Introduction to tax advisory: Year-round proactive planning is key

When it comes to delivering the return to our clients, we often have the conversation with them about minimizing their tax liability for next year, which seems to align with the offering of a tax planning service. The primary goal of tax planning is to project taxable income, adjust the tax estimates, and avoid penalties or surprises at tax time. However, one of the challenges we face with traditional tax planning is that it does not communicate tax savings or your expertise as an advisor.

Tax advisory standardizes tax strategies, communicates the tax savings, and, most importantly, empowers your clients to reach their financial goals.

When we think about traditional tax planning, we usually start with a tax prep mindset, then follow up with a reactive search for tax deductions and meet with our clients once a year. However, with tax advisory, we start with understanding our clients’ goals, identify proactive strategies that power prosperity, and meet with our clients throughout the year.

Today’s legislative and business environment creates a perfect opportunity to add tax advisory to your practice. The Internal Revenue Code had not changed in 20 years; as a result, the model in accounting has been compliance, first, with firms often neglecting to deeply develop their planning and advisory capacities. However, with all of the recent tax law changes, taxpayers have increased communication with their tax preparers. They simply have more questions. 

We are realizing how much work we are already doing that falls into the “advisory” category, and this is why advisory is valuable to your business and clients. The result? Today’s environment creates an opportunity to add tax advisory and is the perfect time to start empowering our clients!

Firms that add tax advisory are not only focused on improving the bottom line or striving to be on the cutting edge, but adding tax advisory also benefits the tax professional. The work-life balance in the tax and accounting profession during tax season is not the best. We have long working hours, hundreds of clients, compressed workflows, and tight deadlines – and it doesn’t allow for much of a life outside of work. Generally, today’s generation is determined to carve out a balance that not only allows them to have a life outside of the office, but also to focus the time they do spend in the office – or working remotely – on truly meaningful work and having in impact on their community.

Advisory models naturally lend themselves to a narrower client base, with tax professionals providing more service to fewer clients instead of the other way around. This approach requires more specialization and building a partnership with your clients. As a result, this provides tax professionals with the work-life balance they need, and ultimately drives up the bottom line.

When you add tax advisory to help your clients reach their financial goals, you will still do compliance, preparation, sales, and other practice management activities, but now you will be able to monetize your expertise instead of just your time. This is the pivotal component that starts with this mind shift to advisory – and tax advisory is a great place to start. However, adding a new service to your business model should be done in a strategic, planned, and organized way. A great tool to add a new service is by building an Alignment Triangle. An Alignment Triangle helps you build your business model when you add tax advisory.

To create your Alignment Triangle, follow these six steps:

1. Start with creating your mission statement, or revising it if you have one in place. A mission statement helps an organization define its purpose. A good mission statement should be concise, clear, and easy to articulate what’s unique about the organization.
2. State your values. The values are those that connect with you personally and are part of the culture you want to drive in your organization. Your values will set the tone of what clients you want to attract, or maybe the business industry you would like to specialize in.
3. Communicate your mission statement and values to your stakeholders. The stakeholders are the people involved in your business, which could be your employees, the owners of your firm, and your clients.
4. Set the goals for your firm. When setting these type of goals, think in terms of one to three years. You want to capture statements that outline what your firm wants to achieve, aligned with the mission, values, and outcomes for the stakeholders. Examples might be growing revenue, developing your expertise, or carving out a niche or a specialty.
5. Develop your strategies to achieve your goals. Having a plan on how to achieve your goals is crucial. An example of a strategy is to segment your clients and steer them to the right package for advisory.
6. Finally, identify the metrics that are directly aligned to your strategies and goals. These should be very specific. Have direct and reasonable metrics you can track.

If your busy tax season is over, start planning to begin the conversation about the most important things to your firm. Instead of focusing on the transactional elements of processing tax returns or using tax planning engagements to simply predict tax liability, go beyond that!

This is what your clients need from you. At the end of the day, we can agree that empowering our clients to help them reach their financial goals is a win for them and our profession.

Editor’s note: Join Nadia Rodriguez when she presents a deeper dive on this topic at the Tax Season Readiness virtual conference, Nov. 30 – Dec. 2. Register today.