Making traditional tax planning obsolete

In a normal tax practice, there is a busy season that extends from January through April, an offseason that extends from May through July, and a final busy season from August through October. November serves to start following up with clients, and December is when traditional tax planning starts.

While this seems to be the normal cycle for tax practitioners, the standard for December “year-end” tax planning needs to change. Practitioners need to understand that year-end tax planning cannot be the norm for what future firms are to look like.

The first step in tax planning is obtaining the client’s data. The tax and accounting advisor will look to see if their books are reconciled through the date the data is given. Adjustments are then made for depreciation, other potential tax adjustments are looked at, and then an annualized income figure is calculated and input into a tax projection for the client.

While many tax practitioners will see the above as the norm, the issue lies in the reactive tax planning workflow. To solve the reactive workflow curse, it’s imperative that you solve the root of the problem, namely, the issue with data gathering. If you have perpetual access to the client’s data, then you can stop being a “reactive” tax preparer (which focuses on compliance) and can instead brand yourself as an “interactive” tax advisor (which focuses on advisory).

If you had a perpetual connection with your clients’ books, you would be able to add fixed assets and make necessary tax adjustments throughout the year, such that shortly after year-end, nothing is a surprise. Cloud-based accounting software such as QuickBooks® Online Accountant allows for external users to access their clients’ books. But with some older legacy desktop applications, perpetual or on-demand access cannot be accomplished. This provides an opportunity for you as the advisor to move their books to the cloud and to a system that allows you (as well as them) to serve them better. In the world of APls and integrations, there are a lot of value-added plugins that can help your clients streamline their business. But if the accounting system is older and desktop-based, it is much harder to get those to work. This provides you an opportunity to help them migrate to a cloud-based system that will help you both. 

Many advisors brand themselves as proactive practitioners. But the problem lies in the practitioners adopting a reactive workflow by looking at months of old data in December. What clients are looking for is an interactive practitioner who isn’t looking at their books once in December to discuss tax planning opportunities with less than 30 days to implement them. Clients are looking for tax practitioners who are keeping in step with their data as the year goes on and can address issues as they arise. 

Traditional year-end tax planning needs to be made obsolete. It needs to be replaced with perpetual tax planning with real-time data that will allow for better decision making throughout the year so clients can make better decisions earlier on, rather than rush to make decisions right before year end. Being able to address issues as they happen will streamline “busy season” and may even eliminate it altogether. 

Tax return preparation for businesses is a process of addressing multiple issues after year end, during the busiest time of year. For many tax practitioners, the status and issues are largely unknown until they start digging into their clients’ books, and seeing discrepancies and potential adjustments. But if you had a perpetual connection to their books, tax preparation no longer becomes a 10-hour project during your busiest time of the year. Instead, tax preparation becomes a byproduct of a perpetual tax plan. And one cannot have a perpetual tax plan if there is no access to their data. 

The best practice in working in a perpetual tax planning firm is to only onboard new clients who agree to having their books on one system, such as QuickBooks Online Accountant. This keeps you from having to train multiple staff on multiple systems, and saves you from having to retain multiple remote desktop passwords to get into your clients’ older legacy applications. If those clients are on legacy platforms, it’s important to have the conversation to move them to the cloud because it will help you and your staff provide the best level of service to them. Each month, you will go in and check if retained earnings changed from the prior year (indicating a prior­-period adjustment), and look into any new fixed asset additions or disposals. If there are new fixed assets, then you can add those to their tax depreciation schedule. Check to see if their cash and credit accounts have been reconciled for the month and look into comparative income statements to see if there are major discrepancies from month to month, which may indicate incorrect coding. By addressing issues today, it will transform your practice for the future.