The Accounting Services, Tax Preparation Services and Payroll and Bookkeeping Services industries have undergone moderate volatility over the past five years. Heavily affected by shifts in federal policy, these industries have been significantly impacted by the current administration’s widespread regulatory changes, creating both threats and opportunities for accountants.
Most recently, accounting and tax preparation operators have been affected by the 2017 Tax Cuts and Jobs Act, which eliminates many tax exemptions and simplifies the tax preparation process. As tax preparation will be a different process in 2019, this is likely to change how tax preparation businesses operate. Aside from the tax law, the Tax Preparation Services industry could also be impacted by the Tax Preparer Competency Act, should the bill introduced in 2015 make a return to Congress. If passed, the bill would create competency standards for tax preparation businesses while requiring all tax preparers to acquire federal licenses.
The Accounting Services and Tax Preparation Services industries primarily cater to two markets: individuals and corporations. Services for individuals mainly include tax preparation, budget management and estate planning. Demand for these services increases when per capita disposable income rises. Accounting services are a luxury, or unnecessary expense, for the average person, so people with low incomes are unlikely to hire an accountant for budget management or tax preparation. Over the next five years, income levels are expected to rise as a result of the new tax law, enabling individuals to bring more money home after taxes. Over the five years to 2023, IBISWorld expects per capita disposable income to rise at an annualized rate of 1.9%, driving demand for accounting services.
Corporate clients are the largest market for accounting services, and include businesses in the retail, manufacturing, finance and mining sectors. Demand from these sectors fluctuates when regulation changes in these sectors. When regulation increases, businesses have greater demand for accounting services because the accounting needs of these industries become more complicated. However, over the next five years, most sectors are expected to become relatively less regulated. The current administration has committed to rolling back regulations throughout the economy; for example, in 2017, the Dodd-Frank Act—which regulated the financial sector—was rolled back, resulting in less accounting regulation for businesses in this sector. Over the next five years, the Accounting Services industry may contend with a threat to demand from corporate clients as a result of decreased regulation.
Despite deregulation, revenue recognition standards for several industries are expected to take effect this year. In May 2014, the FASB and IASB clarified a series of joint standards on revenue recognition. In the United States, GAAP standards contained as many 200 separate items of reporting guidance, many of which were industry-specific for segments such as software and media. The newly written standards, set to take effect in 2018, aim to remove inconsistencies and weaknesses in existing revenue requirements and improve disclosure requirements.
One consistent trend that has threatened traditional brick-and-mortar accounting operations is the growing prevalence of online tax preparation and accounting software. Software packages like TurboTax, TaxAct and QuickBooks offer industry services at home without generating brick-and-mortar revenue. These services have become more popular over the past five years as tax preparation software has become more affordable. For example, in 2018, TurboTax allowed customers to file state taxes for no fee, raising demand for online tax preparation. Additionally, budget and accounting software like QuickBooks attract demand from small businesses. Traditionally, accountants have been able to compete with software like this because QuickBooks is unable to manage the tax needs of most businesses. However, when the new tax law simplified tax preparation, competition from software grew. Over the next five years, IBISWorld projects brick-and-mortar accounting companies to experience greater threats from software.
Edited by Stephanie Conte. Designed by Anam Baig.
Industry Impact: Accounting Services; Tax Preparation Services; Payroll & Bookkeeping Services; Management Consulting; Tax Preparation Software Developers
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