Every Taxpayer Deserves Tax Planning

As I write this column, it appears major tax changes are on the horizon as Congress debates a reconciliation bill that has the potential of significantly raising taxes on households making $400,000 while providing many additional tax benefits to those who make less than that.

When the tax law provides choices and/or benefits, it opens the door to tax planning. No matter the taxpayer’s income level, there are tax planning opportunities, both small and large.

You may think you provide your clients tax planning; however, tax planning is not withholding calculations or estimated tax payment projections. Instead, it is making shifts to a taxpayer’s actions to reduce his or her tax liability, either in one year or over the long term.

Very little tax planning can be done after the fact at an annual tax preparation appointment except for limited retirement contributions, which is a very limited type of planning since the client must spend money (lock it away in a retirement plan) to get the tax reduction. In this month’s article, Dominique Molina, CPA, calls that a spending strategy, and (for many reasons) they are not ideal.

If you do not work with your clients in a proactive advisory capacity after you prepare the annual tax return, or you do not stay updated in real time on tax law changes, it is quite possible your clients pay more tax than they would legally have to, otherwise.

Here is a simple example: You have a client in the 12 percent tax bracket who made $2,000 in long-term stock gains in market increases over the last two years. If you are doing proactive ongoing planning, before year-end, you could advise your client–without he or she asking about it–that selling the stock before December 31 would be tax-free at the federal level as a long-term capital gain. This is an opportunity now and may disappear by waiting to advise on it (stock goes down in value, income increases in the next tax year, etc.).

If the last two years of preparing tax returns have soured your interest in the tax profession, let me suggest leveraging ongoing tax planning to reduce your workload while making just as much revenue, if not more:

1. Develop several service packages, including those services you provide now for free (i.e., email consultations), and include ongoing advisory/planning services.
2. Price those packages based on the value provided to the client.
3. Eliminate receivables by putting the client on a monthly recurring service fee for the service package selected.

Will you have fewer clients? Absolutely! But you will be able to select clients who you work well with, do higher-quality work for those clients, preserve your physical and mental health, and quite likely make the same or more revenue, depending on your ideal practice volume.