Curious to Convinced: Become a Tax Advisor With No Prior Experience

As accountants and bookkeepers, we've all faced the pressures and ethical dilemmas of our profession. The grind of hourly billing, the constant chase for billable hours, and the burnout that follows can leave us questioning our career choices. But what if I told you there’s a path that not only resolves these issues but also brings immense satisfaction and value to your clients? Enter the world of tax advisory.

Addressing ethical dilemmas and burnout

Hourly billing has been the norm for many of us, but it often puts our interests at odds with our clients. The more hours we bill, the more we earn—but this can lead to rushed work, superficial solutions, and, ultimately, client dissatisfaction.

This is where tax advisory shines. It shifts the focus from time spent to value delivered, aligning our goals with those of our clients. By focusing on strategic planning and tangible results, we can provide real value without compromising our ethics.

You don’t need a license or credential

One of the biggest myths about tax advisory is that you need a license or credential. The truth is, anyone with a drive to learn and a passion for helping clients can become a successful tax advisor. You don’t need to know every tax law or strategy. Instead, focus on mastering a handful of key strategies that can provide significant value to your clients.

Core Strategies to get you started

I bet you work almost daily with a business’s financial statements, the P&L, and the Balance Sheet. Here are some foundational strategies to consider, along with example questions and potential savings.

1. Entity Selection

Question: Is net income showing more than a couple hundred thousand?

Strategy: Guiding clients in choosing the right business structure can have long-lasting tax benefits. Ask for their last filed tax returns for a complimentary analysis and proposal.

Example: A sole proprietor with a $200,000 net income converting to an S Corporation might save $10,000 in self-employment taxes (per year), depending on their effective tax rate.

2. R&D Tax Credit

Question: R&D Expenses on the P&L?

Strategy: Businesses engaged in research and development activities can qualify for significant tax credits.

Example: A company with $100,000 in qualifying R&D expenses could receive a tax credit of $10,000, assuming a 10% credit rate.

3. Accelerated Depreciation

Question: New assets, real estate, or old ones that must be written off for business personal property taxes?

Strategy: Allowing clients to depreciate assets faster can lead to substantial tax savings.

Example: An asset worth $100,000 with a 5-year life using accelerated depreciation could result in a first-year deduction of $20,000 versus $10,000 with straight-line depreciation, potentially saving $4,400 in taxes at a 22% rate. Or Section 179 may be beneficial.

4. Credits!

Strategy: Businesses that retained employees during COVID-19 can receive a refundable tax credit, and businesses that start a new retirement plan can also get a credit!

Example: A business starting a 401 (k) plan could receive a credit of up to $1,500 per employee. For three employees, that’s $4.5K!

5. Cash vs. Accrual Method

Question: What accounting method are they using and why?

Strategy: Help clients understand when to recognize income and expenses for optimal tax outcomes.

Example: Switching from accrual to cash accounting might allow a business to defer $100,000 in income, reducing current tax liability by $22,000 at a 22% rate.

6. Interest expense deductions

Question: Are they capturing all of their loan payments for business endeavors on their P&L?

Strategy: Properly categorizing and deducting interest expenses can reduce taxable income.

Example: Correctly deducting $20,000 in interest expenses could save $4,400 in taxes at a 22% rate.

7. Inventory Method

Question: Do they have inventory or qualify for the small business inventory exception?

Strategy: Advising on the right inventory accounting method can improve cash flow and reduce tax liabilities.

Example: Switching from LIFO to FIFO in a rising price environment could increase the cost of goods sold by $30,000, saving $6,600 in taxes at a 22% rate.

8. Vehicle, home office expenses, or home rental

Question: Are they optimizing personal reimbursable expenses?

Strategy: Optimizing these deductions can significantly reduce taxable income.

Example: A $5,000 home office deduction and $7,000 vehicle expenses could save $2,640 in taxes at a 22% yearly rate. Utilizing the Augusta rule can provide tax-free rental income for up to 14 days a year.

Example: Renting out a home for 14 days at $500 per day can provide $7,000 in tax-free income.

9. Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs)

Question: What type of health care plan are they on, and how much do they pay (and how) in premiums versus out-of-pocket expenses?

Strategy: HSAs and HRAs are wonderful pre-tax benefits to cover family bills.

Example: Max out their HSA if on a high-deductible health care plan (about $7,500 per year) and start an HRA in the company to reimburse another $10,000 per year of out-of-pocket expenses. This can result in almost $4,000 in annual tax savings for clients for things they are already doing!

10. Maximizing employer benefits

Question: If clients receive a W-2, are they maximizing their employer benefits?

Strategy: Most aren't! If the company matches retirement, this is a must.

Example: Ask for their employer benefit packet for any deferral of income, stock incentives, child care benefits, or other pre-tax items that could add up to thousands per year, causing another $3,000 or so in tax savings for them.

Total savings and ROI method

I recommend charging a flat fee for the plan up front, such as $2,500. Once you’ve identified potential savings, total them up, and suggest the ROI method value price to help implement the plan.

Total savings here is:

Year 1 Savings:

Entity Selection                                                           10K

R&D Credit                                                                   10K

Asset Depreciation                                                     4.4K

Credits                                                                          4.5K

Accounting Method Analysis                                    22K
Interest Expense                                                         4.4K
Inventory Method Analysis                                        6.6K
Optimizing Home and Travel Expenses                   4.2K

Health Care                                                                  4K
Benefits                                                                        3K

Total                                                                              $73K

Implementation                                                           $18K

Ongoing Savings and ROI = 306% Yr 1, Priceless Yr 2 Forward

Learn more at Scaling New Heights 2024

If you’re intrigued and want to dive deeper, I invite you to attend my sessions at Scaling New Heights. On Monday, June 17th, at 12:15 PM EST, I'll be presenting the Theatre session "Converting the Curious to the Convinced: Become a Tax Advisor with No Prior Experience." This 20-minute session will cover how you can start offering tax advisory services even if you don’t have extensive tax knowledge.

Additionally, join me for a two-hour Tax Advisory workshop on Tuesday, June 18th, at 1 PM CST. We'll learn how to do this from beginning to end in detail and provide you with actionable steps to get started.

Contact me

Let's continue this journey together. Connect with me on social media at @jackiemeyercpa on most channels and join the Accounting Firm Influencer Group on Facebook. Together, we can transform our profession, align our work with our values, and deliver unparalleled value to our clients.

I look forward to seeing you at Scaling New Heights and helping you unlock the potential of tax advisory in your career!