The Economics of Tax Accountants

Through no foresight of my own, I ended up obtaining my CPA and starting a career in tax during an extremely optimal period of time. After many conversations with various tax practice owners looking for more staffing and a multitude of financial planners who are either looking for more tax planning work or tax accountants to network with to give work to, we can safely say the tax landscape has changed a lot over the past 5 years. There are many reasons that, combined, give the labor market challenges accounting firms are experiencing as we speak. I am focusing on the tax side of the business, so think "tax accountants" if I say accountants, though this does bleed into other areas of accounting. Also, as much as I want to rant about being forced to use a 10-key calculator, I'll desist for now (IYKYK) :)

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Through a variety of factors, including fewer college enrollments, stagnant wages, a heavy workload and many more, the labor pool for accountants has not gone up. In fact, according to the Bureau of Labor Statistics and the Wall Street Journal, over 300k accountants QUIT between 2019 and 2021 causing the 2022 number of accountants to be down from the 2019 level by 15.9% (this is after new entrants to the field were accounted for). There has been small gains from 2021 to 2022 but not enough to offset the drop-off. On the flipside, the workload for accountants in tax has gone up tremendously with a lot of tax law changes coming through the industry was not used to having.

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Education

In order to be a CPA, though different states have different requirements, typically candidates must have 150 credit hours, which amounts to a Master's degree. A master's degree is NOT required (no state requires this to my knowledge) but it has become common for students seeking a career in accounting who want to obtain their CPA to get their master's degree in the process. However, the entry way to this field is typically through a bachelor's degree, and the NPR reported back in 2022 that college enrollments were down by 1 million. The AICPA reports accountant majors decreased by 7.8% between 2021 and 2022 If the typical pipeline is bachelor's>master's>CPA firm>CPA, the foundation itself is seeing less students which is ultimately going to have a downward trend on the rest, arguably regardless of industry.

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Accountant Wages

According to the Wall Street Journal, In 2010, accountant wages starting out were about 58,000. in 2021, they rose to about 66,500. While this may look rosy at the onset, that is a measly ~1.01% increase each year. Going back to the education piece, consider college inflation costs have been around 5-7% each year (FinAid says 8%), so in real dollars, new entrants to accounting are making less real dollars than they would have a decade ago, especially when considering not only the cost of the master' degree, but the loss of potential income that could have been made in other career paths. As a comparison, tech salaries have gone from ~77k to ~101.5k (2.5% increase each year, bachelor's degree required, no master's) and data science wages from ~69.4k to 97.5k (3.1% increase, no master's).

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Now to be fair, a lot of firms have increased their wages in the past couple of years to compete for limited talent, but at the foundational level, convincing students to take on an extra year of school with additional college debt is going to be a challenge when there are a lot of other career choices out there with higher starting salaries with more pay (despite the wage growth rates). Now are the other career paths mentioned temporary changes, or permanent? I'm not sure, but if we add other careers such as finance, actuarial analysis, and engineering, there are other options not requiring 150 hours or a Master's degree. Entry-level wages will likely need to come up drastically to compete with other career choices, and that doesn't consider the next factor.

Hours Worked

If you want to hear some entertaining stories, hop over to the accounting subreddit and look at how employees feel about their work-life balance. On top of having slow pay increases, as noted above, the expected hours for workers in public accounting are tremendous. In the best situations, it is typically 50+ hours per week during the busy seasons. In the past several years (likely due to frequent tax code changes since the Tax Cuts and Jobs Act, paired with fewer accountants to do the work) two busy season have emerged, from 2/15-4/15 (sometimes a bit earlier) and 8/15-10/15, the extension deadline. Though the extension filing season tends to not be as busy as the traditional filing season, it has picked up in the past 5 years.

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In summary, if you are considering working with a tax accountant and wondering why they charge so much for "simple" preparation services, I hope this explains why. If you are looking to build your own tax practice, potentially as an extension of your own service offerings, keep in mind obtaining employees is not an easy task. Fewer students are enrolling in schools, and the drop-off is more drastic for to-be CPA's in accounting programs. Wages have not kept pace with other professions, and certainly not with the education inflation which is a cost anyone obtaining a bachelor's or master's degree should consider. On top of that, the work-life balance has always been a challenge, too and it is well-known in public accounting.

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This all said, you can still attract talent, just recognize the pool is small and economics dictates wage are (and need to be) increasing at higher rates than previously seen. Talk with a good recruiter in this space, and they can better inform you what you need to pay in order to get talented employees (or let you know what you should be paying to keep your current employees from the temptation to work elsewhere).

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As for the future, if we combat the issues that above that seem to be keeping people from entering the field, perhaps reversing them, that may entice more folks to become accountants. What do you think needs to happen? An idea: better puns..."LIFO the party" just doesn't hold the same weight as "minding your P's and Q's" (economics).