How to safely and effectively outsource during tax season

minute read

Last Updated February 1, 2024

Category Cloud hosting


Your workload during tax season isn’t getting any lighter, and it’s likely to become heavier in the years to come. Accountants are leaving the profession in massive numbers, and young graduates aren’t stepping up to replace them. Your firm probably needs help easing the workload of tax preparation now. If not, it will soon. Outsourcing is a viable option if you know how to manage it properly.  

Some numbers put the staffing issue in stark relief. The accounting profession in the US is expanding at a healthy rate, with a combined annual growth rate of 11% forecast through 2026. That easily outpaces the projected growth rate for the US economy as a whole, which is forecast at 2.1% per year through 2031. Of course, tax preparation will drive a lot of that growth.  

The downside, of course, is that the number of accountants available to perform tax functions isn’t increasing with demand. In fact, it’s set to decrease, with burned-out tax practitioners leaving the accounting profession in massive numbers and young college graduates rejecting accounting for other careers.   

The staffing problem is so acute that The Wall Street Journal recently chimed in on it. One quote in the Journal article, from Calvin Harris Jr., chief executive of the New York State Society of Certified Public Accountants, underlined the disturbing trend of a shrinking profession. 

“For us to have the same number of accountants in the future, just five years from now, as we do right now is very unlikely,” Harris told the newspaper.

Outsourcing breaks the vicious cycle of tax preparation staffing

The Journal article focused heavily on accounting firms outsourcing services. For most firms, that primarily means finding a partner to handle tax preparation. One of the tenets of Smart Client Management is that firms need to rely less on tax season for revenue and move to a year-round services model that involves tax preparation being part of a collection of services rather than the firm’s primary task. 

While firms should move toward that goal, tax season will nevertheless continue to be both important to firms financially and overwhelmingly busy. Your firm can’t simply fire all of its tax clients. Unfortunately, a vicious cycle is developing. Demand for tax preparation is increasing, which requires more work from employees, who burn out and leave the profession. Without adequate replacements for departed staffers, firms have to pile even more work on the remaining employees. And so the cycle continues. 

“Your firm is going to have to outsource if it’s going to continue to grow,” says Darren Root, founder of Rootworks and Right Networks’ Chief Strategist. Rootworks has clients that benefit from several models of tax outsourcing.  

Outsourcing tax preparation helps firms break the cycle, but it will only benefit your firm if you know how to manage the process of moving tax work outside your organization. You can outsource domestically or offshore and through a couple of different models. But the first thing you need to consider in either scenario is a constant concern for firms: cybersecurity.  

Securely outsourcing requires the cloud

The first step to setting up a successful outsourcing operation is moving your firm into the cloud. That’s where a trusted cloud-hosting partner becomes an absolute necessity. An experienced cloud provider delivers security expertise most firm leaders simply don’t, and don’t need to, have. It also offers peace of mind.  

When you run your firm’s critical tax applications, including QuickBooks® Desktop, in the cloud, you don’t have to worry about keeping your clients’ tax data safe no matter who is working with it or where. You can also choose a broader, fully managed model for IT services that puts many of your critical technology functions in expert hands.  

Security updates are a constant and difficult chore, and if you’re stuck taking care of them yourself, you’ll end up cutting into the time you intended to save through outsourcing tax preparation in the first place. Plus, you’ll open yourself up to a data breach by having a non-expert handle your security setup. In the same way your clients outsource accounting to you, the wisest move for your firm is to outsource security to a trusted partner.  

Another service a third party can provide is security awareness training for your employees. The vast majority of data breaches involve human error. Your staff needs to know how to keep your firm safe. Security awareness training is the best way to teach employees to protect client data. Your firm’s people are your last line of defense in the battle against cybercrime.  

Outsourcing could potentially, for instance, expose your staff to unfamiliar but legitimate emails from an outsourcing partner while phishing attacks from malicious emails will continue. Keeping employees sharp in identifying which emails to avoid is essential.  

The cloud offers benefits outside of cybersecurity as well. Outsourcing can mean dealing with differences in time zones, which can lead to difficulties communicating. If you’re trying to swap files via email, you’re setting yourself up for errors and confusion. In the cloud, your employees and your partners can work in the same client files at the same time, eliminating issues with version control. 

Your firm has a choice of tax preparation outsourcing models

With your firm securely running in the cloud, you can decide on which outsourcing model you’d like to pursue. The fundamental choice is between onshore and offshore outsourcing. Both have advantages. Clients might be more comfortable with having their tax returns processed in the US if they’re aware that you’re outsourcing at all. A specialized firm, such as SurePrep, can help with setting up domestic outsourcing. 

Offshore outsourcing adds some complexity. While you don’t necessarily have to discuss outsourcing with your clients, in accordance with IRS Section 7216, you do legally have to notify them if you are going to outsource their tax-return preparation offshore. Proper notification requires a standalone document signed by the client. It can be attached to an engagement letter, but experts say the document cannot be buried with other paperwork. It must be both separate and separately signed.  

Whether clients will read or ask about the outsourcing document is another matter. You need to be prepared to allay any concerns. Along those same lines, consulting with legal counsel is a good idea before outsourcing tax work offshore. There are companies that specialize in launching offshore operations; two of them are TOA Global and GKM 

While onshore outsourcing can certainly ease the burden of tax work for your employees, offshore outsourcing adds the benefit of increased cost savings. For example, an extremely well-compensated accountant in India, a major target country for tax outsourcing, makes the equivalent of about $7,500 per year. A similar accountant in the Philippines, another common site for tax work, makes about $15,000 per year. (Both salaries are well above average in their respective countries.)  

Outsourcing tax work still requires management from your firm

Outsourcing tax-return preparation is an effective tactic for easing the burden of tax season for your employees. It is not, however, as simple as turning over work and walking away. Your firm needs to manage your outsourcing partner, making sure workflows and business processes are clear for both parties.  

For offshore outsourcing in particular, there are a couple different management models. Your firm can work with firms, such as TOA or GKM, to hire offshore employees who work for your firm with management from your outsourcing partner. The employees report to firm leaders and work for the firm directly, providing extra help in tax preparation at a lower cost. Your firm is simply supplementing your staff overseas. 

Or your firm can simply turn the processing of tax returns over to a partner, which then essentially subcontracts tax work to an overseas organization. The partner takes care of sourcing workers and getting returns processed. You won’t necessarily know who is handling returns, just that your partner is taking care of the process.  

In both models, your firm has some management work to do. Either you are working with a partner to oversee the management of overseas employees, or you are ensuring that your partner is completing tax work satisfactorily. With either option, management of workflows and processes is essential. And that management works best in the security and flexibility of the cloud.  

Outsourcing tax work will be critical to the future of many firms

Outsourcing isn’t necessarily easy, but it can lessen the burdens of tax season for your employees and help your firm become a destination for accountants rather than a place they want to abandon. Staffing issues and tax-season workload will only become more difficult challenges in the years to come, but outsourcing is a viable option for firms looking to survive and grow. 

The key is to remember that outsourcing saves work but also takes work. Your firm is still responsible for managing processes and workflows in whichever model you choose. And outsourcing absolutely must take place in a cloud environment for the sake of not only cybersecurity but also to keep operations running smoothly.  

Subscribe to our blog

Get Rightworks articles delivered straight to your inbox.