Making the most of the May 17 tax deadline extension

April 9, 2021 9:45 AM

If your firm is like most, you know all about the long hours and stress leading up to the tax deadline in a typical year. That is why so many firms don’t consider doing tax planning during these pivotal months. However, with the IRS recently extending the tax deadline to May 17, you now have 32 extra days. Could you conceivably fit some tax planning into your schedule, even if you’ve never done tax planning before? Let’s consider it.

AT-040721-Tax returns processed by IRS 2021

Tax season stress

Taking on an additional advisory service such as tax planning is a big step, whether in tax season or not. It requires accountants to make a major shift in the way they work with their clients, one that takes them from being mostly reactive, past-looking tax preparers into proactive, forward-looking advisors. This can be a challenge at any time of the year, so why should accountants consider adding this to their activities during their busiest time?

Tax planning benefits

When adding tax planning to your service menu, you will see extra revenue opportunities — especially during tax season.

Tax preparation is widely considered to be like compliance work: low-priced and past-oriented. On the other hand, tax planning is considered to be an advisory service that is outcome-focused with a high ROI — which allows for higher prices and drives greater profitability. If a client is willing to pay $1,200 for the preparation of a business return, wouldn’t they be willing to pay $2,000 per quarter if you could perform proactive tax planning and save them $22,000 annually? The answer, we’ve found, is yes — most of the time.

But why would a tax professional want to take this on during tax season, the busiest time of the year? Pay close attention to this: 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 owe. Their tax returns are at the top of their mind so it’s easy for firms to repackage these prep services by adding components such as tax planning as a one-time or quarterly recurring service.

In addition, firms that only do traditional tax preparation leading up to the May 17 deadline this year will be 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 in 2021 if you do tax planning this year. As long as they are saving more than what they’re paying you, you are literally giving them money back!

Is tax planning realistic before May 17?

With technology accelerating, the whole tax planning process is advancing 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 less realistic to tax plan in this window of time, but still doable to a certain extent.

The main problem with tax planning without using specialized software that automates the process is that pulling everything together manually takes too long. With that said, let’s discuss both options, starting with how to tax plan before the May 17 deadline without the help of any technology.

Tax planning the manual way

The best way to make tax planning possible as we approach the May 17 deadline is to learn how to analyze a client’s information via questionnaires and tax returns for tax savings. Once you have the clients’ information or return ready and can begin analyzing it, you want to go through it in a logical order and consider whether or not different strategies could apply.

If you’re 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 them one by one and see if they would impact your client. I advise you to look for five big categories of possible savings:

1. Maximizing deductions;
2. Legal entity optimization;
3. Retirement and insurance;
4. Niche strategies; and
5. Advanced strategies.

The goal is to make a list of the most useful tax-planning strategies in each of the five categories. You can 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.

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

Once you go through and make decisions on what applies and what does not apply, you can do the calculations on the strategies you think could work. The great news is that the more tax plans you do, the more strategies you will eventually learn, and the more efficient you will become at it.

As you systematically go through your clients’ data to see which strategies apply and which don’t, you’ll realize it is a time-intensive process. While tax planning during tax season gives you the ability to upsell tax prep clients at an opportune moment, your free hours are limited. This is why many firms choose tax-planning software.

Tech-enabled tax planning

In order to get more tax planning done before (and after) May 17, another option is to leverage technology to not only speed up the tax-planning process, but to potentially save clients more money than you could on your own. This is because tax-planning software can pick up on multiple strategies you might miss working on manually.

Imagine your client completing a tax preparation questionnaire, which then flows right into tax-planning software that automatically calculates estimated savings in current and future years. You will be hitting two birds with one stone, creating more productivity by making tax planning part of your tax preparation process.

Of course, firms don’t have to finalize tax plans before May 17. It’s quite realistic to have tax plans 80 percent done for 90 percent of your clients by mid-May and finish the remainder of each tax plan after tax season is officially over. The point is, it’s now more viable to begin the process of tax planning during an extended tax season, especially if you have the software to accelerate your production. That’s what James Rainwater, a firm owner that doubled his sales from last tax season to this tax season, did and here’s what he says about the extension:

“The deadline extension extends selling season. There is no better time to sell then in tax season.”

That said, tax planning, regardless of how it is done, is an advisory service that can help firms upgrade clients to pay five to seven times what they are used to paying for preparation, and that process can take place between now and the extended deadline.