Tax Planning: The Good, the Bad, and the Ugly

When your clients come to you and wonder what they can do to save money when it comes to paying taxes, you can recommend tax planning services. Many taxpayers aren’t aware of how impactful tax planning can be.

Wise taxpayers plan out their upcoming tax year instead of hoping you can do something amazing for them once the year is over. Those that plan ahead have more control over their tax situation and increase their chances of reducing their tax obligations. It’s the first step toward a better financial future.

When you talk to your clients about tax planning, you can run through all the different options. Helping them see the good, the bad, and the ugly when it comes to tax planning gives them an opportunity to see how your services will benefit them the most.

The Good: In-Person Tax Planning with a Professional

The best way for taxpayers to implement a workable tax plan is to meet with a professional. Like a doctor, tax preparers who offer tax planning services take time to look at their client’s financial health, then diagnose any areas where mistakes and poor planning actually cost them. It’s also a good way to look for any missed opportunities that the taxpayer may use in the future.

True tax planning is a formal assessment of a client’s tax situation, but not many people really understand that creating a plan, implementing it, and then maintaining and evaluating it over the years will really influence their tax burden. When you and your client have the opportunity at the beginning of the tax year to create a thoughtful and effective financial plan, they’ll be very happy when it’s time to file those tax returns.

You can also point them toward effective tax software that they can use throughout the year to make sure they are implementing the plan properly and keeping track of all the necessary transactions that will contribute to reduced taxes. As their tax professional, you are truly a guide to better financial health when it comes to finding and using deductions and lowering your client’s tax burden.

The Bad: Generic Tax Planning Software

If a client is not convinced that hiring you for formal tax planning is something they want to do, they might at least consider some do-it-yourself tax planning using specialized tax software. From data management software like Microsoft Excel to programs and apps designed to help individuals and small businesses with tax planning, using available tools is better than no tax planning at all.

Taxpayers can look for ways to better manage their tax information, from tracking expenses using spreadsheets to purchasing one-size-fits-all tax planning software. Many tax software programs on the market tout their ability to benefit users by helping them minimize their tax burden. They claim to do this through features like breaking down complex IRS codes, using projection models, and applying standard guidance. The biggest drawback with using off-the-shelf tax software is the lack of customization that an in-person tax professional can give.

If your client insists on doing their own tax planning using generic or inefficient tax software, they will probably discover a few things to help out their finances. However, tax software alone is no match for the customization they get from you as their tax advocate and planner.

The Ugly: Ineffective or Nonexistent Planning

The worst thing that an individual or small business can do with tax planning is not having a plan at all. These are the kinds of clients that keep paper receipts in shoe boxes or files in no real order. Even if you’ve explained to them how much they would benefit from tax planning, they still insist on a pen and paper method of managing their finances and fail to plan for the immediate future or any long-term goals.

Many taxpayers expect their tax preparer to swoop in as they go through all the financial documents and come up with tricks and loopholes that reduce their tax burden considerably. These clients simply don’t think it’s a priority to have a basic financial plan in place, especially when it comes to reducing their taxes.

Want other ideas for bringing more value to your clients? Check out this blog post.