[Fratty Redneck]

I’m thinking about starting a side gig next year preparing tax returns. What software is best to use for say 50 clients? The clientele will include individual and business returns.

Will I need to purchase professional liability insurance? Any tips and recommendations are appreciated.

[turo9992000]

Taxwise costs about $600 and it includes $300 in efiles. individuals cost $20 to efile and business cost $30 to efile. That's worked for me in the past. I just charge people the efile fee.

Intuits Proseries also has a pay as you go model $300, then $36 per individual and $58 per business. They also have other bundles that you might find better.

Taxwise will get it done, but it's not as slick as Lacerte or Proseries, and their offseason support is not too good.

[Recked]

Do you need insurance? No, you CAN operate as “self-insured”.
Do I recommend it? No. Depends on your cash reserve, risk tolerance, and probabilities or errors or erroneous tax advice that might get your in a bind or lawsuit.
I would recommend you at the very least price out an E&O policy. NATP and those types of organizations send me offer for insurance as low as $200 bucks (but it will mostly depend on the services you provide and the expected revenue derived from the services.)
Our current E&O is running about $1500 a year with no audit exposure, no audited financials or public companies. ($500k/1mil)
In addition to, and perhaps MORE important is our cyber rider which we added on this year. An extra $750 provides us with $500k liability PLUS $500k in cyber response.

If your computer or laptop gets compromised the costs associated with that data theft will be more than you are comfortable paying out of pocket. Notifications to clients, lifelock for clients, notifying the IRS, your PTIN being locked down, potential lawsuits from clients, or lawsuits to defend clients who had their identity stolen, etc.

Software advice is the same as review course advise. They all offer trial offers. My firm uses UltraTax. It is not very affordable, but for smaller startups they do offer a one time license fee of maybe $200-300, and then a PRP price per return fee. They will get you for the FED, plus the state, plus the e-file cost. They also have an electronic file cabinet for an additional fee where you can store copies of tax returns you prepare, and this file cabinet lets your create password protected .pdf files you can email to clients for another delivery option.
The full packages with unlimited really adds up, we're shelling out about 13k-15k per year for the software package, plus they get us for PRP codes for states that we don't have an unlimited license for. We probably send then 18k-20k a year when its all said and done.

The 2 most common software providers I hear at professional conferences are Lacerte and Drake. Drake is probably one of the cheaper options that I hear many smaller firms using.
Quickbooks did have an offering as well that might be Lacerte or might be stand alone. Turbotax also offers a system that you can use to prepare and e-file returns for clients.

If you are licensed, which I think you are, be sure to check and/or register your firm with your state.
Even though I am licensed in NY, if I were to operate on my own I would need to register myself as a firm and pay another fee on top of my license renewal.

If you are currently employed in a CPA firm you need to be careful with what you are or are not allowed to do outside the firm.
The main reason I have not started a side gig to date is the ethics of the matter. It becomes a very grey area where I can take a client I've handled the last 5 or 10 years and mention that I also work on the side and could reduce their bill by 25% or something of that nature. If I were morally bankrupt I could keep collecting my paycheck and divert a great deal of business to a side venture.

[Anonymous]

I am a Senior at a CPA firm and we use Ultra Tax, which is great but its expensive and not great when it comes to multiple state allocations. We wanted to switch to Lacerte but the problem is we have so many existing clients and importing/transferring the data is a huge issue (for respective states & cities), especially fixed assets, NOLs, etc.

I think for 50 clients, you might want to look into Intuit Proseries (desktop) or Proconnect (Online) or Lacerte (this might be little expensive). The great thing about these intuit platforms that they offer integration to QuickBooks, which is great if you use it for the clients during the year. When you buy a software keep in mind about the additional cost for out of state returns, which I know Ultra Tax charges per return pricing if they are outside of your home state.

Do a demo and see if you like them before you make a decision.

[Fratty Redneck]

Thanks for all of the advice. Is that E&O offer for $200/month or per year? On the high end, this thing would only gross around $25k in the first year. My old firm used UltraTax and FileCabinet which I loved and am very familiar with. If affordable, I would certainly prefer to use that since I'm most familiar with it.

I am employed by a law firm and assist the tax practice group with tax controversy work. Ironically, we refer many of our non-compliant clients to CPA firms in the area. It would be nice to be able to do it myself. The law firm just doesn't want the added liability of tax prep in-house, which I understand.

[Recked]

As of March 8th 2018 the Ultra Tax PRP setup for a stand alone/start up.
I did the leg work while awaiting my final passing score.
PRP License 255 (buys you the software)

Individual PRP (price per return, fee per return PRINTED) you can do the return to see the results but have to pay to print and create e-file
1040Fed 26
1040State 19
ELF $8 Fed including state

Business/Other
Fed 36
State 23
ELF 13 fed including state
1120 Con = 60

FBAR is an extra $8 for 1040 and 13 for business/other

The FileCabinet license as per our renewal is $585, plus $180 for network users.
I feel like they had a reduced offer price on FC when I called.

Your fees will need to be on the high end in order to cover the PRP fees plus your time. Once you get more clients it pays to get the unlimited license for different products once you cross the price point threshold.

The $200 offer was for a year, but it was some generic flyer in the mail that said you can be covered for as little as $200.
I would work with your local insurance people, or a reputable brand/chain. I think our current E&O is through Philadelphia, but the Hartford also has E&O, and Erie handles the business liability with cyber rider.
The biggest factor will be whether you use engagement letters, and your number of clients and gross revenue.

[Recked]

So to recap on the above.
$53 for a 1040 with one state.
$72 for a business with one state.

We try to get at least 300-350 for an individual, and corps can range from 300 for a zero return and up.
I try to target at least $750 from a corp, shoot for $1500 if they actually make money.
Small S corps I'll get about $2000 for business and personal (if they make money).
Larger corps doing in excess of $1mil in gross I usually try to get over $1500. It all depends on the time invested.

You need to determine your costs, and then work back into your price structure given your anticipated number or clients.
Don't give yourself away. It's easy to undercut and take market share from price hunters, but at the end of the day you're left slaving over tax returns for very little money, and if you attempt to increase your fees to actually make what you are worth, your clients leave for the better price point. I am very upfront with people about my hourly rate, what I anticipate their return will cost, and the value in the service I provide. I am very open and honest that if they are looking for a bargain I know I am not the cheapest option and they are welcome to shop around. The ones that stay are worth my time, and my time is worth something to them.

My strategy would likely be different if I needed the clients to make ends meet.

[turo9992000]

@recked, how clean is the client's stuff that you get? A lot of the clients we get that would be in your $1,500 range sometimes need a lot of cleanup work. Do you look at their books first before giving them a quote, do you give them quotes?

I'm wondering if my firm should convert to fixed pricing.

[Recked]

When I first started here 16 years ago I was the clean up guy. Entering, doing bank recs, etc.
Now its no longer cost effective for me to do that type of bookkeeping. We have secretarial staff that do some data entry for clients that have smaller numbers of transactions.
Any larger entity that needs bookkeeping or write up I try to push to an outside service to avoid the liability. If I had juniors or staff that I needed to keep busy in the 50-100/hour billable range I could keep that work internally, but would then need to review it all as my name is on the line.

If someone comes to me with a basket case I have a few quality bookkeepers in the area in the 40-50/hour range that I will generally refer them to to either have the bookkeeping done before it gets to me, or to help them clean up and then train them to use QB themselves. That arrangement has been working out very well for me. I tell them my hourly rate vs the bookkeepers hourly rate. Sure I can clean this up and get it in the shape necessary to do a tax return, but you will not be happy with the bill. Most people get the picture.

So to answer your question, yes I try to look at their books first. If its a new client at the bare minimum I ask them to bring in the prior years return, plus a P&L and balance sheet for our initial meeting from their QB. I don't even want the QB file yet. If the P&L looks all funky with negative expense items, mortgage payments as an expense item, personal items on the P&L then I refer them to the bookkeeper. I also always try to give them a ballpark but ultimately they are paying for my time, so if issues arise, or there is a lot of back and forth calls or emails to get the information, that all represents time I am investing in them.

Value pricing seems to be the new trend or target in this industry, which more or less amounts to how much value can you sell or convince the client to pay for. If I have a 1040 client with one W2, with review of prior year, plus setup of the new file in the system, prep, processing, emails etc I might have an hour invested in that client for $300. Next year prep times goes down since they are already in the system but I'll still get them for the $300 plus the yearly increase. We have toyed with the price per form and price per W2 model etc, but sometimes we ended up with invoices that were just comical and I could not justify the bill. I'm still working on that pricing model, just need to narrow down the different prices for different forms.

I strongly feel the price per form/w2/sch B and D line items, is the money maker method. Similar to any hospital or vet bill. All the little charges for each form are there in black and white, and they are all small enough when taken individually, but add up to a decent charge. Once you start assigning a value to all the little items that you do to save the client taxes, you make more money and they see the value you are creating for them. Most of the stuff the software does automatically, but you pay for the software to save you time, so that cost needs to be transferred.

[Recked]

If a client does not wince in pain when I give them the bill, I know it wasn't enough.
I want it to hurt, but to just hurt enough that they know they are paying good money for the service I provide.

If they pay it with a smile I know they thought it would be more.
If they wince and then start to bitch, then I will normally inquire what they thought the bill would be, and why they thought it would be that much.
If its a large increase over the prior year that I did not properly prepare them for, then I offer a discount because I did not do my job.
If they are a new client and expected a lower bill, I will go over the work, what cost additional time, where they can cave time in the future, and I will typically offer a discount if I can.
If we are just not seeing eye to eye, my final line is to tell them they can pay me what they think its worth, and we agree to part ways (unspoken rule that they never call me again).

As long as I feel I can still get compensated somewhat fairly for my time, I don't mind providing a little discount to keep them coming back. A little less now, will be made up in years to come.

When people refer me to someone else, the words I like to hear are, he's expensive, but he's worth it. He's expensive but I get excellent service.

[Author]

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