Why You Should Be Doing Tax Planning During Tax Season


Tax season can get crazy—we all know the long hours and stress many firms go through leading up to April 15. That is primarily why so many firms don’t even consider doing tax planning during these pivotal months. Adding another service to an already busy time doesn’t seem logical. After all, why should firms begin tax planning when they already have a mountain of 1040s on their plate? The reason is because tax season is actually the best time to begin tax planning.

The Difficulty of Tax Season

We’re all familiar with the struggles that tax season already brings for many firms:

  • Massive delays in sending and receiving signed engagement letters (if one is even sent)
  • Delays in processing payment on engagements (and sometimes starting work before payment)
  • No structured onboarding process
  • Files and requests are being sent back and forth via email (unsecured)
  • Client’s are local and submitting files in person
  • No reporting on the outstanding requests per client
  • Waiting until deadline to file causing spikes in workload
  • Sales and onboarding process taking up 50% of billable hours

Even the best-run firms can struggle with keeping their processes optimized, especially during tax season. While having client collaboration software can do wonders in keeping engagement letters, questionnaires, file requests and payments all in one secure place, many firms that have their tax preparation process nailed down are reluctant to add more to their plate during tax season.

It’s true, taking on an additional advisory service such as tax planning is a big step. It requires accountants to make a large shift in the way they work with their clients, one that takes them from being mainly reactive, past-looking tax preparers into proactive, forward-looking advisors. Typically, tax preparers who make the shift to proactive and strategic tax planning find it a challenge even during normal times, and tax season is anything but normal. So why do it?

Reasons to Tax Plan

When adding tax planning to your offerings, you will see extra revenue opportunities. Tax preparation is generally considered compliance and process-focused, low-priced and past-oriented. On the other hand, tax planning is considered advisory, outcome-focused, future-oriented with a high ROI—which drives greater profitability. If a client is willing to pay $1,200 for the preparation of a business return, would they be willing to pay $2,000 per quarter if you could perform proactive tax planning and save them $22,000? The answer is yes about 65% of the time.

But why would a tax professional want to take this on during tax season, the busiest time of their year? Offering tax planning during tax season presents a unique upsell opportunity to existing clients who are already thinking about how much money they are going to pay the IRS. Their tax returns are at the top of their mind. Firms can easily repackage these prep services by adding components such as tax planning as a one-time or quarterly recurring service.

In addition, firms that only stick with traditional tax prep leading up to the April 15 deadline are missing out on giving their clients optimum value. In many cases, you’ll find you can save clients tens to hundreds of thousands of dollars in taxes if you do tax planning. As long as they are saving more  than what they’re paying you, you are literally giving them back money!

Is Tax Planning Realistic During a Busy Season?

With technology advancing, the whole tax planning process is accelerating at lightning speed if you have the right software, such as being able to automatically calculate over 60 tax planning strategies across multiple entities instantly. Without tax planning software, it is—quite frankly—less realistic to tax plan during tax season, but still doable to a certain extent.

The main problem with tax planning without using specialized software that automates the process is that it simply takes much longer to manually put everything together. With that said, let’s discuss both options, starting with how to tax plan during tax season without the help of technology.

Tax Planning the Old-Fashioned Way

The best way to make tax planning possible is to learn how to analyze a client’s information and tax returns for tax savings. Once you have the clients’ information and/or return ready and can begin analyzing them, you want to go through in a logical order and consider whether or not different strategies apply.

To those who are new to tax planning, you may find it easiest to do this with a list of strategies open in front of you and go through one by one to see if they would impact your client. Typically you can look for five big categories of possible savings:

  • Maximizing deductions
  • Efficient entity structure
  • Retirement and insurance
  • Niche strategies
  • Advanced strategies

At this point, the goal is to make a list of the most common tax planning strategies in each of the five categories. You will be able to sort them into three different buckets for each client—strategies that apply, strategies that don’t apply, and strategies that require further investigation in order to decide.

For example, if you are working with a dentist who does not own any real estate, you can immediately rule out Sec. 1031 exchanges. However, if you are working with a restaurant owner, you know that you need to consider the FICA tip credit. You may not immediately know whether or not it will have an impact, but you know that you need to look at it because of the niche.

Once you go through and make decisions on what does and does not apply, you can do the calculations on those strategies that you think may work. The good news is that the more tax plans you do, the more strategies you will learn, and the more efficient you will become.

As you systematically go through your clients’ data to see which strategies apply and which you can rule out, you’ll realize it is a time-consuming process. Of course, tax planning during tax season does give you the ability to upsell tax prep clients at an opportune time—but your free hours are limited, which is why many firms don’t do it this way.

Tax Planning Leveraging Technology

In order to get more tax planning done during tax season, a preferred option is to leverage technology to not only speed up the tax planning process, but to potentially save clients more money.  A software algorithm that is already pre-programmed with many tax planning strategies can pick up on multiple strategies you might miss working manually.

As an example of how this can save time, imagine your clients completing a tax prep questionnaire which then flows right into tax planning software that automatically calculates estimated savings in current and future years. This means that firms now have the option to hit two birds with one stone, creating more productivity by making tax plans in conjunction with tax preparation.

This doesn’t mean you have to finalize tax plans before April 15. By using tax preparation questionnaires that feed into tax planning software, you can easily have tax plans 80% done for 90% of your clients by mid-April and finish the remainder of each tax plan after tax season is done. The point is, it’s now more viable to begin the process of tax planning even during tax season if you have the software to make it happen.

That said, regardless of whether they use technology or not to do tax planning, this advisory service can help firms upgrade clients to pay five to seven times what they are used to paying for preparation, and that process takes place all throughout tax season!

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