Why should accountants provide tax planning services to their clients?
- Added Value to their clients: Tax planning goes beyond compliance and tax preparation, enabling accountants to help clients legally minimize their tax liabilities, generate significant savings, and optimise their financial positions.
- Comprehensive Financial Advice: By incorporating tax planning into their services, accountants can offer more comprehensive financial advice that considers the tax implications of various decisions. This can lead to more informed and strategic financial decision-making for clients.
- Proactive Tax Management: By analysing clients' financial situations and identifying tax-saving opportunities, accountants can help clients mitigate tax risks, optimise deductions and credits, and develop tax-efficient strategies for long-term financial success.
- Compliance and Risk Mitigation: By providing tax planning services, accountants can help ensure that clients remain compliant with tax laws and regulations. They can stay updated with tax developments, interpret them accurately, and advise clients accordingly, reducing the risk of non-compliance, penalties, and legal issues.
- Long-Term Client Relationships: By actively helping clients achieve their financial goals and optimise their tax positions, accountants become trusted advisors who are deeply invested in their client’s success. This can lead to client loyalty, referrals, and potential for continued business growth.
- Competitive Advantage: Tax planning services can give accountants a competitive edge. By offering these services, accountants differentiate themselves from competitors and attract clients seeking holistic financial solutions.
- Revenue Generation: Tax planning services can be an additional revenue source for accountants, diversifying their revenue streams and increasing profitability.
Size of the Australian tax planning market
For the year ended 30th June 2023 45,333 tax agents (RTA) and 17,000 tax (financial) advisers generated $330 million in revenue from tax planning. Tax planning accounted for 7.5% of the year's $4.4 billion tax services revenue.
Although 94% of accounting practices say they provide tax planning services, less than 10% of suburban accounting practices actually generate any revenue from the service.
Tax planning software
Tax planning software assists individuals, businesses, and professionals in optimising and managing taxes. Tax planning software typically offers:
- Tax Calculation and Projection: Tax planning software can calculate and project tax liabilities based on user-provided financial data. It considers various tax rules, rates, and thresholds to estimate the amount of tax owed or refunded, allowing users to plan their finances accordingly.
- Tax Strategy Selection/Optimization: The software identifies and suggests available deductions, exemptions, and offsets to help users maximise their tax savings.
- Tax Law Compliance: Tax planning software keeps track of tax laws and regulations, ensuring compliance with the latest requirements. It incorporates changes in tax legislation to accurately reflect the current tax environment and help users meet their obligations.
- Scenario Analysis: Users can simulate different financial scenarios within the software to evaluate their tax implications. This allows for strategic decision-making by assessing the potential impact of various financial choices on their tax positions, such as investments, retirement contributions, or business decisions.
- Data Organization and Storage: Tax planning software provides a centralised platform for organising and storing tax-related information.
- Reporting: The software generates reports that detail the tax savings generated from implementing the selected tax strategies, and the step-by-step process to legally and effectively implement each strategy.
- Integration with Accounting Systems: This enables the financial data to be seamlessly imported (this eliminates manual data entry and ensures accuracy and consistency).
Tax planning software aims to simplify tax-related tasks, optimise tax positions, and ensure compliance with tax laws and regulations. It streamlines the tax planning process, saves time, reduces errors, and helps users make informed financial decisions to minimise tax liabilities and maximise tax savings.
To date, Australia has lagged behind the US in the adoption and use of tax planning software. As a result, tax planning in Australia has generally been provided manually, on an adhoc basis, to less than 10% of taxpayers.
Over the last twenty years, every task, function and service in the average accounting practice has changed dramatically. The personal computer, and associated software, has brought enormous efficiencies in the preparation of financial statements, budgeting, and tax return preparation. Today, no accountants perform these tasks manually.