Are you ready for tax season?

Withum's Ed Mendlowitz offers a host of tips and strategies you can implement now for a better busy season.

Transcription:
Dan Hood (00:03):

Welcome to On the Air With Accounting. Today. I'm editor-in-chief Dan Hood. With a new tax season looming on the horizon, it's never too early to think critically about how to handle the busiest part of your year. Here with some thoughts on how to better manage your tax season is Ed Mendlowitz, a CPA and a partner at Top 100 firm Withum. He's also the author of a huge range of books, including most importantly for today's topic, "Managing Your Tax Season" and "Reviewing Tax Returns." And he's a veritable font of good advice for accountants that he shares in many, many ways, not least as a columnist for Accounting today. Ed, thanks for joining us.

Ed Mendlowitz (00:33):

Thank you, Dan. Nice to be here.

Dan Hood (00:35):

Yeah, this is, as I said, a big topic and one I know you think a lot about, so we're psyched to have you with us. I wanna start by saying what do you think are some of the most important things firms can do in the month or two before tax season begins? We're still got a couple of weeks yet before it really kicks in. What do you think they should be doing beforehand?

Ed Mendlowitz (00:51):

I think this very big thing they could do, they could take work that would be done during tax season and push it into, now a lot of clients had very unusual transactions or atypical transactions for themselves. What they have to do is call the clients, find out what went on in their life during the year and then work on it. Now, just give an example. If somebody sells a vacation house or a rental property, they can get that information now if they get it, if they find out the end of March it's gonna take time during tax season, they're gonna rush through it and if they do it now, they could do it in the quiet. They pushing the way the work away from tax season and they could have that transaction reviewed now by the reviewer and they're prepared, just gets the information to put in.

(01:39)
The other thing they could do is they could start planning of what their staff is gonna work on and provide training, I don't wanna say CPE because CPE courses are generic or made they, they're set aside for everybody, but you figure out what your staff are going to work on and then give them some in-house training or find the course for them in those things that they're gonna do. Don't give a beginner a tax free sale of real estate but give them the kinda transaction they're gonna work on. Let them get good at what they could do, not learn things that they're never gonna work on.

Dan Hood (02:18):

Gotcha. So for instance, and I guess a lot of that might be driven by the conversations you're having with your clients about what went on in the year. If they say, you said, Hey, we got a lot of our clients have been buying crypto for instance, you might give your staff some training on how to handle those transactions

Ed Mendlowitz (02:32):

That That's right. Also, if clients have been doing a lot of trading in crypto, in crypto during the year, not working on it now, you don't have to wait until they give you all the information in the middle of April or the middle of March when you could meet with them in a few weeks and get that information and get at least 10 months of the transaction set up. Right.

Dan Hood (02:54):

That's interesting cause I think a lot of people, they say, well I'm not gonna start on that until I have all the information. Right. I'm gonna wait until I get all the reporting from all the brokerages and all that sort of stuff. So it's interesting the notion that you could sort start and do part of the prep work well in advance. It's an interesting idea.

Ed Mendlowitz (03:10):

Everything is reported instantly online. You could get, pick any date you want and then get the transactions organized through that date or at least analyze it if the client has made a very large profit or a very large loss, you could do planning with them now, which would help them possibly on the tax return for this year rather than waiting until after the fact when you can't do anymore planning.

Dan Hood (03:36):

Gotcha. All right. So I like that. That's a great start. Pull some work forward or as much work forward as you can by talking to your clients and figuring out what the big life events or big trends they have in their life over the past year or so. That's great. And then also training staff on potential specific issues that are coming up for this tax season, as you say, as opposed to of broad CPE training where it's just sort covering all the bases, you can actually narrow it down any other pre-tax season preparation they should be

Ed Mendlowitz (04:04):

Doing. Well, one of the things that I always do is I target my largest clients and I don't want them to give you the information too early cause they may give it to me when a time when I'm still trying to finish some corporate stuff and I don't want it too late. So what I try to do is plan a schedule. Now when we could work on that work, say in March or the end of March and then I complicated returns, I also schedule the reviewer to coordinate the reviewer with the preparer and I get to prepare rev up for that return. And then we don't have a leg. You could ever prepare a work on something and then it could get reassigned and then it could take a week for the reviewer to look at it and then the reviewer has questions. Then you have to wait another two days until the preparers back in the office.

(04:57)
You could coordinate that. Now I used to have a client that would come to me every year the third week in February before her information. We couldn't look at it until after March 15th <laugh>. Right. And by March 15th already she called me three times, wanted know what's happening. So I got the idea that I called the beginning of February and said, look, I'm gonna schedule you for March 17th. I'm gonna meet with you or send me your stuff. We'll go over it and I'll have you return within. We can get it done very officially. And it it'd say the letter phone calls organize my work better. And she became much happier.

Dan Hood (05:36):

There you go. There you go. Yeah. Started getting everybody on the same page in terms of scheduling. There is, I mean it's interesting cuz I think a lot of people feel like they're at the mercy of, like I said, when does the brokerages send out their data? When does your client actually bother to deliver their information? But you can be a little bit more proactive and get your schedule set up well in advance. That's a, that's right. That's great. Chip, let's sort of flip the script. These are great ideas that people can adopt to make their tax season go better. What are some of the big mistakes you see firms making when it comes to tax season? What do you think things they should stop doing?

Ed Mendlowitz (06:06):

They should stop denigrating tax season. Tax season is a fantastic period of the year. We make a lot of money. We get the staff gets unbelievable opportunities during tax season that they would not get the rest of the year. They also staff works on stuff and they get instant feedback with the review. A staff person could work on an audit of a client and not get feedback for two months or a month. Also, staff get promoted. They don't get promoted with a title but they get elevated in the type of work they do and the interactions with clients. This is an exciting time for staff and we should make it exciting for them and make them understand the great opportunities for them in tax season. Instead we say, oh it's tax season. Oh this is terrible. Oh we gotta work hard. It's gonna be terrible.

(07:00)
We gotta stop that. Also, we make a lot of money during tax season. What's wrong with that? The other thing I think firms should do is they should adopt the policy of paying staff for their overtime almost immediately when they do the work. A lot of firms say it's built into the salary in which case staff doesn't get anything extra or they say, we're gonna give you a bonus at the end of tax season and the bonus could actually be paid sometimes the end of June. What I suggest you do is you get a policy where you work, you get paid all the time. Some firms could pay straight time, some could pay time in a year. But pay to staff. And what I found out many years ago, cause I always like to pay. I didn't like people working with me for nothing and I like to maybe work them hard, but if I knew I'm paying them then I didn't feel that I'm getting something for nothing.

(07:55)
I found out that some of the wives of some of my clients said, Eddie wants you to work <laugh> cause they money. So I picked them up as allies. So I think this is a very simple thing to do and we don't do it. The other thing is we work our staff too many hours and I could tell you if I've done a lot of this work in terms of talking with other firms, studying it and they've been around this a long time. Every staff, every preparer wastes at least five hours a week correcting errors. If we could get a culture of no errors permitted, now we all make mistakes. I'm talking about continuous killer service and staff not self checking their work. So what we gotta do is you gotta get that in the culture and you can't have staff handing in word for the reviewer to fix or to make the changes.

(08:58)
Any mistake a staff person should be given back to them and think of tax season, we wanna get returns out and we wanna get happy clients, but we also want staff trained for the future and we want staff to and when the future could be, the next five returns they're gonna work on next week necessarily what they're gonna do next year And we can't train them well if we don't train them how to self check their work and hand in work that doesn't have the risk. I think that that's a major thing we could do.

Dan Hood (09:30):

That makes a lot of sense. Well and that goes to that instant feedback that you talked about. You may never hear from whether you did the audit or it may a month or two months. But that's an opportunity to hand that back to hand, that return back and say, listen, here's wrong, fix it and that'll say fix it. Set em up for the next five returns.

Ed Mendlowitz (09:47):

I'll tell you what also happens during tax, most staff, you staff never get to speak to the client cause they always have a boss. During tax season you work on a tax return, you could be working on a tax return for the fourth largest client in the firm and you need information and the bosses call him and ask for the information. And it's a way that the staff could start interacting with clients. That with clients and it's a tremendous opportunity cause it boosts confidence and ego. It also empowers staff that they can go a little beyond what they think they can go beyond. Most firms allow staff to do as much as they want, but the staff don't think so. And then it becomes a combination where it doesn't work. But if the staff think it and the boss is allow them, staff could do tremendous work

Dan Hood (10:39):

Well. But again it goes, I think it's a presentation thing for the firm may be perfectly happy for you to do that. But again, if you don't know that you can do it and if you're not encouraged to do it, you may feel like, well I don't wanna get between the partner and his client or try to force my way into the higher up into the engagement that I'm really supposed to be cause I'm just a lowly preparer

Ed Mendlowitz (10:58):

And tax season permits that lowly prepare to call the highest client

Dan Hood (11:04):

And if they treat it as an opportunity that may change their attitude towards it. I like the idea of also of paying people cuz you mentioned right, we firms make a huge portion of their annual revenue during tax season and that's true, but if you're a salaried employee, you're just more work for more work for the same amount of money you get paid every two weeks the same no matter what period of time it is. And the difference is in the working. But if you're getting over time or some kind of immediate bonus, then you really get that immediate feeling of, yeah, okay I worked a lot more but I also got more money. And the idea of bringing in the spouses and family as an ally. Cause often that's a problem, right? Often they're not an ally. They say, why do you keep my spouse away from me for so long, for two and a half months?

Ed Mendlowitz (11:46):

Well what happens is they don't say that to the boys. They say to the husband or their wife, they say, what are you doing all this work for? You're not getting paid extra. You should read public account and go somewhere else or do something else. So don't work for them. But now you got them as an allway, they see money.

Dan Hood (12:06):

It's amazing how much their attitudes change. Little extra, little extra grade. But that's true for everybody, right? So alright, these are great ideas. I love both the things people should stop doing that they should start doing. We're, we're gonna come back in a second to talk a little bit about other things, broader concepts that people might bring in to tax season. But first we're gonna take a quick break. All right. And we're back with Ed Menz of with them and the author of several books on, well 24 books I wanna say. Is that right?

Ed Mendlowitz (12:35):

Actually it's 30.

Dan Hood (12:37):

30. Okay. I'm using an outdated bio of you cuz obviously 10 minutes have passed and you've written six more books cuz prolific writer and I said columnist for accounting today and among, among many things an expert on tax season.

Ed Mendlowitz (12:49):

So I've written a weekly column and account today com, the nine years, nine. Haven't missed the week in nine

Dan Hood (12:58):

Years. No, it's been great. We recommended every Monday morning and

Ed Mendlowitz (13:01):

We won an award, a FO

Dan Hood (13:03):

Award we did. That's right. That's right. For best column. Yeah, absolutely. And it's every Monday morning, the art of accounting. It's highly recommended. It's good stuff. And again, I say you're an expert on tax season, but there's a lot of practice management stuff in there. There's a lot of administrative ideas and all kinds of all across everything you might need as a leader or manager, an accounting firm. There's a lot of great information in there, but we're focused today on tax seasons cuz as I said, you've written a couple of big books on that and focus a lot on that. And we've talked about some of the specific things that people can do to make their tax season better, make their employees tax saving better or to at least make it less bad. But I wanna, apart from those details of preparing and filing and managing workflows within tax season, are there broader things the firm should be thinking about during tax season? You mentioned this is a great opportunity for instance, to engage with clients are their business development opportunities. Firms should be looking at

Ed Mendlowitz (13:59):

Tremendous. Every tax client is a potential reflow of business, but we're also a potential someone who needs additional services. I once had a tax client, I actually charged $300 for a tax return and every year she did not make much money. I kept doing it. And one year in one year she recommended a quarter of a million dollars of business. To me <laugh>, whoa. She recommended two clients. What we don't understand as a profession is that tax client matter, how small they are. And certainly big ones too have no other people that need services we could provide and not just always tax services. So what I do and I talk to my tax clients is I asked them what additional services they might need and I make suggestions if they wanna plan to say for retirement, if they wanna plan to say for Charles College when they might wanna, how they might invest their IRA or 401K money.

(15:08)
And I throw these ideas out now not everybody's gonna become a client for that and not everybody needs it, but now they know what additional services I could do. This young lady who referred the business to me worked for a telemarketer company, <affirmative>, actually, they sold the product over the internet and by direct marketing. So I told that I had a lot of clients in that and if a boss ever has a problem with their accounting or taxes, he should speak to me. Or if he ever thinks he wants to sell, I could help him with that. And the guy started talking about to someone about selling his business and she said, oh, my accountant does that stuff. And she provided introduction. I got him as a client and it led to a very, very big job and a lot of work. And it also led me to meeting some very interesting people. So think of yourself as the sales manager and the tax and client as the salesperson. And it's your job as the sales manager to give the sales people material to sell. And that's with ideas.

Dan Hood (16:25):

Gotcha. Well it's interesting though cause I think a lot of people are worried. I have time for that. It sounds like you're not talking about a long in depth sort of sales prospecting conversation, right? It's a couple of minutes at the end of tax return discussion. Is that fair?

Ed Mendlowitz (16:40):

It's a couple minutes in the course of a conversation, not necessarily at the end, but it's couple minutes in the course of it. And then usually I find out what the client's interested in or what's on their mind. And I could tell from their transactions a lot about them. If a person has very high interest and very low dividends tells me they risk adverse, they have very high dividends. The stock transactions and no interest tells me something else. What I try to do, I make a note of this and then I follow up probably in May, beginning of May. So when we did your tax return, I came across this or I came across that and I put ideas in their head. I'm not looking to get a sale or to get 'em to come into the office. Some people I do, but I try to put ideas into their head that they should think of me as the first person that they should call. If anything new is going to happen. I got time for a story. I had a tax client call me one year. He got a raise in salary from $60,000 to 120 this thousand. This happened around 19 79, 19 80. And he calls me up and he said, could he meet with me? He wants to know what his new take home would be.

Dan Hood (17:58):

Okay.

Ed Mendlowitz (17:59):

That led to me going on a trip four days later to Milan, Italy, meet with Georgia Omani. I got him three times what he agreed to get and it became a very big opportunity for him and for me. And that was from one of the lowest type of work that we might do. But I treated it seriously

Dan Hood (18:23):

Right now. You know that was gonna become that kind of engagement or you were just like, this is the service I would give any client, even if they're not. Cause I, while some clients, yes, we will get big deals and you'll be in Milan for them and so on. A lot of clients aren't gonna have major opportunities. Do you have a sense of that before you get into it or

Ed Mendlowitz (18:41):

Is it just No, no, I didn't have a clue with that. But what happens is when a client issue a question usually and not very high level questions, and lots of times they answer questions in terms that they think that they should say it, but you gotta treat every question with the utmost seriousness that the client gives to it. And so you gotta treat it, gotta treat the client respectfully. You gotta find out what's on their mind. You can't find out what's on their mind when the client says, I wanna know what my take on pays gonna be. That's not a major issue, a major question. But he must had something else on his mind. He was embarking with new people, a new kind of ventures, a new opportunity for him. And I think he have wanted some reassurance that he could handle it or do it. But the idea of going on a trip, was it going any further than me meeting with him and having a nicer or a better relationship with a tax client was, oh, I was thinking of, but I wanted to help him. And of course that was a unique opportunity and led to a tremendous situation. But don't downplay, I don't wanna use the word stupid, but don't downplay the word the stupid questions clients might ask. And I'll put stupid in quotes because it's important to decline, otherwise they would not have asked.

Dan Hood (20:14):

And as you say, there's probably something behind it, so don't just, yes. Even if it's not a stupid question, everyone would like to know what their pay take home pay is gonna be. But as you say, the question is why is he asking that? I can tell you what your take home pay is gonna be, but the real question is why do you need to know and what's going on and what is this opportunity? And then let's dig into that. And as you say, travel to Italy and get the guy, would you say three times what he'd been offered?

Ed Mendlowitz (20:36):

He was offered. Hundred. Got him.

Dan Hood (20:43):

I switch accountants, I will be calling you. That's awesome. I do wanna move on a little bit though cuz every second we speak, tax season is coming closer, so let's just narrow it down. Are there any issues for this year, specifically for 2023 or tax year 2022, I guess that you're paying attention to for the coming season that people should be aware of?

Ed Mendlowitz (21:05):

Yes. Don't make it, Sally. Don't make it. Same as last year. You gotta make it better. You gotta have, and to make it better, you have to have changes and people don't like to change things settle. And you gotta look at it. You're in it for the long haul. You gotta set up your processes and systems there are going to work, but next year and the year after and the year after, and if you are facing a tax season the same as last year and last year was the same as the year before, you're not improving. You're not bettering yourself, you're not moving forward.

Dan Hood (21:44):

So make a commitment to improving yourself this year and then

Ed Mendlowitz (21:48):

One improvement. I tell you, one improvement that you can make. Don't tolerate errors. Kill a service from your staff, from anybody.

Dan Hood (21:57):

Excellent. All right, well that's good advice. And as you say, right, saves all that time for people are just, they're figuring and saying, oh, well, the reviewer will catch all my errors. That's not really what we want the reviewer doing. The reviewer should be a last sort of backstop

Ed Mendlowitz (22:09):

Actually. When you have that attitude, it's up with delegation. You have the lowest level person on the staff delegating work to the highest level tax person. That is stupid. That makes no sense. And the reviewer shouldn't put up with it and the partner put up with it and you put the word back to you, make the preparer fix their errors, and if they don't get it, they're not for you and you can't let them work for you.

Dan Hood (22:36):

Right. Well, but that requires that downward delegation on the part of the reviewers and the partners to say, okay, I see this error, I'm gonna make sure you now know how they're gonna have to go back and train and teach the prepared to say, listen, I noticed you made these errors. Here's how you fixed. Or here you're gonna fix it because I need you to learn how, as opposed to, I think, right. A lot of reviewers probably just say, oh, well, I'll just fix it. It's faster for me to do it.

Ed Mendlowitz (22:58):

Yeah, that's right. Actually, there's a very easy self checking mechanism when people do tax returns and they don't follow it, they don't use, and a lot of firms have it, but they don't enforce it. Make the staff self check their work before they handed it and they'll catch most of their errors. Right. Very simple.

Dan Hood (23:16):

There you go. All right, well, that's the one change. If they make that one change, I, you're absolutely right. I'm sure that will improve a lot of tax seasons. If they can just get that into their mindset and build it into their workflow, that'll be a big bonus for them in the coming year. All right, ed Menz, thank you so much. This was great. A lot of great information, a lot of great insights. I appreciate you joining us.

Ed Mendlowitz (23:34):

Thank you, Dan.

Dan Hood (23:35):

And thank you all for listening. This episode around the air was produced by Accounting Today with audio production by Kellie Malone. Ready to review us on your favorite podcast platform and see the rest of our content on accountingtoday.com. Thanks again to our guest, and thank you for listening.