From the moment the first taxpayer looked at their tax bill and asked their accountant, "What can we do to make this less next year?," tax planning was born. Tax professionals were asked — and expected — to play both offense and defense. But the primary product remained the completed tax return.
In the years since, variations have emerged.
"Sixty years ago, our problem was how to get paid for compliance," said Roger Harris, president of Padgett Business Services. "We used to give advice away to our compliance clients; now we give compliance away to our advisory clients."
James Guarino, managing director in the tax practice at Top 100 Firm Baker Newman Noyes, illustrates tax compliance versus tax consulting with the example of a driver driving down the road.
"Tax compliance can be likened to looking into your rearview mirror observing where you've been," he explained. "Tax planning is more like looking out your front windshield at where you are headed — and perhaps using your peripheral vision to observe, in real-time, your current surroundings. Tax compliance is more in line with historical reporting, what has already transpired, whereas tax planning involves strategizing and determining one's future tax reporting responsibilities."
As leader in Deloitte's business tax services, Betsy Evans has seen both sides of the compliance-consulting equation: "As clients become more dependent on managing data, our practice has become more balanced. The OECD's Pillar Two is an example of where we will have both compliance in our in-country reporting, and more advisory from the outside."
Evans foresees artificial intelligence as a boon to address the smaller number of those choosing to enter accounting as a career. "There are less people majoring and coming into the profession," she said. "The increased reporting requirements have made the use of technology mandatory to make up for this. Every time there's an advancement in technology, tax people ask for more information. As a result, we provide more information for our clients. We see midsized and regional firms emerging as competitors from industry areas — for example, R&D or M&A practice. The smaller firms are very much focused on consulting on a different scale. In a smaller practice, the CPA has to be more of a generalist, whereas we have the ability to become more of a specialist."
Here's a partial list of tax advisory services you can offer your clients:
- Estate, gift, and trust work: This kind of basic estate planning is relatively common at midsized and large accounting firms, and is a great foundation for further tax services.
- Business owner tax planning: Some of a firm's most important clients are business owners, and helping them with growth strategies, exit strategies, timing strategies, and other tax and financial planning is a natural next step from preparing their taxes.
- Tax bracket maximization: Providing clients with tax bracket maximization strategies helps them avoid tax bracket creep, and time the receipt of their income for lower bracket years.
- Social Security advice: Depending on age, income and life expectancy, guidance and strategies on when to claim Social Security can be valuable to any taxpayer, and tax pros who can present an analysis of the optimal time to begin taking Social Security can help clients maximize what they get out of the program.
- Executive comp planning: How executive compensation is structured and paid out, including stock option planning, requires considerable tax expertise.
- Charitable planning: Clients often don't realize how to get the maximum deduction for gifts to charity.
- Changing domicile: Changing state domicile may result in lower state taxes, but can also generate traps for the unwary — traps a qualified advisor can help them avoid.
- Family CFO planning: Well-to-do families can use help maximizing their overall wealth — by spreading income to lower-income family members, for instance.
- Saving for college: There are a number of different savings plans to help parents and others plan for a young person's education. Helping clients analyze which ones can be tailored to fit the taxpayer's and the student's personal situation is a valuable service.
- Real estate investments: Clients who invest in this area need serious help navigating the different tax consequences of buying, selling, developing and renting real estate.
- Personal financial planning: While financial planning is a natural fit for tax professionals, given their intimate knowledge of their client's financial position, it's also one of the biggest lifts, if you hope to do it right.
Finding the balance
Although there is a trend toward greater emphasis on planning and consulting, that doesn't mean it comes at the expense of compliance, according to Kevin Jackson, national managing partner for tax at KPMG US.
"The Big Four, and others, look at compliance as the driver for everything else," he said. "If you look at the profession, the best consultants we have are ones that have done a lot of compliance and know how it works."
Jackson agreed with Evans that Pillar Two presents consulting opportunities along with its computational complexity: "Even though consulting is ramping up, compliance remains the big part of what we do. It remains the backbone for our business."
"When we talk to our large clients, they're faced with a ton of disruption and constant pressure to do a lot more with a lot less," he added. ""The IRS is increasing tax audits, and tax legislative and regulatory changes remain a constant challenge. Our clients are struggling to find talent for their tax departments or don't have the technology — so they're turning to us for help. As an organization, we're thinking about how we can take data and provide more value to clients in areas in which they need help, perhaps in areas they may not have been thinking about before."
On the consultative side, a lot of services fall under a strategy that Jackson calls "tax reimagined."
"We found that 94% or respondents in a survey said they are more willing as an organization to outsource or co-source tax compliance," he said.
The details vary by engagement, and can take many different sizes and shapes, according to Jackson: "They can choose managed services, where they turn over the keys to us and we do everything. Or co-source or outsource, where our control is more limited to certain areas."
The right clients and the right model
One key element of expanding a tax compliance practice into a tax advisory practice is making sure you have the right client base.
"For those who have fairly routine, noncomplicated tax return reporting, a DIY approach towards tax compliance and tax planning is a practical and economic decision," said BNN's Guarino. "For these folks, tax compliance probably feels more like purchasing a commodity — something they know they need but prefer to purchase for as little as possible. Their annual tax return preparation is accomplished either by themselves using tax software or through an economically feasible arrangement with a tax professional or CPA firm. In general, CPA firms appear to be facing more and more challenges servicing tax compliance-only clients. This could be due to unsatisfactory price points for either the client or the firm, or the firm's lack of resources. Whether it is due to pricing constraints, staffing resource limitations, or attempting to achieve a better work-life balance for their members, CPA firms are reassessing their individual tax client service models."
In many instances, the better business model involves client relationships that extend well beyond maintaining merely a tax compliance relationship, Guarino suggested. Servicing clients who require a more comprehensive tax planning advisory relationship is a more viable solution, especially in terms of overcoming the pricing, staffing and work-life balance constraints that seem to be worsening with each new busy season.
"CPA firms offering an advisory or boutique-type client experience allow for a more customized and client-centric focused service approach," he said. "Contrast this with an assembly-line service mentality where the primary goal is to process tax returns as quickly and efficiently as possible."
Which services?
Consultative and advisory services are a natural tandem for CPAs, according to Eva Simpson, vice president of tax practice and financial planning at the American Institute of CPAs.
"This has been going on for a very long time," she said. "During our entire history as CPAs, we have supported their role in this. We do see the opportunity for our professionals to explore personal financial planning more seriously, because they are always providing services and having conversations, especially at year's end, helping with questions regarding retirement planning, college education, insurance advice and estate planning."
The extent to which firms may engage in such services depends on the size of the firm, Simpson noted: "The larger firms might have wealth advisory services, while the smaller ones are more relationship-based. In the future, firms will be more relationship-based, helping clients at different points in their life."
While larger firms have greater resources, smaller ones can provide a holistic package, Simpson noted. "We're always looking to support clients at all levels for this type of service. CPAs really have a strong foundation for investing into a higher-value service like financial planning, because they have an in-depth knowledge of their clients' financial situation."
Comprehensive, holistic advisory engagements provide a number of internal and external advantages, according to Guarino. Some of these may include more meaningful and powerful client-advisor interaction, better professional staff job satisfaction and work-life balance, better workflow and time management throughout the year, higher-margin services, and ideally "stickier" client relationships.
Why are tax planning and advisory services of growing importance for CPA firms? Guarino believes that now more than ever, clients are realizing what tax practitioners have known for years — it is extremely challenging to stay abreast of the never-ending tax law changes that occur from year to year. This includes passage of new tax acts, the expiration of old tax laws, the impact of tax court decisions, and IRS guidance in its various forms. And aside from tax law complexity, tax planning is what clients want and expect from their tax professionals.
Despite attempts to simplify tax reporting, recent tax law changes seem to have caused more reporting challenges for taxpayers, not less, Guarino remarked.
"Notably, the Tax Cuts and Jobs Act will sunset in two years, so 2024 and 2025 are incredibly important years for all taxpayers," he said. "Clients are always looking for opportunities to reduce their tax liability — however, the coming two years might be without precedent. Ignoring tax planning opportunities is a quick way to lose control of one's financial well-being. Clients inherently know how important tax planning and advisory services are to their overall financial well-being. This ultimately influences their willingness to seek out CPA firms that are capable of providing these value-added services. In today's fee-sensitive world, most clients do not mind paying professional fees — as long as those fees equate to valuable planning strategies and, ultimately, enhance their wealth via tax-saving strategies."
Comprehensive advisory services allow for regular touchpoints with the client throughout the year, not just during busy season, Guarino noted, so there tend to be fewer peaks and valleys in a firm's revenue stream and staff chargeability. "Many CPA firms will find their clientele sweet spot from a variety of client engagements, such as high-net-worth families, closely-held businesses, owners and C-suite executives," he added.
Retirement planning is an area in which the tax professional can provide advisory services, according to Beanna Whitlock, former IRS director of national public liaison and president of Whitlock Tax Service in Canyon Lake, Texas.
"We have spent years convincing our taxpayers to put money into retirement and now is the time we can optimize planning to take the retirement funds effectively and at the least tax cost," she said. "Many tax preparers have assisted their taxpayers to pay little in Social Security or self-employment tax. As tax advisors, we need to sell FICA/Medicare and self-employment tax as a retirement plan. Taxpayers who do not pay into Social Security will have little in retirement and paying into Social Security should be advised as paying into retirement when they are making no other provisions."
"Estate and gift advisory services are also a wellspring of opportunity for tax advisors," she added. "Whether it is a systematic plan of gifting, using the annual gift exclusion, or by using the estate and gift lifetime exclusion, the golden opportunity for tax advisors is here, particularly with the sunset of the Tax Cuts and Jobs Act on Dec. 31, 2025."
Even sole proprietors need to modernize their practices if they intend to sell a book of business down the road when it's time to retire, according to Ryan Losi, executive vice president of Virginia-based CPA firm Piascik. "They may have a hard time selling their client base; sole proprietors need to be mindful of planning an exit strategy if they want their practice to be attractive to others, or they will just have to close up shop at the end of the season."
Vincent O'Brien, a sole proprietor based in Lynbrook, New York, has a professional tax education business in addition to his accounting practice. He suggests CPAs keep current on .developments in the news as a jumping-off point in speaking with clients.
"For example, student loan forgiveness, inflation, and other issues on a client's mind offer a starting point for a conversation about other issues affecting the client," he said. "One of the biggest things is simply an awareness of what's happening with the economy. It gives the accountant perspective in speaking to clients, and CPAs are pretty good at that."
In transitioning to consultative/advisory services, of course, it's important to offer the services that your clients need. To a certain extent, it may be necessary to transition your client base to include the customers likely to benefit from your expertise, said Padgett's Harris.
"What advisory services you offer becomes relevant once you have a customer base that is receptive to what you want to offer. A lot of tax preparation firms may not have enough clients in the mix to become an advisory firm — their customers care more about a preparer who can do the return and get them a refund, so size and client mix are things you need to have properly aligned to have the mix that will work."
'A self-esteem problem'
"It's smart for preparers to turn toward advisory services, because taxpayers with a routine return have a lot more options to get it done than to get good advice," said Harris. "Advisory services may well be the ticket to long-term success."
Members of the tax professional community who view themselves as tax preparers have a low self-esteem problem, and it is reflected in the fees they charge and in how their taxpayers view them, according to Whitlock: "If we value what we do, so will our taxpayers."
"As tax advisors, we are more than the finished product," she believes. "We design the final product, advising our taxpayers of how they can pay the lowest legal amount of tax. When my taxpayer asks why I charge so much, I respond, 'Because you are worth it.'"
As I mentioned in the newsletter, if anything on the list sparks your interest, but you're not sure where or how to begin – or if you have any questions regarding how to embrace what is presented here – do reach out to me, I'd love to steer you in the right direction.
And, as always, if your clients have tax problems of any kind, don't hesitate to contact me for help and guidance. That's what my team and I are here for – we'll take good care of them.
You can contact me by one of the methods below in the blue box, or email me at Larry@TaxProblemSolver.com and we can review your client's specific issues and solve them. You can also click here to book a free consultation for them, or give them this link to schedule for themselves.
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