per IRS’s recent estimates, about 144.3 million people pay taxes in the U.S. The American tax system has a tax code that is more complex than rocket science, and even though most people think about taxes only in April, the process actually runs all year long.

Millions of Americans file tax returns every year. While some of them manage the filing process independently, most seek professional help from CPAs or accounting firms. This is not just because they hate doing it themselves but mainly given how tedious and complicated the process is and need expertise and understanding of the latest tax regulations.

Every year, CPAs and accounting firms receive hundreds of tax returns to be prepared and filed before it is due. Apart from taking up a lot of time and effort, tax preparation also leads to severe burnout for accountants and takes a toll on their mental health. Sadly, they cannot also turn down such requests as it could affect their business and revenue.

Be it as an individual or as an accounting firm; filing taxes can be a demanding task. Not all accounting firms have the capacity or skill set to handle the mountains of tasks coming their way during the year’s busiest period. Outsourcing such key functions help CPA firms get more time to focus on core business functions. Given the complexity and tediousness of tax preparation tasks, outsourcing is the best option.

The main goal of tax preparation outsourcing is to get the work done on time without compromising on quality. Outsourcing gives you the advantage of high-quality work from trained and experienced professionals alongside ensuring compliance and data security.

THE PROCESS OF TAX PREPARATION OUTSOURCING

If you are wondering what tax preparation outsourcing means for your accounting firm, it simply means the ability to delegate tedious preparation activities to a third-party service provider that prepares a complete range of returns timely, accurate, and within budget. Tax season can be a nightmarish time even for professional accounting firms, and it only worsens. The hurdles keep piling up from last-minute amendments, getting information and sending reminders to the client, and talent shortage. And as an accounting firm owner, you are expected to meet all the deadlines alongside maintaining higher productivity and lower burnout.

With experienced offshore tax preparers handling preparation and first-level reviews, your in-house team can perform higher-value advisory services. Tax preparers don’t just prepare, calculate, and file income tax returns on behalf of businesses and individuals but are also expected to deliver beyond these core tasks.

Outsourcing isn’t a single-step process, and you need to invest a lot of thought and research into the tax preparation outsourcing process. So how do you get started with tax preparation outsourcing? The steps are as easy as 1, 2,3!

Step:1: Define the objectives:

The first step is to ask yourself why you need to outsource and what you seek to achieve via outsourcing. Be it to reduce costs, leverage excellent skills, mitigate risks or expand in other areas, whatever the advantage of outsourced tax preparation services you try to achieve, expressing the goals clearly helps frame the contract.

Step 2: Strike a deal with the right service provider & candidate:

Take time to do extensive research that implies everything from market study and competitor analysis to zero in on the right outsourcing provider for your CPA firm. Once you finalize your outsourced tax preparation service provider, the next step is to select the candidate from the list of profiles they share. Global outsourcing service providers like QXAS allow you to schedule virtual interviews with their talent pool and choose the right resource to work as an extension of your CPA firm.

Step 3: Agreement & Onboarding:

The final step is to sign a service level agreement that lays out the framework for the outsourcing partnership and start onboarding the offshore tax preparers to your team.

Outsourcing is truly a win-win situation and comes with numerous benefits. However, not every CPA firm deciding to take the outsourcing path knows all the benefits of outsourced tax preparation services.

At QX Accounting services, we always get this question multiple times from our customers: “How will tax preparation outsourcing benefit my CPA firm?”

BENEFITS OF OUTSOURCING TAX PREPARATION

Although it isn’t new, many are still unaware of the significant benefits of outsourcing their tax prep. In the case of CPA firms, many still opt for in-house tax prep but often to their detriment. Let’s look at the top 5 benefits of outsourcing your tax preparation apart from cost and time savings that you don’t want to miss.

Benefit 1: Access to qualified, licensed professionals

Any mistakes concerning tax filing can have devastating consequences for your accounting firm. Taxation laws and rates are constantly changing, and we should follow them. Not only will errors and mistakes in tax preparation lead to a substantial financial loss, but they will also take a toll on your firm’s reputation. Outsourcing tax preparation provides access to competent tax professionals well-versed and updated with the tax & regulatory reforms.

Benefit 2: Top-notch data security

Data security and confidentiality are vital for your accounting firm with increased data breaches. Partnering with an outsourced tax preparation service provider will ensure that your valuable, sensitive data is secure over the cloud using robust and cutting-edge security. Top accounting firms in the USA sign up with outsourced service providers that use the latest tax software versions with the latest security and encryption mechanisms.

Benefit 3: Stay on top of legislation & tax law

The best outsourcing providers prioritize staying on top of the always-changing legislation and tax law. The offshore team can do this easily, given that they have a designated team of tax preparers and experts who read up on the law and legislation. The point is that your outsourced service provider will have the capacity, skillset, and experience to handle your firm’s tax prep while being well-versed in legislation and tax laws.

Benefit 4: Data collection is a breeze

A clear benefit of outsourcing tax preparation is that it makes data collection easier. While most accountants are swamped during the unavoidable, busy tax season, staying on top of data collection for a seamless tax filing process can be challenging. Outsourcing makes it easier to get ahold of someone when there are questions, but data collection, organizing, and sorting are also prompt so that risks can be avoided and deadlines can be met.

Benefit 5: Peace of Mind

This is one of the most important yet underestimated benefits of outsourcing tax preparation. During the busy tax season, CPAs put in unimaginable hours to guarantee that their clients’ tax returns are filed before the deadline. They fail to notice how it all affects their physical and mental health. Outsourcing helps CPA firms strike the perfect professional and personal balance and cope with the tax-time stress. Having access to additional resources on your side can prevent the internal team from getting overworked. Outsourced tax preparation services will provide complete peace of mind about tax compliance and accurate tax estimation.

CREATING A TAX RETURN OUTSOURCING STRATEGY

 CPA firms are constantly flooded with work, especially during tax season. Although this is the time of the year when they have the chance to boost their revenue, it isn’t as easy as presumed. Tax preparation can be demanding, and accounting firm owners must be well versed with the prospect of always being pressed for time. Working long hours and wading through piles of files becomes your daily routine. Outsourced tax return preparation can help tackle this challenge, but only if you have a strategy to help you make the most out of it.

Outsourcing strategies are plans that describe how an accounting firm partners with third parties to perform tasks. It can reduce expenses and increase productivity without compromising the quality of work. Such strategies consist of standards, procedures, and regulations that dictate factors like who you partner with and how much you pay them.

Step 1: Outline Your Goals

A business that clearly defines its outsourcing goals is already ahead of the game. Accounting firms should outline their outsourcing objectives step-by-step to zero in on a suitable staff model. Defining clear outsourcing goals is also an opportunity to take stock of your firm’s actual outsourcing requirements. So, establish well-defined outsourcing goals early on.

Step 2: Define Financial Terms

You need to set up the project budget & payment terms and decide if you’re paying the outsourced service provider based on time worked or per-project basis. It is vital to define deliverables before commencing the project, and you also need to budget for different business scenarios.

Step 3: Choose a Preferred Engagement Model

When building your outsourcing strategy, you should prioritize the skills you are looking for and why. Clearly defining the expertise, you need to add makes it easier to choose an outsourcing engagement model that matches your specific staffing needs. You have a wide range of outsourcing models to choose from, including those based on locations (onshore, nearshore, offshore, and onsite) and pricing.

Step 4: Risk Assessment

This is a crucial element of setting an outsourcing strategy. Accounting firms need to have some clear key performance indicators to help you decide if your outsourcing engagement model is working well. Measuring the benefits and progress and assessing the risks of your firm’s outsourcing model can help you take corrective steps at the right time if staffing expectations aren’t being met.

QUALITIES OF A REPUTED TAX OUTSOURCING SERVICE PROVIDER

According to recent statistics, 78% of businesses globally feel positive about their outsourcing service providers, and trustworthiness remains one of the top priorities when shortlisting an outsourcing partner.

Let’s look at the top 5 traits of a reputed and trustworthy outsourced tax preparation service provider.

Trait 1: Long & Proven Track Record

The best outsourcing service provider would be able to exhibit a reasonably long and proven track record. It is best to find out the number of clients they have helped scale and the number of years of operation. The more experienced an outsourcing partner is, the better choice they would be compared to the rest.

Trait 2: A Highly Skilled Talent Pool

An outsourcing service provider should be able to solve your staffing woes by giving you access to highly skilled labor. You need to find out if your outsourcing partner has a dedicated team of experts who are qualified and seasoned professionals with experience in handling tax preparation. The best outsourced tax preparation service providers let you interview and hire preferred candidates.

Trait 3: Airtight Data Security Measures

Data security is a critical aspect that goes into the decision-making process while shortlisting an outsourced service provider. It is best to partner with an outsourcing service company that complies with ISO 27001 standards and uses robust and secure information technology systems.

Trait 4: Flexible Engagement Models

A flexible working approach is a crucial trait that you should be looking for. Your perfect tax prep outsourcing partner will provide multiple engagement models designed with scalability and make the onboarding process easier and absolutely hassle-free.

Trait 5: Timely Services & Exceptional Support

On-time work delivery and exceptional support are key traits of an ideal outsourcing service provider. Not only will they assure on-time deliverables and robust results, but they will also be the best support system so you can always rely on them to complete your tasks.

Do your research, analyze your competitors, check out testimonials, and look for the above traits while shortlisting a reputed outsourcing partner for your CPA firm.

PROS & CONS OF OUTSOURCING TAX PREPARATION SERVICES

Outsourced tax preparation services can provide accounting firms with myriad benefits. But just like every other option you have, you should do your research before signing up for a partnership with a third-party service provider. You must know the advantages and disadvantages of outsourcing tax preparation services to make an informed decision.

Besides being cost-effective, the advantage of outsourced tax preparation services is their faster turnaround times, given the time zone difference when you work with companies based in countries like India. It helps solve your staffing issues, and your firm doesn’t have to turn away profitable work during the bust tax season. And the main advantage is that you will have access to a higher level of expertise. By outsourcing tax preparation services, you can work with tax preparers with extensive experience and skillset, expecting on-time and accurate deliverables.

Data security and communication barriers are the most common concerns that accounting firms have. But this shouldn’t be a disadvantage if you choose the right outsourcing service provider. When you outsource to a company like QX, comprehensive data security measures will be ensured, and you will also have access to high-quality talent with excellent communication skills.

COMMON MISCONCEPTIONS ABOUT OUTSOURCED TAX PREPARATION SERVICES

Outsourced tax preparation services have numerous advantages, including cost savings, security, faster turnaround times, and state-of-the-art infrastructure. Yet, some misconceptions about tax outsourcing services prevent accounting firms from reaping such benefits.

Let’s bust some of the most common myths about outsourcing tax preparation:

Myth 1: Data Isn’t Secure

This isn’t true if you choose an outsourcing partner with airtight data security measures that uses robust and secure information technology systems. The best outsourcing service providers will be cyber essential, ISO 27001 certified, and fully compliant with information security.

Myth 2: Outsourced Tax Prep Services Are Expensive

This common misconception about outsourced tax preparation services prevents CPA firms from reaping some amazing benefits. Outsourcing service companies will only charge you for the services they provide, and you will save up to 50% or more on operational costs. You will not be paying for the infrastructure or training costs.

Myth 3: Loss Of Control

Most accounting firms feel that outsourcing tax preparation might result in loss of control, but that isn’t really the case. There is a process and a system built around tax preparation to ensure adequate control, and if you follow the process diligently, you don’t have to worry about losing control.

Myth 4: Clients Won’t Be Okay With Outsourcing

While most accounting firms think their clients might ask several questions if they outsource tax returns, the truth is that most clients trust that the firms have done due diligence before signing up for outsourced services.

Myth 5: It Isn’t Legal To Outsource Tax Preparation

Many accounting firms believe they might get into trouble if they outsource their tax preparation. But as long as you have their consent, it is not ethically and legally wrong.

WHAT DOES TAX PREPARATION OUTSOURCING COST?

Did you know that outsourcing tax preparation services can reduce operational costs by 50%? Accounting firms are increasingly opting for outsourced tax returns preparation services to lower costs and focus on more productive activities. Tax preparation services are the most sought-after outsourcing services amongst CPA firms in the USA.

CPA firms save a lot from the infrastructure costs they might have to bear if they were to keep tax preparation in-house. The resources and infrastructure account for 50% of the costs that go into the tax preparation tasks.

Most outsourcing companies price their services based on your requirements and the engagement model. They offer a variety of pricing models to suit your firm’s requirements and budget. It is best to analyze each engagement model so you can evaluate and determine which is best for your accounting firms.

Ad hoc or pay-as-you-go model

This is one of the most preferred engagement models, and it means paying based on how much you of the services you have taken. Typically the tax prep outsourcing company determines an hourly rate. Sometimes these hourly rates also vary amongst the outsourced staff based on seniority. This model is widely preferred as it offers a dedicated team working for you for a pre-determined period. The ad hoc model is most recommended for CPA firms that do not have large volumes of work.

Full-time employee (FTE) or dedicated resource model

With this popular engagement model, you will be given a dedicated staff to work as an extension of your team at a fixed monthly fee. The fixed amount will be billed to the CPA firm at the end of every month, and the outsourced service provider scopes the number of hours to be completed within that period. This is a more economical model than hourly rates if your accounting firm has high volumes of work.

Discuss with your outsourced service provider and analyze the pros and cons of each engagement model before signing on the dotted line. Most outsourced service companies offer free trials to help CPA firms decide what works best for them.

WRAPPING UP

Tax preparation outsourcing can give CPA firms a massive advantage in staying ahead of their competitors. Irrespective of your challenges- whether you are understaffed, your staff lacks the skills & expertise, or you are swamped during the busy tax season, outsourced tax preparation can enhance your service portfolio.

Apart from satisfying your client requirements, tax preparation outsourcing will also help improve your client retention rates. Outsourcing your firm’s tax prep will free up more time so you can focus on growth & innovation and explore new specialized service offerings that will give your firm a competitive edge.

Top accounting firms in the USA outsource tax preparation from reputed outsourcing service providers that establish cutting-edge communication, infrastructure, and processes that guarantee zero friction.

CUSTOMIZED TAX OUTSOURCING SOLUTIONS WITH QXAS

Did you know that QXAS’ outsourced tax preparation services have helped this CPA firm achieve $99,000 cost savings? To achieve affordable scalability and tremendous cost savings, and save more than 50%, outsource tax preparation to QXAS.

We have been helping CPAs, accountants, and EAs manage the tax preparation needs of their clients for almost a decade. QXAS has built solid expertise in US tax legislation and keeps up to speed with all the changes.

With us, you can stay on top of the tax season, knowing your clients’ taxes will be prepared by the best professionals with the right tools that meet the highest data security standards.

THE QXAS ADVANTAGE

Resolve staffing woes, reduce costs and improve your margins by partnering with our pioneer tax outsourcing company. QXAS has been in the tax outsourcing business for several years and has kept in step with changing tax legislation. We also adhere to stringent SLAs and high-quality standards when it comes to data security.

With QXAS’ tax outsourcing services, CPAs and accounting firms benefit from:

  • Manager FTE solution to review outsourced work
  • Flexible engagement models
  • Quicker turnaround times
  • Substantial cost savings & Greater profitability
  • Enhanced client satisfaction
  • Comprehensive data security measures
  • More time to innovate and scale
  • Creative space to improve service portfolio

Book a Free Consultation

We hope you enjoyed reading this blog. If you want to simplify tax preparation and scale your accounting firm and are wondering how our professional and deadline-oriented tax outsourcing services can help, just book a call.