10 ways to outsource your firm’s tax prep

It was about 10 years ago when I approached my husband about the idea of hiring people outside the United States to help in our firm. His reply, which probably was similar to many others at that time was, “No way! We don’t want to take away jobs from U.S. workers.”

Fast forward 10 years when COVID-19 hit the world and turned the workforce upside down. The following year, the Great Resignation affected many small businesses, from restaurants to tax and accounting firms. When we began the hiring process, we found very few candidates applying. Some of those who applied did not show up for the interview; others requested a $100,000 starting salary plus benefits or were not even qualified for the position.

Clearly, U.S. labor resources have not been a viable option in the past three years, and this past year, in particular, has been the most difficult for our firm.

This is what drove us to take another look at outsourcing to an overseas provider. We needed help. There was a shortage of people and we struggled to find the talent that matched our values.

What I wish I knew

Before hiring a firm to outsource work, I had several options to consider. I could hire a dedicated part- or full-time person, or I could purchase a package of 50, 100, or 200 returns to be prepared. After brainstorming with our tax team, I chose the option that best matched our expectations – the package. We went with our gut, wanting to jump in to test out what it would be like to outsource tax preparation.

Now that busy season has passed, I wonder if I should have chosen another option. Either way, I have no regrets about outsourcing. How it gets done just needs to be adjusted to better meet our needs.

I wish I had known how my clients would react to signing the 7216 disclosure, Consent to Disclosure of Use of Information by Preparers of Returns, so that I could have communicated more clearly. After a few people said no to giving us permission to outsource, we created an email to ease their minds, and I also recorded a video to better explain what outsourcing means and what they can expect. If you would like the URL for the video, please email us.

While I knew we could assign five tax returns to the outsourcing firm per day, I did not realize their three-day turnaround would turn into seven- to 10-days during the busiest time of tax season. We should have been bolder to request an update on the progress of those files that were taking longer than we had expected.

10 key areas for success

Here are 10 tips on what to do to be successful in outsourcing your tax preparation:

1. Get your team’s buy-in. Communicate that their job is NOT on the line, and outsourcing is put in place to help with the data entry of the return. This will allow them to focus on advisory services and relationship building with the clients.
2. Write down the process, step by step, of how the tax file will flow between your staff and the outsourced staff. Give examples. Show screenshots.
3. Before tax season starts, predetermine which clients will be outsourced. We based this on entity type and client fees so we could get good margins. Once you get into the thick of tax season, you can reallocate as needed, depending on your team’s workload.
4. Are there limits? If the outsourced firm/person has a monthly cap on the number of returns that can be assigned.
5. Manage it. Have one person on your team serve as a project manager to communicate with the outsourced firm/person and your clients.
6. Quality check the work of the outsourced firm/person and provide feedback on each file, setting a solid foundation of expectations.
7. Remember that communication is key when assigning files, managing the flow, and completing returns.
8. Be aware of time zone challenges, especially if you want to have the outsourced staff join in on team meetings.
9. Ensure that everything has a password, from your client portal to your tax software files.
10. Assess the roles. If the outsourced firm offers someone in a “senior” role, ask questions about their experience. What they consider a senior may be someone you deem as a junior preparer.

Is outsourcing beneficial? 

Absolutely, yes, on several levels. First, outsourcing provided the capacity for our team to communicate and meet with clients by having the data entry completed. Other benefits can be scalability, time savings, and cost savings.

What about the cost savings?

In our situation, we had to prepay a monthly amount over a period of five months. As a result, in the first quarter, because of the prepayment, our labor margins were much higher than a typical year. As expected, our cost of goods sold will start to decrease as the outsourced firm completes about 100 additional returns in the off season. While we have not calculated the full savings yet, we know there will be lower labor costs, even with having a project manager oversee all the tax returns that were outsourced.

My firm is 100% remote, but if you have a brick-and-mortar firm, the cost savings are even more, since there are no overhead costs for equipment, desks, office space, utilities, office snacks, and other incidentals.

It’s important to weigh the typical cost savings against the risks of security, communication, quality issues, and cultural differences. Again, for us, it’s about the relationship we have with our outsourced team!

Weigh the benefits

While nerve wracking at first because it is the unknown, outsourcing tax services overseas can provide your accounting firm with wonderful opportunities with the right relationship. Talk with someone you know who is outsourcing to minimize stereotypes and fears.