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Tax Advisory Services and Tax Planning: What is it, how does it work, and why is it important for your Accounting Firm?

April 17, 2024 TaxPlanIQ Support team

Let's talk about tax advisory services – a big deal for accounting firms and business tax consultants, but why exactly? Well, it's not just about making sure you're following the rules. Tax advisory services are like having a secret weapon that can seriously boost your firm’s revenue. Now, some tax advisors are most likely bundling tax advisory into their tax prep services without really calling it out or charging extra for it. The problem is clients might not realize the goldmine of knowledge they're getting, and your firm could be leaving a lot of money on the table.

Tax advisory services span a wide range of individual services, but today we are going to focus specifically on strategic tax planning services and why it is so important for you to start offering tax planning as part of your firm’s services. Let’s start with the basics…

What is Tax Planning & Why is it an Important Accounting Firm Growth Strategy?

So you've heard about tax planning, but what exactly is it? Tax planning is different from tax compliance, tax prep or even tax projections. Basically, it's all about finding ways to slash your clients’ tax bills on a proactive basis. But here's the thing – it's not just a one time offer. Tax planning is a year-round gig, making it a super lucrative offer for your firm!

Imagine this… you're looking at a clients’ investments, and you realize some are tanking while others are booming. A solid tax plan might suggest selling off the losers before the year ends. Why? Because those losses can actually offset the gains from the winners, saving your client a bundle in taxes. And when you do this, your clients become much more loyal and are likely to stick with you for years to come. 

Now, tax planning is a crucial part of managing your clients’ finances because by planning ahead, you can figure out which tax breaks your clients are eligible for. Here’s some ways in which your clients can benefit from tax planning:

  • Deductions: These are expenses you've had throughout the year that you can subtract from your total income, like money given to charity.

  • Rebates: Sometimes, to boost the economy during tough times, the government might offer rebates, which are like getting a refund after taxes have been lowered. Rebates can also encourage eco-friendly activities.

  • Credits: These are amounts you can deduct directly from the taxes you owe. They’re available for various situations, such as being a student, part of a low-income family, or having kids.

  • Concessions: This is when the government reduces the tax amount for certain groups to promote specific actions.

  • Exemptions: If you have dependents, like children or other relatives you support financially, you can get exemptions to reduce or even remove your tax obligations for each dependent.

And tax planning isn't just for those high-income clients; it's something to consider offering to even your smaller clients because without a tax plan, they might end up paying more taxes than necessary or miss out on potential savings!

Why Should Your Firm Offer Strategic Tax Planning Services?

Offering strategic tax planning is a smart move for any accounting firm looking to boost its value and keep clients happy. This approach helps clients not just follow tax laws, but also save money where they can by minimizing their tax bills. It shows that your firm cares about their long-term financial health, which can really strengthen your relationships. Plus, it sets you apart from other firms, attracting new clients who want savvy, forward-thinking advice. 

Let's break down some of the main reasons why offering strategic tax planning services is such a win-win for not only your firm, but also your clients:

  • Maximize Client Tax Savings: Strategic tax planning helps clients minimize their tax liabilities by identifying deductions, credits, and strategies that they may not have been aware of otherwise. This ultimately results in more money staying in the clients' pockets.

  • Increased Client Satisfaction & Loyalty: Offering tax planning services demonstrates a commitment to clients' financial well-being beyond just compliance. By helping clients save money and achieve their financial goals, accounting firms can strengthen client relationships and foster loyalty.

  • Competitive Advantage: In a competitive market, accounting firms that offer strategic tax planning stand out from the crowd. This additional service offering can attract new clients and differentiate the firm from competitors who only provide basic tax preparation services.

  • Better Financial Choices: Tax planning isn't just about the IRS – it's about making savvy decisions for your financial future. Whether it's saving for retirement or investing in your business, tax planning helps you make the smartest moves possible.

  • Improved Cash Flow: By utilizing specific tax strategies, clients can better manage their cash flow throughout the year. This is especially crucial for small businesses, as it allows them to allocate funds more efficiently for operations, investments, and growth.

  • Legal Compliance: Staying compliant with tax laws and regulations is essential for avoiding penalties and legal issues. Strategic tax planning ensures that clients remain on the right side of the law while maximizing their tax benefits.

  • Follow Up Regularly: Keep in touch with your clients and provide regular updates on tax laws and regulations. This shows that you are proactive and committed to helping them manage their taxes effectively.

  • Opportunity for Upselling: Offering tax planning services opens up opportunities for upselling additional services, such as financial advisory, wealth management, or estate planning. This allows accounting firms to expand their service offerings and increase revenue streams.

4 Tax Planning Strategies Your Firm Should Offer

As we’ve learned, tax planning is more than just an annual task – it involves a variety of strategies that can significantly enhance your clients' financial well-being and expand your firm's services. Here are some essential tax planning strategies to consider offering:

  • Entity Election: This is basically the choice you make as a business owner about how you want your business to be treated for tax purposes. The choice between operating as a sole proprietorship, partnership, corporation, or S corporation can have significant tax implications on a client’s business. Each choice comes with its own tax perks and pitfalls, so it's a big decision that can really impact their bottom line. If in a state where a lawyer needs to do the setup, you can still partake in the analysis!

  • Reasonable Compensation: "Reasonable Compensation" basically means the amount of money you pay an employee that's considered fair for the work they do. We see this a lot when we're talking about S-Corp owners since the IRS requires it. But a common question is, “How do we decide what's considered reasonable?” Well, it's all about comparing their salary to what other folks doing similar jobs at similar companies are getting paid. For example, if you’re working with a client who is a CEO and top salesperson at an S-Corp, we'd look at what other CEOs and salespeople in similar industries are making to figure out if your client’s paycheck is on par. It’s a delicate balance because lower pay is less payroll taxes, but higher pay is better benefits like retirement plans. By the way, our strategic partner RC Reports kills it by automating this process!

  • The Augusta Rule: The Augusta Rule, also known as Section 280A(g) of the Internal Revenue Code, allows you to rent your primary residence for up to 14 days per year without having to report any rental income. This can be a beneficial strategy for tax-free income. Here are some key guidelines: 
    • The rent charged must be reasonable. 
    • You must document the business use of your home, such as meeting minutes and attendees. 
    • This rule applies to any taxpayer who owns a home in the US, even if the home is not their primary place of business. However, if your primary place of business is your home office, you can't double-dip. This means you can't deduct home office expenses for yourself and rent your home to your business.

*Be sure to read this in-depth article on The Augusta Rule.

  • Accountable Plan: An accountable plan is essentially a set of guidelines that a company establishes to manage how employees are reimbursed for business-related expenses they pay out-of-pocket while performing their job duties. This document details the company's policies on which types of expenses are reimbursable and how employees should report them. Most of the time, an accountable plan can save a taxpayer more money than simply deducting meals and travel costs separately. These are for employees only, so am s-corp or c-corp owner. Partner and sole proprietors just report a home office deduction.

In short, tax planning isn't just about filling out forms once a year. It encompasses many strategies that will help to keep more of your clients’ money in their pockets and allows you to increase your firm’s service offerings.

How to Start Offering Tax Advisory Services to Your Clients

Ready to expand your accounting firm's offerings and reduce burnout? Adding tax advisory services can significantly enhance your client relationships and increase your firm's revenue as we discussed above. Here's a simple guide to get you started:

  1. Understand Your Client's Needs: Collect their last filed personal tax return and load it into a software like TaxPlanIQ to provide tax strategy ideas (or scroll through it the old fashioned way). Ask them about their expected income for the year, any personal or business changes, and their financial goals. It is imperative to know their liquid cash situation, as many tax strategies require cash outflow to then receive the deduction, credit, etc. 

  2. Develop a Tax Strategy Plan: Consider budgeting, investment strategies, and risk management when creating a tax strategy plan for your client. Provide advice on taxation laws and regulations to help them maximize their profits. Consider the ROI you can bring to the table for them in value pricing the work.

  3. Set Your Fees: Determine your fees for consultation, advice, and services. Make sure to communicate these fees to your clients upfront and ensure they understand that fees are earned when paid and are non-refundable. Also, consider implementing value-added pricing into your tax advisory services. This strategy involves setting prices based on the value a customer perceives in a product, rather than solely on production costs or past prices. It focuses on highlighting and charging for the unique benefits your service offers. This approach can help clients see the value in the services provided and be more willing to invest in comprehensive tax planning. Value pricing is not contingent fees, but it is very win-win!

  4. Prepare a Proposal: Use software like TaxPlanIQ to prepare a tax plan proposal for your client. You can download a full slide deck presentation that's custom-branded for your firm that shows the impact the tax plan will make on their taxes. 

  5. Implement the Tax Plan: Produce a full tax plan report such as in TaxPlanIQ, and catch up on any tax strategies, monthly CPE, and other resources you may need to stay on top of Tax Advisory Services.

At the end of the day, tax planning isn't just important for accounting firms, it’s CRUCIAL. It helps you navigate the tax maze, make the most of your money, build trust with clients, and stay ahead of the game. Bottom line? When it comes to not only your clients’ finances but also your own, tax planning is the way to go.

Check out some frequently asked questions from firm owners below:

How do I sell tax planning to my existing tax prep and bookkeeping clients?

Selling tax planning to your existing tax prep and bookkeeping clients can be achieved by demonstrating the value and potential savings they could realize. Here are some steps you can take:

  1. Identify Potential Tax Savings: Use software to analyze your client's last filed personal tax return and identify potential tax savings. This will provide a concrete example of how tax planning can benefit them.
  1. Educate Your Clients: Explain the importance of tax planning and how it can help them maximize their profits and minimize their tax liability. Use real-life examples and case studies to make your point.

  2. Offer a Comprehensive Service: Bundle tax planning with your existing services. This not only provides added value to your clients but also makes it easier for them to manage their finances. Also, you can add a monthly retainer to your services which can be a great way to provide ongoing tax advisory services to your clients.

  3. Use a Personalized Approach: Tailor your tax planning strategies to each client's specific financial situation and goals. This shows that you understand their needs and are capable of providing a personalized service.

  4. Provide a Clear Proposal: Present your tax planning services in a clear and concise proposal. Highlight the benefits, potential savings, and the process you will follow. Use software like TaxPlanIQ to create a professional and detailed proposal.

  5. Follow Up Regularly: Keep in touch with your clients and provide regular updates on tax laws and regulations. This shows that you are proactive and committed to helping them manage their taxes effectively.

Remember, the key to selling tax planning services is to demonstrate the value it can bring to your clients. With the right software, you can easily identify tax savings, create professional proposals, and manage your tax planning services effectively.

How can I identify tax strategies for different types of clients (e.g., individuals, small businesses, corporations)?

Finding ways to save on taxes for various clients involves understanding their financial situations, goals, and how much risk they're comfortable with. 

Here are some strategies tailored to different types of clients:

  • Individuals: 
    • Put more money into retirement savings to lower how much you get taxed on your income. 
    • Think about listing out all your deductions if they add up to more than the standard amount. 
    • Consider investing in a Life Insurance Retirement Plan (LIRP), which is basically a life insurance policy with a cash value growth potential on a tax-advantaged basis. This strategy is typically suitable for high-income or high net worth clients who are willing to commit to a long-term strategy (at least 15 years) and have about $15-40K of disposable income consistently each year that they would want to contribute towards retirement.
  • Small Business Owners: 
    • Write off your business expenses to lower the amount of money you have to pay taxes on. 
    • Check out different types of business setups (like LLC or S Corp) to see which one saves you the most on taxes. 
    • Look into any tax break strategies made just for small businesses that you might qualify for like The Augusta Rule and Reasonable Compensation.
  • Corporations: 
    • Use deductions like depreciation to bring down how much of your profits get taxed. 
    • Think ahead about how big business moves, like buying or merging with other companies, could affect your taxes. 
    • See if there are any special tax credits like the R&D Credit that apply to the business.
    • If your client has a large office space, consider doing a Cost Segregation study for these reasons:
      • Accelerated Depreciation: Cost segregation allows you to accelerate the depreciation on certain property assets. This can lead to significant tax savings and immediate cash flow benefits. 
      • Flexibility: You have the option to choose between traditional and DIY cost segregation approaches based on budget and comfort level.
      • Improved Cash Flows: The immediate tax savings from accelerated depreciation can enhance your available cash flow, which can then be reinvested back into the business.

Each person and business is different, so what works for one might not be the best for another. It's all about finding the right fit for your money situation!

What is the best tax planning software for analyzing tax scenarios and providing recommendations?

TaxPlanIQ is an excellent tax planning software for analyzing tax scenarios and providing recommendations based on it’s revolutionary ROI Method of Value Pricing. It offers a comprehensive suite of tools to manage tax planning and advisory services effectively for your accounting firm.

Key features of TaxPlanIQ include:

  1. Tax Strategy Proposals: TaxPlanIQ allows you to create professional and detailed tax strategy proposals, highlighting potential savings and listing out implementation steps for each strategy.

  2. Integrated Entity and Retirement Calculator: This allows users to effortlessly simulate various tax scenarios and their impacts on future tax liabilities.

  3. AI-Powered Tax Strategy Suggestions: The Pro version of TaxPlanIQ includes our very own Chat-GPT 4 AI assistant, jAIne. jAIne is programmed with tax strategy expert knowledge and can digest the information you provide and suggest tax strategies.

  4. Regular Updates on Tax Laws and Regulations: TaxPlanIQ keeps you updated with the latest tax laws and regulations, helping you provide proactive and informed advice to your clients.

  5. Personalized Approach: TaxPlanIQ allows you to tailor your tax planning strategies to each client's specific financial situation and goals.

How should I price tax planning services to remain competitive while ensuring profitability?

When it comes to competitive pricing, we suggest using “The ROI Method” which is a strategic approach used in TaxPlanIQ to identify potential tax savings for clients. It involves a series of steps:

  1. Introduce the ROI Method: Present the ROI Method with the goal of finding 200%+ in tax savings and offer a tailored quote to the client.

  2. Discovery Questions via TaxPlanIQ Questionnaire: Share a questionnaire with the client to gather essential information and set a mutually agreed-upon date for the client to return the information.

  3. Review Responses and Last Filed Return: Analyze the client's responses and review their last filed tax return.

  4. Customize ROI: On the ROI screen, users can customize the ROI over multiple years (from 3 to 10 years). The total tax savings will change based on the total of years chosen.

  5. Onboarding Meeting: Schedule an onboarding meeting with the client to go through the strategies and tasks.

  6. Annually Revisit the ROI Proposal: Compare the ROI proposal versus actuals in TaxPlanIQ and consider the next Phase of Planning.

To see the ROI Method in action, book a free demo with us today!

Whether you're looking to dive deeper into tax strategies or explore other avenues for tax savings, our resources and tools are designed to help you save your clients more money in taxes. It's easier than you think, and we're here to help every step of the way.

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