Tax Planning Sin 2: Undercharging for Tax Planning
As discussed previously, 90% of practices don’t actually provide tax planning services to their clients for a fee. That is not debatable and is a fact supported by the data. What is interesting though is that most of those practice principals will tell you they do provide tax planning services to their clients, but just don’t charge for it, or it is included in the client’s annual compliance fee. Some of these principals think telling a client to put more money into super is tax planning. Of course, contributing to superannuation is a good tax planning strategy, but that is not actually providing tax planning services. The tax planning process is actually a six-stage process that involves more than providing advice on one (or several) tax strategies. We cannot say these practices are really undercharging for their tax planning services as they are not actually providing tax planning services (they just mistakenly think they are).
Within the 10% of practices actually providing tax planning services over 50% are undercharging for their tax planning services. Although the average fee charged for a tax planning service is $1,500 there are large extremes between minimum and maximum fees. Some accountants are charging as low as $250 and others in excess of $10,000. The large divergence in fees charged is due to the following factors:
- The accountant’s confidence levels.
- The accountant’s skill levels and expertise.
- The size and profitability of the client.
- The accountant’s sales skills.
- The value added and tax saved by the accountant.
The absolute minimum fee for a tax plan should be $600, and typically $1,500 (equal to the average tax planning fee). The $1,500 fee is similar to the price charged by financial planners for a financial plan but adds more value to the client than a typical financial plan. Ideally, accountants should be charging tax planning services based on the value added. So, if they add extreme value and save the client $50,000, they should be charging $10,000.
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"You’d be stupid not to try to cut your tax bill and those that don’t are stupid in business"
- Bono: U2