Welcome back to the Retirement Tax Services Podcast! For this Tax Q&A Friday, Steven is answering another listener-submitted question: How should a tax-planning advisor handle clients who do their own returns?
Strategizing advisors and DIY clients are more compatible than you might think. Steven explains how you can deliver value, even if it sounds, initially, like there is nothing for you to do.
Steven is actually answering 2 questions today. First, Scott asks, “How do you handle clients who do their own taxes?”
Second, Joe wants to know how to coordinate with a client’s CPA when the client goes the DIY route. If you’ve been with us for a while, you probably know that Steven regularly encourages being proactive with other COIs.
The short answer is “Don’t panic.” Believe it or not, it actually makes sense for some clients who do their own tax returns. When their income situation is simple and unchanging, it may even be wise.
Although his CPA practice regularly does other peoples’ taxes, Steven acknowledges that there’s some great software available. At the same time, it does have limitations and things to be aware of.
As a result, you should still be reviewing their tax returns. Get them annually from all clients. Look on Page 2 of Form 1040 to see who prepares them.
There are areas in which DIY-ers can run into trouble. If a client or prospect has done their own, you can add value by double-checking for them.
Look at multiple years’ returns, whenever possible. Many independent filers do well while one year is the same as the other… until changes happen to their income.
In fact, this is where the ball often gets dropped. People get married or divorced, retire or change jobs. However, they forget to account for those life changes on their returns.
Use this as an opportunity to gently pitch your own tax-planning strategies. Start by mentioning that as things get more complex, a professional could save them time, stress, and money.
Especially if their situation is extremely complex, suggesting they use a CPA can be another value-add. Do you have a network yet? Start reaching out. Getting proactive with other COIs can be a win-win, even if you don’t get a referral from them.
Take ownership of the situation. That is to say, make sure you can recommend clients or prospects to a CPA you’ve personally spent time with and vetted. The idea is not to pawn the client off, but to call in a friendly specialist for backup.
This is always better than cold-calling around or sending them home to Google “CPA.” Have the phone number of a COI that you feel good about sending them to ready. Think of it as an ace up your sleeve.
There’s a massive potential bonus to this, as well. As you send more and more business their way, gradually, some CPAs may feel inclined to write a recommendation for you.
Avoid getting entitled or pushy, but don’t be surprised. As the saying goes, “Good things come to those who wait.”
Make sure to approach DIY clients from a constructive standpoint. In all honesty, nobody likes to feel stupid. Never scold them or insult their work.
Instead, affably mention that when they retire, for example, some things will get even more complex. Gentle, sincere concern for their wellbeing is always better received than embarrassment. Promote your services by discussing the specifics.
Steven has more tips for engaging DIY tax preparers in today’s Retirement Tax Services Podcast.
Thank you for listening.
Steven Jarvis:
Hello everyone! And welcome to the next episode of the Retirement Tax Services Podcast: Financial Professionals Edition. I am your host, Steven Jarvis, CPA. In this show, I teach financial advisors how to deliver massive value to their clients through tax planning. We are once again back to a tax Q&A Friday edition of the show, and I have two related questions that we’re going to address together.
The first one comes from Scott and he asks, ‘how do you handle clients who do their own taxes?’ And right along with this, we have a question from Joe, he says that a lot of times on the podcast, we talk about coordinating and implementing recommendations and strategies with the client’s CPA; but what about when the client does their own taxes? So right along, kind of in the same vein as Scott’s question of not only how do I handle clients who do their own taxes, but wait a second, Steven, you’re constantly recommending that the answer to these questions is, and let’s do this with your CPA. So, what if there isn’t a CPA involved?
So, let’s talk about both of these. So, in general, as we work with clients who do their own taxes, first of all, I think there’s a lot of situations where that can completely make sense. Even though I am a CPA and strongly support the great work that CPAs and tax preparers do, that doesn’t mean that everyone needs to go out and seek out a CPA to do their tax returns for them. There’s some great software out there. It certainly has limitations and things to be aware of, but if your client is in a relatively simple situation, I wouldn’t really even worry about trying to encourage them to work with a tax preparer.
You should still be reviewing their tax return though, and you should probably be aware. That’s one of the things – not probably – you should definitely be looking at… that’s one of the things we’ve talked about on other episodes of one of the things that you really can look forward to get value from – on page two of that 1040 is okay, who is preparing their tax return. And you can look for: did they prepare it themselves? Cause there are some things that you might want to pay closer attention to. If you know, they prepare their taxes themselves. Similar to other tax situations we’re going to be looking at with tax returns.
When someone prepares themselves, it’s great to be able to compare year over year because typically where we run into trouble with clients who prepare their own taxes is when something changes in their life. Now the tax code changes on a semi-regular basis, all on its own, but it’s very possible that your client can go years having a similar tax situation each year and get their tax return perfectly right year after year. But then, especially as clients encounter life changes, whether that’s marriage or divorce or changing jobs or retiring, hopefully it’s mostly exciting things we’re running into. As their situation changes, or as you work with them to implement more complex tax planning strategies, there are definitely things we want to be on the lookout for and help them realize that as the complexity increases, it might be worth considering involving someone who spends all of their time doing these kinds of things.
So, in general, it’s not inherently an issue of clients doing their own taxes, but certainly something to be aware of as you talk to them about tax planning strategies. And as you try to keep a lookout for those areas where maybe things are getting a little more complex, maybe you should encourage them to consider working with a professional on that aspect of their financial life as well. This definitely reinforces where there can be so much value in – how we recommend that you work with CPAs as centers of influences, because as we talk about offering to pay a CPA for an hour of their time, so that you can get in front of them, that you can ask great questions, you can build this network. Partly of course, you know, selfishly with the goal of being able to, at some point demonstrate your values, that you can get referrals.
But when we talk about not asking for referrals and still having that be a winning situation… Completely serious when I say that there’s tons of value for you meeting with the CPA or the tax preparer, even if you don’t get a referral. And this is one of those examples, as you have clients who do their own taxes, and this starts to answer Joe’s question of, well, what about these recommendations I make of coordinating with a client’s tax preparer? When clients prepare their own taxes and you either want to recommend, they work with another CPA or they’re still set on doing it themselves, but they’re in a complex situation that maybe you should have someone weigh in on. If you’ve pursued this – working with CPAs as a center of influence strategy, we recommend on this podcast, you’ve now got this network of CPAs that you’ve spent time in front of, that you vetted, that you feel good about recommending your clients to. That now you aren’t making cold calls to CPAs on behalf of your client, trying to sort out a complex tax situation or even worse… You’re not just sending your client off to Google, local CPAs and hope they find someone good. You’ve put yourself in a situation to deliver massive value to your clients in helping them find that resource that will get them the help and expertise they need on whatever that tax planning topic is. So, for advisors who still feel more comfortable with any tax planning strategies ending with, ‘and let’s talk to your CPA’. If your client does their own return,
Then just change the wording of that. A little bit of, ‘Hey, this is a complex area. Be more than happy to pay for an hour of CPA’s time so that we can talk this through and make sure this is getting reflected correctly’. So it’s definitely a way that you can still add value or that you really can even add more value if a client does their own taxes. Now, you also want to make sure that if you get to a situation where you think it’s in the client’s best interest to consider working with a tax preparer, instead of doing it themselves. that we approach this from a really constructive standpoint, you’re not going to do yourself any favors and really not helping the client at all to tell them that they’re doing a bad job or to put this on them of, Hey, you made a mistake here. So, we need to get this fixed.
The way I like to approach this is just, you know, having a conversation about the reasons they work with you in their financial life and the complexities that you are able to help them through in other aspects and how that same logic applies, as we talk about tax preparation. Instead of highlighting things that they may or may not have been aware of or limitations in their abilities, highlight the complexities that they might start dealing with as they get further into retirement or whatever other life changes are coming up, and focus on the positive of this, of, ‘Hey, great news’. You know, as we maximize the tax savings through these different strategies, we’re implementing, you’re going to get a ton of benefit out of that. The trade-off is that there’s going to be some complexity that is typically going to be better to have another professional help, to make sure that this gets reported correctly to the IRS, because for a lot of these retirement related tax planning opportunities, if it doesn’t get reported it essentially never happened.
And so, there is a ton of value in making sure the process gets completed all the way to the end, including that reporting piece, including that compliance piece. We of course want to be able to go beyond compliance and providing value to our clients, but we can’t ever lose sight of that compliance piece. Of making sure this gets reported correctly to the IRS.
So, the only other thing I’ll add as it relates to working with clients who prepare their own taxes, is that – just like anything else this is something that you want to make sure that you’re aware of, that you’re done documenting in your CRM. That you have that context, but you’re working proactively with your clients to make sure that you’re helping them accomplish their goals and not just trying to force your approach onto them. Like I said, at the beginning, there are a lot of situations where it can work out great for clients to prepare their own taxes.
And another thing to keep in mind is that for a lot of people, this is kind of a point of pride for them. You know, maybe they hadn’t really done any investing on their own before they came and worked with a financial advisor, but there’s people who started preparing their own tax returns when they were 18. And this is just something that they’ve always seen as, ‘this is something I can do, this is something I’m responsible for, this is part of my patriotic duty’. Which of course we talk about all the time on this podcast, that there certainly are no patriotic wards for overpaying the IRS, but there are strong emotions for many people tied to taxes. So, just something to keep in mind, as you’re talking with your clients about whether they do their own taxes or they work with a CPA, or a tax preparer.
So, action items for today’s episode, really, I’m going to come back to this recommendation that we make as far as how you work with CPAs. And so, the action item is to make sure that you have a specific process, specific plan for how you’re going to continue to grow your network of CPAs that you can use as a resource for your clients. Whether that’s doing yourself-ers, or people who are working with CPAs. So, if you don’t have a specific plan for how many CPAs you’re going to contact and by when… Formalize that plan, put a framework to it so that you can hold yourself accountable, that it’s not just this nebulous idea of ‘at some point, I’m going to go expand my network here’. Especially if you work with a lot of DIY tax prepares a lot of clients that they’re doing this themselves, the more you are able to not just point them in the direction, but strongly recommend another professional because you’ve taken the time to vet them – the more value you’re adding to those clients.
And of course, especially with DIY clients, but really all of your clients, you need to be getting those tax returns every year. Most CPA firms are going to have some level of preparation and review that goes on within their firms. So, there’s going to be those multiple sets of eyes even within the firm. But when you get to do it yourself-ers, they’re typically the only one looking at their return, which really increases the chances that simple mistakes can be made, numbers can get miss-keyed information, can get overlooked. And so, getting their tax return really gives you a chance to be that second set of eyes for them, and to just really learn a lot, like we always talk about, about their situation and about things that are changing from year to year, and making sure that those strategies who worked with them on during the year got reflected correctly in that end of year tax return.
All right. Thanks for listening today, everybody. Good luck out there! And remember to tip your server, not the IRS!
