One Word that Sells Tax Planning to Current Clients

I usually try to have as much fun as I can with these weekly posts. The more entertaining they are to read, the more you’ll actually read them, and the more you read them, the more valuable we remain to you, yadda yadda and all that.

But every so often a serious question comes along, one that calls for a more serious answer. So let’s talk today about structuring tax-planning engagements so clients see that they are distinct and valuable apart from traditional tax-prep services.

Marketing tax-planning services sometimes presents a challenge. How do you distinguish your new service – especially when it comes to charging a separate fee – for clients who think they’re already getting it from you for free?

Here’s an email I got last week from a longtime member that illustrates the challenge:

“My other thought relates back to the tax side of things and the reason why we shouldn’t be working with clients who have not been sold a tax plan. I just got done speaking with a client today and their tax bill is about $73,000 for 2013 & 2014 combined. At one point, he looked around my office, saw my book again, saw my “savings sign” on my desk, and asked how much we had saved him. I didn’t have a number for him because he has never been a planning client and I can’t get him to commit. Of course I used that as an opportunity to discuss a tax plan with him yet again. I see things that could be done differently every year and let him know this, but I never get him to commit to the plan.

But he won’t remember my discussion. He’ll go home tonight and stew over the $73k owed and think I am not doing enough for him. I am this brilliant, award-winning tax planner but I can’t keep his tax bill down. On one hand I think it’s not my problem, he should buy the plan and if he doesn’t then he doesn’t deserve my help. On the other hand, the fact that his perception of me is affected by this bothers me.

I run into this with some other clients too — they haven’t done a plan and don’t remember that it is a process. They just think I am supposed to come up with these savings magically after the end of the year. Their perception of me is that I talk a big game but don’t provide the service to back it up. At least not for them.”

That’s not a happy place to be. On the one hand, we know we can save our clients enough money to make a real difference in the quality of their lives. But how do we communicate that value to clients who think they’re already paying for that service – or even worse, paying for it and not even getting it? How do we teach them it’s an ongoing discipline and not just an isolated annual event?

The answer here is to draw the brightest possible line between the old service you’ve previously given them (or what they think you’ve been giving them) and the new service you’re proposing they pay for. That’s not always easy to do, so let me walk you step-by-step through the process. Not surprisingly, it involves walking clients step-by-step through a process as well.

First, let’s look at a typical tax-planning engagement lifecycle:

Planning Lifecycle

  • The first step is the initial planning: diagnosing the mistakes and missed opportunities costing the client taxes they don’t have to pay, then prescribing proactive solutions like S-corps, MERPs, cost-segregation studies, and similar strategies to cut the bill.

    Here’s where the problem starts. Most of us are pretty generous with ad hoc advice and recommendations. “Switch from the mileage allowance to actual expenses,” we tell them. “Consider establishing a corporation,” we suggest. “Looks like you’re ready for bigger retirement plan contributions; maybe it’s time to move from an IRA to a SEP.”  We give away a lot of informal, mostly verbal advice and recommendations. Clients come to expect it and think that’s “tax planning.”

  • The next step involves implementing our recommendations. Suggesting an S-corp to minimize self-employment tax is great. But somebody’s got to draft the initial paperwork, file the articles of incorporation with the Secretary of State, get an EIN and file a 2553, and set up payroll accounts with the IRS and state government. Remember in the last bullet point when I said planning involves “prescribing” proactive solutions? Well, those prescriptions aren’t going to fill themselves.

  • Finally, there’s ongoing maintenance. There will be payrolls to run for that corporation, tax returns to file, K1s to carry over to the personal return, year-end planning meetings to project estimated taxes, and all the other tasks and details that go into managing your clients’ affairs. It may not qualify as “planning,” per se. But it’s a crucial, ongoing requirement if you want your client to actually realize those savings you promise at the start of the planning engagement.

So, where does that leave us? Look closely, and you’ll see how this framework lets you draw a line between the work clients have already seen you do, and the new work you propose to charge them for.

In a word, the difference is “formal” versus “informal” planning. Here’s how I might explain it:

“Mr. Client, I’ve appreciated the opportunity to work with you for the last few years on your business. I’ve focused my service on tax preparation, and I’m very proud of the work I’ve been able to do. Along the way, I’ve been able to do some informal tax planning, and give you some recommendations that have created some nice savings. You’ll remember a couple of years ago, we realized you qualify for the home office deduction, and that’s saving about $1,000 every year.

But that sort of informal advice isn’t good enough anymore. Taxes have gone up – in 2013, the top rate went up and Obamacare taxes on investment income kicked in. You’re making more money now, too. So it really is time to do someformal tax planning.

It’s one thing to spot an opportunity like the home office where we just go back and put the numbers in a different place on your return. But formal tax planning involves proactive changes, like forming a corporation or LLC, or establishing a medical expense reimbursement plan. It starts with ideas like the ones I’ve given you before. But then we have to implement those ideas and maintain whatever structures we set up. There’s a lot of work that goes into making those savings really happen. It’s like when you go to the doctor. They can write all the prescriptions you want – but if you don’t go down to the drugstore and fill them, they won’t do you any good.

I’ve always been happy to include informal planning as part of your tax-prep fee. But formal planning is different. I’m going to charge you separately for it. But I’ll be able to show you how it really costs you less than nothing  because you’ll pay for it with a fraction of your savings.”

Does this make sense? Read through it a couple of times. See how we acknowledge the client’s perceptions of what your old service includes, then see how we pivot to the new service and specify how it’s different from the old.

Find out exactly what it is that your client thinks they’re already getting for free. Then show them how the new paid service isdifferent and more valuable than that. You should find it really helps move them “off the fence” and into the “planning client” category where they belong.