Tax planning isn’t just about formulating a tax strategy—it also comes down to knowing in advance how you will implement that plan. Tax planners will typically see the most success when they either handle the implementation themselves and incorporate that into their fee or enlist the help of specialists to take care of different elements.
So what are the best practices for implementation planning? Before the tax planning process truly begins, you will start with your complimentary tax discovery session, which should last for about 45 to 60 minutes. You can prepare in advance by following the GIFT acronym:
- Get the taxpayer’s returns
- Identify mistakes and missed opportunities
- Figure out the savings
- Tell the client about it and invite them to work with you on a proactive strategy
If they say yes, we move forward to the actual planning cycle. You will begin your research, run calculations, perform an analysis to identify the optimal steps to create maximum tax savings, and create deliverables in writing to outline the strategies you are recommending. At the end of that strategy session, you will reach the pivot point where you discuss what needs to happen next: in other words, what do we do in terms of implementation?
One of the keys to effective tax planning is asking good questions. Tax advisors can stay focused during the implementation planning process by digging deeper into the taxpayer’s resources, timeline, and goals.
Resources
The first question to ask is what does the client already have? Have they set up any business entities like an LLC or a C corporation? Some taxpayers may even have entities that they don’t actively use because someone recommended they set it up, but the taxpayer did not understand how to maximize its potential. Here is a ready-made opportunity to leverage that entity for greater tax savings. We may be able to shift responsibilities or income streams among existing entities to make implementation simpler and save money for the client.
Tax professionals should also find out what type of personnel and skill sets the taxpayer has access to: do they have advisors like attorneys, financial advisors, insurance agents, bookkeepers, or payroll providers? Does the taxpayer run a business with employees? What are those employees’ realms of expertise? On this business team, who is available when? Time tends to be a scarce resource for business owners, and if they are slow at responding, you need to identify someone who can get you the information you need to hit critical deadlines and make the tax plan work.
Timeline
Speaking of time, the next step is to establish a big picture timeline for executing on your tax plan. Get to know the rhythms of the taxpayer’s business. Are they busy during certain times of year? Are they closed on special dates that might be specific to their region or their cultural/religious background?
Next, plot out the items in your plan one by one. Which items are the most time-sensitive? More likely than not, the tax strategies you are looking to employ will be proactive—meaning they will start generating savings from the date of implementation going forward. This also means that the longer we wait to implement these items, the less savings they will realize within the year. Take note of any cut off periods toward the end of the calendar year or around filing deadlines.
Lastly, which items have no connection to timing? An example might be retirement planning. Say you decide on a Roth IRA conversion strategy. Since the deadline for the conversion is not until December, you can simply factor that into your tax maintenance plan and take action when it makes the most sense to do so financially.
Goals
Tax professionals are often tempted to become laser-focused on tax savings, but realistically, clients may have other goals that they hold as equally important. Maybe for the sake of their business and other time commitments, they prefer to form a certain entity or prioritize hiring a specialist sooner even if waiting would result in slightly more savings. Keep this in mind as you formulate their tax plan.
Next, what are your objectives for each item in the tax plan? Amidst all the strategizing, it can be easy to get lost in the details and lose sight of the central goal. We do not want to establish another entity just for the sake of having it. We do not want to recommend a retirement plan in every tax strategy just because it is wise to have a retirement plan. Focus on whether a certain approach actually helps accomplish a goal for the client or results in a tax reduction.
Lastly, does each item link back to its overall purpose? Some tax professionals develop a “pet tax strategy” that they recommend as a default, like “put that rental property in an LLC.” Are we simply assuming this will save the taxpayer money rather than evaluating it in view of the overall tax plan? Transferring a property into an LLC can be a great move in terms of personal asset protection, but putting a rental property in an LLC does not automatically guarantee tax savings—it depends on the other factors at play for that taxpayer. If the overall purpose is to reduce personal liability, then this step could make sense. However, if the goal is tax savings, challenge yourself to consider if the taxpayer really needs this to achieve the end goal.
Once you have asked all of these key questions, your implementation strategy is underway. Keeping on track will require good performance management, which means overseeing each player’s progress toward assigned tasks. To stay on top of deadlines, you may want to enlist the help of a Virtual Assistant or Admin or schedule regular maintenance plan check-ins. The effort you invest in creating an implementation plan and assembling a team to execute on it will be well worth it when you tally up the tax savings at the end of the year.
To learn more about proactive tax planning and how to enroll your clients in this approach, become a Certified Tax Planner today.
