Council Post: How To Offer Tax Planning, Not Just Tax Prep: A Guide For Accountants

CEO/Founder The Concierge CPA Consulting, and TaxPlanIQ, a SaaS Tax Planning Software for Accountants.

Tax planning is different from tax compliance, tax preparation or even tax projections.

The hard truth is that most tax accountants are only tax preparers. They review your prior-year data and add new info for the tax return. Sometimes they identify some after-the-fact things you can do like fund a simplified employee pension (SEP) plan or individual retirement account (IRA). This is tax compliance/preparation, and typically a tax-preparation software is used to do this.

Tax planning, on the other hand, is a proactive offering that goes far beyond this and looks to the future to provide tax savings ideas—preferably using what I refer to as the ROI Method. (By the way, “tax advisory services” is just a new hot phrase for “tax planning.”) There are a few software as a service (SaaS) software solutions that identify tax-planning opportunities, provide a quote to the client and track tasks.

Between these two services are tax projections, which are based on prior-year information or information the taxpayer has provided the accountant in the current year. Tax projections are also not tax planning. Tax projections are done in the accountant’s tax-preparation software or in special projection software for determining what’s owed.

These definitions get convoluted, even in our profession!

It is possible for many taxpayers to benefit from tax planning and the savings that can result, and the higher their marginal tax rate, typically the bigger the savings. It often helps to have self-employment income or rental properties, something more than a simple W-2 as income.

As a coach and consultant for accountants, and from running my own certified public accountant (CPA) firm, I recommend three levels of service offerings (i.e., tax packages):

• Basic: Even a W-2 earner can benefit. Consider charitable donations, itemized deductions, brokerage transactions and employer benefits. This tends to be a semi-annual engagement. In my experience, this tends to result in a few thousand dollars of tax savings per year.

• Professional: This is a good fit for a business or rental property owner that should have quarterly tax projections done in conjunction with entity selection, maximizing business deductions, etc. In my experience, there tends to be $10 to $20,000 in tax savings on average.

• Elite: This is for a high net wealth or substantial business client who has multiple entities to manage, a family office or may have a business purchase or sale occurring at any time, so you can be ready and available to do planning throughout the year as needed. In my experience, this may produce tens of thousands if not hundreds of thousands of dollars in tax savings per year.

What steps does an accountant take for tax advisory services like this?

1. Inform clients.

If accountants often don’t understand these definitions, taxpayers sure don’t! Use materials to help get the word out. Any client or potential client can take advantage of this so they know when tax planning is helpful. It’s important to be clear about what’s included or not included (in scope work).

2. Learn common strategies.

Learn how the most common tax strategies actually work, perhaps using a tax-planning SaaS. Look for things like:

• A client overview.

• Things the accountant needs to know.

• Opportunities and risks of the strategy.

• Checklists (for the accounting firm) and to-dos (for the client).

• Additional resources for the client and accountant: templates, videos, IRS guides, etc.

• A client portal, a presentation deck and implementation steps.

3. Identify applicable clients.

As you prepare a client’s 1040, make note of good prospects to follow up with. Brainstorm what current (or potential) clients could be an easy tax-planning win (e.g., $5,000-plus tax savings), such as a Schedule C with a taxable income of more than $50,000, or a client in the highest tax bracket with a business or rental property. Consider the PITA (pain in the a—) factor and if you have a copy of the prior year’s return(s).

Once you’ve identified a potentially applicable client, send them an email with questions that can help you pinpoint easy tax-planning ideas for them.

4. Take notes.

Start adding ideas to a client’s plan in your tax-planning software for a return-on-investment (ROI) estimate:

Add the client’s information, tax bracket and overview, or import this info from tax-preparation software.

Look at potential ROI by noting three to five key strategies for their tax plan. Some examples:

• Choice of entity, income shifting.

• Maximizing business deductions.

• Itemized deductions.

• Healthcare HRAs and HSAs.

5. Finalize the quote.

Send any final questions to the client, with a 24-to-48-hour turnaround, to help ensure accuracy on the ROI estimate. Use this email before client sales meetings.

6. Hold sales meetings.

Always present face to face or via Zoom with a client to sense their body language and personality style. Discuss pricing (this is not a free service!). Use an ROI report and/or slide deck presentation. Ensure that the engagement letter and ACH request information are ready for the client to e-sign. Set appropriate boundaries if you only have a certain amount of time to honor a quote. I like to say: “With our limited resources, I can only honor this quote until X date.”

7. Implement.

Once the client has signed the engagement letter and paid the implementation and first month’s fees, start adding goal task dates to each strategy. Create a timeline of implementation and produce a tax-planning report for the client.

8. Hold a client onboarding meeting.

Discuss the tax savings ROI report and implementation timeline. Check in often with the client and show progress on their plan within the first 30, 60 and 90 days.

9. Look at quarterly tax projections.

Collect recent information from the client to provide a proactive projection that includes your strategies.

10. Don’t forget an annual strategy meeting.

Every year, a few weeks after their tax returns are finalized, schedule this meeting with the client to compare their estimated versus actual tax savings report in your tax planning software, adjust pricing or upsell new strategies/packages to the client.

Consider these steps for a successful tax advisory service engagement.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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