Introduction to. Tax Planning for Profit

Transcription

1 Introduction to Tax Planning for Profit

2 Tax planning is one of those things we all say we do. But how many of us really do it right, and do it for profit? TaxCoach gives you a comprehensive system for giving clients tangible tax planning that delivers tangible results. Let s take a look at why the tax planning you do today probably isn t real planning at all and how you can put it to work to start growing your practice today. Traditional Accounting and the Rear-View Mirror Most tax professionals do a great job of putting the right numbers in the right boxes on the right forms by the right deadlines. But then they call it a day. They do a fine job of recording the history their clients give them. But then they call it a day. That s like driving a car using just the rear view mirror! Clients understand that recording history is important. They need that information to make smart business decisions. The IRS is interested, too! But clients want you to do more than just record history. They want you to help them write it. They don t just want you to tell them how much tax to pay. They want you to help them pay less! Projections Versus Planning Most of you are happy to help your clients with projections. Your tax-prep software automatically spits out quarterly estimates for the upcoming year, and it s no problem to adjust those projections on the fly for different incomes and expenses. That s not really planning. Planning is a more involved ongoing process. Yes, it s more work but it s also a chance to show your client just how much you re worth. It starts with evaluating a client s current situation, evaluating their goals, and perhaps assessing their risk tolerance. Then it moves to creating a plan, implementing that plan, and reviewing and revising that plan. Then it comes back full circle to evaluating the client s situation after all that planning. Informal Versus Formal If you re like most tax professionals, you do a little bit of tax planning every day. You spot an opportunity for a client to save money, and you tell them! Then you pat yourself on the back, satisfied that you ve gone a step farther TaxCoach Software, LLC Page 1

3 The problem with that sort of informal, ad hoc planning is that it usually never gets implemented. And without implementation, even the best idea is like a tree that falls in the forest but makes no noise because there s nobody there to hear it. Verbal tax planning is worth the paper it s printed on. And free advice, of course, is worth what your client pays for it. Years ago, one of our TaxCoach members told us a great story that illustrates this problem. His client was a successful roofing contractor netting a six-figure income in a sole proprietorship. Before he had joined TaxCoach, he suggested that the client establish an S corporation. He outlined how to set it up, how it works, and how it would save the client thousands in selfemployment tax. The client thanked him and promised to set up a corporation, pronto. Next year, armed with his new TaxCoach resources, our member scheduled the client for his taxprep appointment. But of course the client hadn t established that corporation. So our TaxCoach member sold him a tax plan for $1,200. And what do you think that tax plan recommended? Establishing an S corp, of course! But this time the client was invested in the plan. This time the client had $1,200 worth of skin in the game! And you better bet he really did establish that corporation. Paying for a formal tax plan meant the difference between merely hearing about a profitable opportunity and actually realizing that opportunity. The Magic Question Here s another problem with the sort of informal, ad hoc tax planning you do every day. Clients don t remember it, so you don t get credit for it. When I was building my personal service practice, I started every conversation with a prospect with the same question: When was the last time your tax pro came to you and said Here s an idea I think will save you money? Nine out of ten times, the answer was a resounding never! Now, I know that most tax pros are feeding their clients ideas to save them money. But without some sort of formal planning or tangible deliverable, it goes in one ear and out the other. So when I come along and ask about planning, your client is eager to listen! 2015 TaxCoach Software, LLC Page 2

4 The Planning Process Now that we understand why formal planning is so important, let s take a look at the process in more detail. TaxCoach members typically divide it into three phases. We ll compare it to a trip to the doctor to make it easy to understand: The Planning Process Prescribe Fill Diagnose It all starts with a diagnosis. What are the mistakes and missed opportunities that are costing the client taxes he doesn t have to pay? Once you know where it hurts, it s time to prescribe a remedy. What concepts or strategies can the client take to stop the pain? Once you ve prescribed the remedy, it s time to fill that prescription. Let s take another look at that roofing contractor we discussed a minute ago. What was the diagnosis? He was paying more self-employment tax than he needed. What was the prescription? An S corp. And how do we fill that prescription? Establishing the corporation, obtaining an EIN, making an S election, managing a payroll, and filing the necessary employment and corporate tax returns TaxCoach Software, LLC Page 3

5 It really doesn t have to be more complicated than that. You re probably already doing all of it. But you re not doing it for profit. So now let s talk about how to get paid what you re worth for the planning you do. Quit Giving It Away Want to know what s the biggest obstacle to tax planning for profit? It s your own willingness to take such a valuable service and give it away for free! Several years ago, as we were launching TaxCoach, I sat down with a prospective client for a free Tax Analysis. The prospect owned a hair salon, which he managed himself. He operated the business as a C corporation. But he wasn t paying any corporate-level tax. At the end of the year, he was bonusing himself enough to zero out any year-end profit. In fact, he was bonusing himself more than necessary, and he had accumulated a $30,000 net operating loss. I asked him what it would cost to hire a manager to replace himself, and he said around $45-50,000. You re probably already thinking what I was thinking, and that s fine. But here s the problem. Most tax professionals would have gone ahead and blurted out, Here s the problem. You re paying yourself too much in salary, and locking it up in a corporate net operating loss that you can t use. We ll just let you show a $30,000 profit this year but it won t cost you anything in tax because the NOL will zero it out. Then we ll convert you to an S corporation, pay a reasonable salary of $45-50,000 per year, and eliminate payroll tax on the rest. Nicely done. You just gave away thousands of dollars worth of tax-planning advice! Oh, and when you go to charge the client for it, how much do you think they ll be happy to pay after you just gave it away like that! So I did things a little different with this prospect. I told him that without any changes, over the next five years he would probably waste $30,000 or more in taxes he didn t have to pay. The good news was, he didn t have to do it. He could pay me for a plan, and rescue all those lost dollars. I didn t give it away. And my new client wrote me a check for a plan right on the spot. Are you willing to risk ruining the rest of your day? Sit back and try to think of how much tax planning you ve given away. (It s ok if you have to get up for an antacid. I ll be here when you get back.) 2015 TaxCoach Software, LLC Page 4

6 Be Different Here s the biggest problem with offering tax services. Clients really don t see much difference between providers and what they do. That means you have to work extra hard to show clients why you re different, and why you deserve their business. If your client thinks that you, and the CPA across the street, and the EA around the corner, and the H&R Block office across the street all offer the same service, you re in trouble. If your client thinks that you, and the CPA across the street, and the EA around the corner, and the H&R Block office across the street all offer the same value, then you re just another apple in a great big bushel of apples. Now you re subject to all sorts of apples-to-apples comparisons including the one you re probably most afraid of, which is price. Your challenge is to show your prospects and clients that you re different. Now you re not an apple anymore. Now you re an orange, and you can avoid all those damaging apples-to-apples comparisons. Tax planning for profit is a great way to show your clients you re different. Give your client a written tax plan, a tangible deliverable that he can hold in his hand, and he ll instantly see that you re more valuable than anyone who settles for the sort of informal, ad hoc planning everyone else does. Quantify Your Value How much are you worth to your clients? Seriously. How much have you saved your clients in taxes over the course of your engagements? I m confident they have no idea. In fact, I m pretty sure that you have no idea just how valuable you are to your clients. Have you ever sat down to figure it out? I bet you ll be amazed. Here at TaxCoach, we walk our members through an exercise called the Quantifier. And it s so valuable that we ve attached a copy to this report. It s really just a worksheet for compiling the ideas you ve given them to save money and adding up their value. Those numbers add up faster than you can believe. And once you figure out just how much you re really worth, you ll stop taking yourself for granted, and quit giving it away! 2015 TaxCoach Software, LLC Page 5

7 Communicate Your Value Quantifying your value is a great exercise and probably the best confidence boost you can ever give yourself. But when you communicate that value to your clients, the magic really starts. Think about it Clients come to you for the numbers, right? Well how will they ever know what you re worth if you don t tell them? Don t be afraid to tell a client Remember that S corp we set up three years ago? Over the course of that time, it s saved you over $30,000 in tax. (Feeling even more confident? Don t be afraid to say I ve saved you $30,000 in tax. Your client really will be happy to give you credit!) Clients won t think you re bragging. (It s not bragging if you can really do it.) They ll love knowing just how much you re worth especially because they ve never known it before! And clients who know exactly how much you re worth are far less likely to quibble over fees. That s what makes tax planning such a powerful tool for building and attracting client relationships. It gives you tangible savings that you can easily quantify and communicate to your clients. How to Price It So we ve talked about charging for tax-planning services. What, exactly, do we mean? And how much are we talking? TaxCoach lets you give your clients plain-english plans that illustrate powerful tax-saving concepts and strategies. It s a tangible deliverable that you can literally hand them to quantify your value. TaxCoach members typically charge from $1,000-$5,000 for their services, although we ve seen planning fees as high as $65,000. One member sold four plans for a combined $200,000 in fees in a single day. We typically recommend establishing tiers for pricing specific services for specific clients. A new business owner, just getting started, might be right for a Level One plan, with a $1,500 fee. A more established business owner with a successful company might qualify for a Level Two plan, with a $2,500 fee. And a mature business owner, with multiple entities and rental property investments, might need a Level Three plan with a $3,500 fee. For more advice on pricing, join us for a Wednesday Member Call-In, where you can join Ed, Keith, and other TaxCoach members to ask any questions you have about TaxCoach strategies, features, or philosophy, or just to talk marketing and practice management TaxCoach Software, LLC Page 6

8 The Quantifier Identify five of your current A clients. Take a moment to recall how you ve advised those clients to save taxes. Now complete the chart to quantify exactly how much your tax-planning advice has been worth. How much have you delivered in the form of one-time savings? How much are you delivering in ongoing annual savings? Finally, how much have they paid you for all of these savings? At the bottom, total each of the last three columns to determine how much your tax planning has been worth to them, and how much their tax-planning business has been worth to you. Are you surprised at the results? Client Name Client Strategy One-Time Value Annual Value Client Fee Totals 2015 TaxCoach Software, LLC Page 7

9 About the How often do you give clients ideas for paying less tax? Probably every day, right? But are you getting paid for that advice? Probably not TaxCoach gives you a turnkey system for getting paid for the advice you're already giving. TaxCoach lets you give your clients a written plan, full of ideas for cutting their tax bill. Now you'll have something to set yourself apart from your competition. Now you'll have something you can charge for. AICPA surveys reveal what clients want most is proactive solutions to their problems. TaxCoach caters solely to small tax practices helping them meet their practice growth plans. Our experts and peer community will give you the tools needed to grow your business. Here are a few benefits of becoming a TaxCoach member: Tax plans you can customize and sell to current and prospective clients that save them money Resources of tax savings strategies, implementation guides, and client communications Marketing templates, advertisements, and letters to reach out to prospective and existing clients Professionally prepared presentations and letters to attract prospects Live forums to learn from the experts and share best practices with peers No contracts. Our clients stay with us because of the continued value and support they receive. Visit to learn more about our services for tax professionals looking to grow their businesses. Edward A. Lyon, TaxCoach co-founder and authority on tax planning, has written five books on the subject and has appeared on over 300 television, radio, and internet broadcasts, including CNN, FoxNews, MSNBC, and CNBC TaxCoach Software, LLC Page 8

10 What our members say about the tax planning software: This tax season I sold seven tax plans averaging $1,500 each, for a total of $10,500. I am in the process of turning those into about $1,500 of ongoing maintenance fees for an annual total of $18,000 That s $28,500, or the same as 95 tax returns at my average of $300 each. 7 clients vs. 95 clients. Easy decision where to focus my future. This really is beginning to look like the kind of practice I want to have. Fred Bumpass, CPA Dacula, GA What our members say about the marketing tools: Just wanted to say thanks to Ed and Keith. TaxCoach has given me the kick that I needed to really get busy marketing my services. Using the TaxCoach real estate materials, I gave a presentation on November 20th. I walked out with many positive reviews and 15 appointments. I ll probably do between 5 and 10 tax plans. I also now have a lead on a 60 person MERP. TaxCoach membership is truly priceless. Michael McCormick, CPA Blue Ash, OH What our members say about the coaching and community: What a team you are, I am so impressed! First my s are answered immediately, and then I get a phone call to clarify the answer to my question even further. Thank you so much it s not often one gets such great service. Nadine Malpas, EA Alpine, UT My practice is actually two and a half times the size it was when I first started with TaxCoach, and I really attribute that to everything they ve been able to teach me here. Paul Dion, CPA Millbury, MA CLICK HERE For your 15-day FREE TRIAL to all of TaxCoach s tools and resources TaxCoach Software, LLC Page 9