A proactive tax plan can be a major money-saver for taxpayers. But for new or prospective clients, your first tax plan can feel like a leap of faith—and a costly one at that. Taxpayers who have not yet experienced the benefits of working with a Certified Tax Planner might be wondering if the time and money they are investing will actually pay off. One way to lower the stress level and earn the trust of new tax clients is by using warranties. Warranties can be a clean and simple way to mitigate risk, not only for your clients but also for you as a tax professional.
Here are three of the main ways a warranty can help you as a tax planner:
- Warranties ensure you get paid.
This is a major one. Many tax planners have built a tremendous amount of risk into the way they operate their business. We put great effort into designing a spectacular tax plan, but when we present it to the client, they don’t catch the vision. They are unwilling to restructure their business or to delay certain spending plans or to pay more tax this year in order to dramatically reduce their taxes in future years—whatever the obstacle may be. Because of this, they look at our expertly-crafted plan, say “no, thank you,” and refuse to pay us for that work.
Has this happened to you? The good news is that warranties can mitigate that risk for us by providing clarity and reassurance to the taxpayer. The warranty states that the client must pay for the tax plan upfront, which some tax planners—especially those who are just starting out—may worry will alienate clients or make their business less competitive. But the warranty also serves to reduce risk for the client by clarifying what the client can expect to receive from you, what to do if they are unsatisfied, and how you will make amends if somehow there was an error or obvious problem in their tax return. The warranty provides mutual reassurance that can help a client take that leap and discover the benefits of investing in a tax plan.
- Warranties formalize benefits you are already offering your clients.
If introducing a warranty within your tax practice sounds like an intimidating step, consider this: you likely already have one—it just may not be in writing yet. Ask yourself this question: “If you severely messed something up in a client’s tax plan, how would you handle it?” For example, if your client came into your office and said, “I discovered a huge mistake on my tax returns! I just learned that I could have been taking a depreciation deduction for the past few years, and you didn’t include that. You really messed up!” What would your immediate, top-of-mind response be? Many of you would likely say something like, “I’m so sorry. I’ll fix that at no charge.” If that’s you, guess what? That’s a warranty. Or if your instinct is to say, “I’ll refund your money for the tax returns where I made that mistake,” once again, that is essentially a warranty.
You likely already have in mind the steps you would take in response to a legitimate complaint from a client. The only thing that hasn’t happened is you haven’t formalized this process in writing. That’s all a warranty is: a formalized list of circumstances under which a client could make a complaint and what you would offer to compensate them. By implementing a true warranty, the client receives both clarity on what to expect and reassurance that they can trust you to follow through on providing a thorough and accurate tax plan based on the information you are given.
- Warranties can compel the client to actually review the tax plan you created.
In your career as a tax planner, you may encounter the occasional client who has a knee-jerk reaction to something you’ve suggested and wants to back out before looking at the actual tax plan. I’ve experienced this twice, and in one case, I was doing tax planning for a friend who got cold feet after talking to a financial advisor. This advisor told my friend “I’ve been in the business 25 years, and I’ve not heard of anyone being able to avoid tax on capital gains.” Of course, as proactive tax planners, we know that there are perfectly legal and effective tax strategies to help taxpayers mitigate or eliminate capital gains altogether. Unfortunately, my client was persuaded by the advisor and did not want to move ahead with the tax plan. I hadn’t even delivered the tax plan yet! I tried to encourage my friend to at least sit down with me to review the plan so I could show her where in the tax code and in court cases you can find the basis for the strategies I was recommending. Unfortunately, she opted not to move ahead and missed out on great tax savings opportunities.
With a warranty, you can include a clause that you must have actually delivered the tax plan and the client must have reviewed it before they can opt out and request a refund. You can even include in the conditions for requesting a refund that the client must note which parts of the tax plan they have an issue with to ensure that they must actually look through the plan in order to make use of the warranty.
3 Elements You Need in Your Warranty
Your warranty should include both a description of what is covered and what steps the taxpayer has to follow in order for the warranty to be in effect and legal. Important elements to include are:
- A time limit
In fairness to you, a warranty should have an expiration date, so a client can’t simply come to you 10 years down the road and ask for their money back. A typical requirement is that the client respond to the tax plan within 60, 90, or 120 days if they are dissatisfied.
- An official process for submitting a complaint
You will also want to instruct clients on the acceptable way to formally request a refund or revision of their tax plan. Be as specific as possible. Should they submit their request via email? If so, which email address should they use? Will you require a meeting where you review their issues with the tax plan before a refund can be issued? Again, you will likely find it helpful to list what the taxpayer must include in their request for it to meet the requirements of the warranty so that they actually have to review the tax plan and identify the specific parts they disagree with before deciding not to move forward.
- Limitations on compensation
This is where you lay out what the client is entitled to if their refund request does meet the conditions stated in the warranty. For example, you might say that the maximum amount that someone can receive is the amount that they paid for the plan—or you might say that a taxpayer is only entitled to a 50% refund unless the taxpayer is able to provide evidence that an actual mistake was made on the return.
Summary
Remember as you’re drafting your warranty to be as clear and specific as possible. By law, Circular 230 dictates that tax professionals cannot guarantee the results of our tax plan, so the warranty should make that clear to the client. However, by providing assurances that you are willing to be held accountable for verifiable mistakes on a tax return or willing to provide some compensation if they are dissatisfied and do not want to move forward with the tax plan, this can provide clients with the reassurance they need to make an investment with you. Once they see the benefits in the form of actual tax savings, the risk may not seem as high as it once did.
Looking for more advanced training on how to improve your tax practice and enlist more clients? Sign up to become a Certified Tax Planner today.
