How Financial Advisors Can Offer Tax Planning Without Preparing Returns

Your business-owner clients likely already ask you about taxes. They ask before a big distribution, after a strong year, and every time they think about selling the company. Most advisors answer with some version of "talk to your accountant," and the conversation ends there.

But that answer costs you…and that doesn’t mean you should prepare the return. It means there may be room for you to help the client think through the decision before it’s made, then coordinate with the accountant who handles the filing. This is the main role of a financial advisor when it comes to tax planning: help clients understand the tax impact of decisions that are still ahead.

What does tax planning without return preparation mean?

Tax preparation reports what already happened; Tax planning looks at what the client could do next.

That might mean comparing an entity change, modeling a Roth conversion, considering the timing of a large charitable gift, or reviewing the tax impact of a business sale. The advisor helps evaluate the decision while the accountant can handle the return and filing.

This is why you don’t need to prepare returns to help a client plan. Preparing federal returns for pay requires an IRS Preparer Tax Identification Number, and paid preparers can face penalties under IRC §6694 for certain understatements on returns they prepare. Tax planning is a different kind of work, though your firm’s compliance policy may set limits on the advice you can provide.

There’s interest in adding the service. In Financial Planning’s Financial Advisor Confidence Outlook survey, 29% of advisors said they provide tax planning themselves. Of those who don’t, 44% said they were considering adding it. So, many advisors see the opportunity. The question is how to offer the service while keeping return preparation with the client’s accountant.

Financial Advisor tax planning for business owners starts with the decisions they face

Business owners make decisions that can affect their personal tax bills throughout the year, such as how the business is structured, how the owner is paid, which retirement plan the company sponsors, when equipment is purchased, and how an eventual sale is arranged.

Entity structure is a common first conversation with business-owner clients that many advisors have. TaxPlanIQ Projections can model things such as the Schedule C version of a client next to an S-Corp version. Having access to projections, scenario modeling, and entity comparisons is extremely valuable for many financial advisors. Even if an advisor doesn’t have a ton of business owner clients, having the ability to model scenarios comes in handy for many high-net-worth families and high earners.

With TaxPlanIQ financial advisors can do scenario modeling for any client, including features such as entity comparisons, Roth conversions, IRMAA, Solve for Max, and Range Calc

Other common planning conversations with business owners may include:

• Retirement plan options, from a solo 401(k) to a defined benefit plan
• How owner compensation affects the qualified business income deduction
• Timing income and major purchases around stronger or weaker years
• Planning for a sale years before a letter of intent arrives

Again, you don’t need to prepare the return to start these conversations. You need the return the accountant filed, a clear understanding of the client’s goals, and a process for evaluating what could change.

Tax planning financial advisors can do for high-net-worth clients

High-net-worth clients also face decisions with tax consequences, often tied to investments, charitable giving, or a planned sale.

For example, many financial advisors can help a client evaluate:

• Roth conversions in light of this year’s tax bracket and their expected future income
• When to realize capital gains or use losses to offset them
• Charitable gifts through a donor-advised fund or qualified charitable distributions from an IRA
• The potential net investment income tax on a planned property or business sale
• Medicare premium surcharges that may follow a one-year increase in income

These are decisions to evaluate before the client acts. As the advisor who understands the client’s portfolio and broader financial picture, you may be well placed to identify the question. The accountant can review the details and advise on reporting.

One advisor, Ron Joseph, put it this way: “When you show people how to keep the money they’re already making, they’re way more open to talking about how to grow or protect it.”

How TaxPlanIQ supports advisor tax planning

TaxPlanIQ helps advisors review a client’s tax information, evaluate potential strategies, and prepare a plan to discuss with the client. The workflow looks like this:

1. Upload the client’s 1040.

2. Review strategy recommendations.

3. Compare scenarios with projections.

4. Build and present a tax plan.

5. Share the plan with the accountant. 
   

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Why flat-rate pricing matters

Some platforms charge more as you add households. That can make advisors think twice before running a plan for a smaller client or prospect.

TaxPlanIQ charges a flat monthly rate, with no per-household or per-client fees. You can see the plan details on the TaxPlanIQ pricing page.

Flat-rate pricing gives you room to decide which clients could benefit from a plan without calculating an extra software charge for each household. You can also run a plan for a prospect before they become a client, if that fits your firm’s process.

Working with the client’s accountant

A plan is more likely to be useful when the accountant can review it too. The client’s accountant can understand what you’re recommending and have a chance to weigh in on the tax details.

A well-organized handoff can make the plan easier for the accountant to review and can support a stronger working relationship. Ron Joseph of Elite Consulting Services, a TaxPlanIQ user, says his accountant partner began referring other clients to him after they worked together on plans. If you’re curious about how it works, take a demo here.