This Is NOT Tax Preparation

I had lunch on Tuesday with a longtime TaxCoach member and current All-Star in Philadelphia. (He asked me to keep his identity anonymous because it’s been a lifelong dream of his to be an anonymous source.) We had a great conversation about sticking to your guns when charging what you’re worth, and his story is well worth sharing.

Our member has worked with a family-owned business for a couple of years now. He’s prepared their taxes and done their books – and now he’s using proactive tax planning to save them a bunch of money. Late last year, he charged a $30,000 fee to save each of the three clients $100,000 each in taxes. And earlier this month, he proposed an additional $30,000 fee to save them an additional $285,000 in tax. (I don’t remember what planning strategies were involved, but does that really even matter?)

Anonymous Source told me that, when he proposed the $30,000 fee, the clients asked him why his advice wasn’t already included in their tax-prep fee. “Because this isn’t tax preparation,” he replied. “This is tax planning.”

He added that when he explained his reasoning, his clients asked him to step out of the room so they could discuss it among themselves. He did so, and worried they might be about to fire him. But they ended up agreeing to the fee, and now they’re exploring even more planning opportunities related to the possible sale of their business.

That sort of gambit doesn’t always work. Our member then told me about a client whose income just jumped from $500,000 to $700,000 per year. Our member proposed a $15,000 fee to help keep the client’s tax bill down to the requested $75,000. The client pushed back, saying, “I already pay you $800 per year for tax prep, and that’s twice what I paid my last accountant.” (Seriously?) Our member held his ground, and the client walked. But our member is at peace with that outcome, knowing he has plenty of clients who are willing to see his value. (Sure, no problem, we can just put this little bugger right back where we found him.)

Here’s the lesson. Over the next few months, you’re going to run into a lot of chances to spot tax-planning opportunities for your clients. At those moments, two paths will diverge. And you can’t travel both. You can throw out your best planning ideas for free, under the umbrella of the existing tax-prep engagement, and hope your client sees the value in the ideas and in you. Or you can take the road less traveled by, save your ideas for a separate planning engagement, and create more benefit for yourself and your client.

Somewhere ages and ages hence, you’ll realize that taking the one less traveled by makes all the difference. Just ask Robert Frost – or Anonymous Source!