Helping Clients See the Benefits of Tax Planning
Recently we asked, “Why do clients blame the tax preparer when they owe taxes?” One clear reason this happens is that many taxpayers simply don’t understand the complexities of tax law and how they can avoid year-end surprises (and improve their financial situation) with tax planning.
Clients Need Education
According to a 2024 poll by the Tax Foundation, only 2 percent of respondents are “individuals with proficient tax knowledge (who) are more likely to understand and correctly identify basic tax concepts and align their perceptions with tax planning best practices.”
In other words, most taxpayers don’t do tax planning, and they are unaware of the benefits. This is not surprising. Some clients are overwhelmed just getting together everything they need to file at tax time, and they don’t give a thought to taxes the rest of the year. They also lack understanding of how their decisions during the year affect their tax situation.
As tax preparers, we have a unique opportunity to educate our clients and help them see the big picture of tax planning so they can make informed decisions that can lead to significant savings and financial stability.
So how do we influence our clients to plan their tax strategy?
Be A Trusted Advisor
When clients trust you, they are more likely to follow your tax advice. You can build trust by being honest about potential challenges and providing clear, straightforward advice. Another part of the trust equation is providing clients with timely, accurate information, which you can only do by maintaining your certifications, keeping up with continuing education and being wired in to the latest tax developments.
Make Tax Planning Part of Every Client Engagement
Be sure to offer tax planning to every client. A written tax plan template can help guide you through a discussion with each client by providing a structured approach to tax planning, ensuring consistency and thoroughness.
Personalize the Approach
By understanding each client's financial goals and circumstances, you can offer tailored tax planning advice that maximizes savings and minimizes liabilities. Regular check-ins and updates on tax law changes ensure clients are always informed and prepared. Additionally, leveraging the capabilities of your tax software for efficient data analysis and reporting can enhance the accuracy and timeliness of tax planning.
Start with the Basics
When you tell a client about tax planning, begin by explaining the fundamentals. Many clients may not understand terms like deductions, credits, and taxable income. Use simple language and relatable examples to make these concepts clear. For instance, you can explain that deductions reduce taxable income, while credits directly reduce the amount of tax owed. Showing client how to determine eligibility and how to calculate things like mortgage interest deductions and child tax credits can help them grasp these concepts.
Highlight the Benefits
When you talk to clients, emphasize the advantages of proactive tax planning. Explain how it can possibly reduce their tax liability, maximize deductions, and improve their overall financial health. Share success stories or case studies to illustrate the potential savings. For example, you can share a hypothetical example of how a client can change their tax outcome by adjusting their withholding and contributing to a retirement account. One caution here -- don’t make promises or claims regarding the potential for a large refund or similar outcome. This could be considered a violation of ethical standards prohibiting misrepresentation. Also, keep these generic and anonymous. Don’t compromise client privacy.
Offer Personalized Advice
Every client's financial situation is unique. Provide tailored advice based on their specific circumstances. This personalized approach can make clients feel valued and more likely to engage in tax planning. For instance, if a client is self-employed, you can discuss the benefits of estimated tax payments and potential deductions for business expenses.
Conduct Workshops and Seminars
Organize online or in-person workshops or seminars to educate clients about tax planning. These events can provide a platform for interactive learning and allow clients to ask questions and get immediate answers. You can cover topics such as year-end tax planning strategies, retirement planning, and tax-efficient investing.
Provide Resources
Offer clients access to resources such as brochures, online articles, and videos that explain tax planning strategies. Having these materials available can help clients learn at their own pace. You might create a series of short videos explaining different aspects of tax planning, or provide links to the IRS and other trusted websites with detailed information.
Leverage Technology
Utilize technology to streamline the education process. Use tax planning software to show clients real-time projections of their tax savings. Online portals can also provide clients with easy access to their tax information and planning tools. For example, you can use software to simulate different tax scenarios and show clients the potential impact of various strategies.
Encourage Regular Reviews
Tax planning is not a one-time activity. Encourage clients to review their tax situation regularly, especially when there are changes in their financial circumstances or tax laws. Regular reviews can help clients stay on top of their tax planning and make necessary adjustments. For instance, you might suggest quarterly or mid-year check-ins to review income, expenses, changes in the client’s situation (like marriage or a buying a home), and any changes in tax laws.
Stay Updated
Tax laws and regulations are constantly changing. Stay informed about the latest developments and share this information with your clients. Keeping them updated can help them make informed decisions and avoid potential pitfalls. For example, you might send out a monthly newsletter with updates on tax laws and tips for tax planning.
Insights From the Field
Here are some additional insights from tax pros taken from a Reddit discussion on tax planning:
Timing and Relevance: "With most clients I try to time meetings after season to when a situation will become relevant to them. When it’s immediately relevant, they care more. They generally meet with a financial advisor in August, let’s schedule a follow-up around the same time. They take their RMD at the end of the year, let’s meet in November before the withdrawals. It helps cut down on the endless hypothetical questions I get during tax season and helps spread out my work." - fassbender
Understanding Client Behavior: "I've come to learn over the last 23 years of financial planning and tax prep that all things financial are 25% education, 75% behavioral. It's frustrating, as a financially literate person, to watch people make easily preventable mistakes over, and over, and over again. I find keeping it simple helps, but at the end of the day I'm not a therapist. The real struggle is not becoming so jaded as to fail to recognize someone who will course correct with some education." - Blooper3509
Offering Concise Answers to Client Questions: "My experience is they don't want a detailed answer, they want a concise answer with numbers or easy action items. I implement tax planning for all clients complementary in the fourth quarter of the year and it's to forecast their income and estimate taxes owed/refund with a brief description of why. Potential opportunities they can do before year end can be modeled out as well with potential tax savings but it's on them if it's worth it to implement. It needs to be concise though. Clients don't care about a detailed, researched answer unfortunately." - smallcapconnoisseur
Getting Into Action
Now is the time to step up your game with client tax planning. You have an opportunity to leverage your role as a trusted tax advisor by helping clients develop and follow a tax strategy that is tailored to their unique situation and will ultimately lead to significant savings and financial stability.
Not only will you help improve the client's tax situation and financial well-being, but you'll also build a stronger relationship, leading to long-term success for both of you.
