Are You a Tax Preparer or a Tax Planner?

Posted by Lee Reams II on

The vast majority of taxpayers who use professionals to prepare their taxes have little knowledge of exactly what the process entails. They are either 1) incapable of doing their own taxes, 2) intimidated by the thought of doing their own taxes, or 3) simply don’t have the time or interest to do them for themselves. 

But as a tax professional yourself, you know that there’s a big difference between tax preparation and tax planning. If your clients reach out to you for tax prep services and you don’t mention your tax planning abilities, there’s a good chance that you’re leaving money on the table, both in terms of potential savings for your client and additional professional fees for yourself. More importantly, you can’t change time and make up for mistakes that proactive tax planning would have identified had they been planned for. 

There’s no question that your clients could benefit from comprehensive tax advice, but few know that they should ask for it. Most assume that tax preparation includes suggestions for how to maximize tax savings, but that is an entirely different service. When a client approaches you for tax preparation, the job is simply to help them file their tax returns in a way that is accurate and compliant with federal tax law as well as their state and local tax requirements. A client who learns later that they could have saved money had they only taken a specific step may feel ill-served, but if they only contracted for tax preparation services then that is all they would have gotten. It is up to tax professionals who are qualified to provide tax planning services to explain the difference between the two and how tax planning can help them in the long run (versus the short-term service of tax preparation).

What Qualifies a Tax Preparer to Provide Tax Planning?

While tax preparation professionals have the training needed to ensure that their clients comply with federal, state, and local tax laws, they do not always have the knowledge needed to provide advanced tax planning strategies. Investment and insurance planning, retirement planning, and estate planning are the realms of those with CPA/PFS or CPA/EA + CFP® designations.

Proactive tax planning advice can help your clients offset investment gains, lower their tax bracket, and maximize charitable contributions or medical expenses in order to take advantage of deductions. It can help them properly time Roth conversions and taking money out of taxable and retirement accounts as well as how best to minimize inheritance taxes for their beneficiaries. It can mean saving tens of thousands for business owners when you suggest the use of the R & D Tax Credit or QSBS stock (or much more in this case).  

Though taxpayers may have the expectation that these services are part of tax preparation, tax planning is an entirely separate function that requires time, additional information, and significant analysis. Qualified tax professionals who explain the vast differences between tax preparation and tax planning can then offer their strategic services to existing clients as a separate service from which they will gain real, tangible value. 

It is learning how to price your services for this value that is key. Before you get to the pricing and marketing discussion, it is important to identify any tax planning tools that can save you time and provide you an insight into the next planning approach. 

Software products like Corvee and BNA Income Tax Planner help you advise your clients in less time with various options. Tax research products like The Big Book of Taxes 365 further keep you up-to-date on the latest law changes and strategies. 

When it comes to pricing, we suggest either a value price model or packaging. There is some trial and error to see what best fits your client profile. To learn more about packaging, check out this blog article

Once you take the plunge, we recommend starting with an online discovery call, where you can probe the client about their current challenges and how your expertise will assist them. If done properly, you can start optimizing a one-call close process, where you qualify, present your offer and start the engagement in one call. 

The current uncertain tax climate has made it more important than ever for tax professionals to pivot to tax planning. Start by identifying the segment of your client base that would be targeted. Business owners, medical professionals, attorneys, and high-income taxpayers will be perfect for your pitch. Develop an outreach program and add sections to your website or targeted tax planning landing pages. 

The rest is a little trial and error. Test different price packages and track your results. In no time you can increase your income while improving your quality of life.