After two years of “The Tax Season That Never Ends,” tax pros everywhere are looking for ways to leverage their services and improve profit margins in their firms. But many are missing out on their biggest opportunity to dramatically increase profits: selling tax planning to existing clients. As technology has advanced and firms have adopted more automation, tax pros can do much more work in less time. This is a problem when you are in the business of selling billable hours. Additionally, as the Tax Code has grown in complexity, we often find that taxpayers don’t fully understand the value of our expertise and knowledge – they simply see the same prepared form year after year. This makes it difficult to continue increasing prices beyond the market rate for tax prep. As a result, many tax preparers have embraced value pricing for tax planning services. The market demand for strategic planning has increased and as small business owners embrace do-it-yourself accounting software, it is easy to offer this missing expert advice needed to assist the business owner in reducing tax expense. Accountants have found success in breaking through pricing barriers and reducing the risk of scope creep in their experiments with value pricing. Yet most are fearful of bringing this offer to existing clients and start offering higher priced planning only to new customers. Many judge that existing clients will be upset the pros haven’t offered this work in the past, assuming taxpayers will be unhappy missing out on value they could have created long ago. Still others worry merely raising rates will mean losing customers. Despite discovering that new customers really like price certainty and value the strategic work, tax pros are still reluctant to upsell existing relationships, thereby, offering different processes to lists of “new” and “old.” Yet considering it costs five times more to gain a new client than to approach an existing client, many accountants are leaving profits on the table. According to research by Bain and Company, increasing your client retention rate increases profits by 25 percent to 95 percent. And statistics show that keeping and selling more services to a current client is less expensive compared to securing a new client. Still, fear blocks many from making this transition, creating more loyal, profitable, and happy clients. Here are the four biggest mistakes I see tax professionals make by not offering advisory services to clients.

Voter registration, a drivers license, and day counting are what come to mind when people think about residence for state income tax purposes. There is no question that those basics are very important and ignoring them can kill your cause. Nonetheless, many other factors can enter into a determination, including church attendance and pets. That’s because you will generally be a resident of the state in which you have your “domicile.” And domicile as a concept borders on the mystical. It is your true home, it remains your domicile until you abandon it and establish a new one. Yet, establishing your domicile in a state with no (or low) income taxes can be lucrative. In some cases, this can represent millions of dollars all by avoiding state income tax. The natural progression of a business owner’s life can also include exiting said business at substantial profit. Your domicile at the time of the transaction can be pivotal in determining how much of that profit you’ll be left with in retirement. To learn more about how to do this, keep reading.

It's hard to escape the news covering numerous methods high net-worth clients use to minimize their taxes. A ProPublica (June 8, 2021) headline trumpets, “The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax.” CNBC (September 20, 2021) highlights, “The wealthy may avoid $163 billion in taxes every year. Here’s how they do it.” Even Teen Vogue dives into the topic. If you're a taxpayer of more modest means, you may think, Hey, what about me? I can’t afford the team of high-priced tax advisers or consider many of these tax reduction techniques. Are there ways I can minimize my taxes that are legal, easy to implement, and affordable? The answer is a resounding YES. And how do I qualify? Read on for some tax planning tips that will work for you. Part One (of this two-part series) covers strategies to reduce your adjusted gross income.

Far too many of these Employee Retention Credit (ERC) claims are nonsense. Now don’t get me wrong. I enjoy helping businesses claim the ERC. I have written in these pages about the unique ways a business may qualify and how to use startup eligibility even for existing employers. But let’s be honest: People are manipulating this program beyond belief. The refund dollars are too attractive and have created far too large an incentive for shops charging high commission fees (I have seen fees charged between 10 to 35 percent of the refund). In the coming years, numerous aggressive ERC shops may contact you if they haven’t already. How do you know whether a claim is legitimate or nonsense? Here, we will review the most prevalent bad arguments to help you avoid trouble.

Question: You talk a lot about reducing federal taxes, but what about other taxes? It seems like we get taxed on everything multiple times! Is this even legal? Answer: Isn’t it the truth! You may feel that your income, purchases, and belongings get taxed double, triple, and even more times. The saying goes, “nothing is certain except death and taxes.” And even when you die the same property and earnings may be taxed again. The Supreme Court even answered the question in 2015 about whether taxing the same income more than once is constitutional. In the case of Maryland v. Wynne, the 5-4 decision indicates that two states do not have the right to tax the same income. While many of the strategies discussed in Think Outside the Tax Box reduce federal taxes, most of them will reduce your state income taxes as well, depending on whether or not the state in which you pay taxes conforms to federal tax law. In addition, there are many state tax reduction strategies worth learning and implementing. However, did you know there are also tax reduction strategies for other types of taxes like property taxes? One of the oldest taxes and primary sources of revenue for states, counties, cities, schools, and fire departments comes from taxing the value of property owned within a jurisdiction. In some locations, this can include personal property as well as real estate. Like most good tax laws, property tax laws include loopholes you can use to pay less. To learn more, continue reading here.

Question: How much time should be devoted to studying tax planning? Can’t I just select a software providing Artificial Intelligence to Inform Me What to Do? Answer: To answer this question Dear Reader, I’ll ask a question in response. Are you a user of TurboTax or a similar software tool? Chances are as a reader of Think Outside the Tax Box, you use something (or someone) different than software purchased at a big box store. The answer to this question may be a similar situation to a semi-regular TikTok viewer of DIY household construction projects. Does the job require a router or a Dremel tool? If you’ve heard me talk about tax planning before, no doubt you’ve heard me describe tax planning software as an instrumental tool. It can provide valuable insights such as data extracted from your tax returns, calculation of minimum required estimated tax payments, and even a few tips to save annual tax. Whether you are a do-it-yourselfer braving a construction project in your home or a new business owner or novice tax planner, the answer depends on the nature of the job you are doing. Is it possible for this experienced Tax Planner of more than 20 years with an advanced degree and thousands of tax plans to complete a bathroom remodel in just a weekend with a Dremel tool? Certainly. I’ve even got the pictures to prove it. Just like the bathroom-in-a-weekend, it is possible with an off-the-internet-software to develop a few ideas to save some tax dollars. But if you look closely at my personal photos – you’ll notice the glue expired on my “driftwood” mirror frame. The recycled wood tiles failed to stay up with the shower moisture in the air, and while the dimensions of my replacement countertop – the walls were just a hair too uneven in my old house. In the end, my weekend project took more than 4 weekends of my precious free time, more than $1,200 in the after-the-fact hired help to fix my handywork, and a little of my pride revealing this online to a public audience. To read about when it is a DEAL BREAKER to rely on AI tax planning software, click here to continue reading.

Do you ever feel like your inbox is out of control? Perhaps you even have more than one out of control inbox. Do you find yourself getting vapor-locked from information overload? Do you consider the phrase “inbox zero” and feel like it’s as achievable as driving to the moon? It’s time to work on that. An uncurated collection isn’t a collection it’s a hoard, and an uncurated information library isn’t a library it’s a digital fire hazard. Digital clutter can be as detrimental to your professional life as physical clutter is to your personal life. Before you start curating, however, I recommend giving some thought to how you want to go about it. For example, I have a work e-mail that is for clients to reach me that I only access when I am at my desk working. In general, my work e-mail is not the e-mail to which my subscriptions are sent—not even the tax-related subscriptions. My work e-mail is for clients only (and a few colleagues). That way, if I want to read tax news when I’m not working, I’m not distracted by e-mails from clients. At the same time, my tax news goes to a different inbox. My shopping ads go somewhere else as well. While I don’t recommend having one e-mail address for each type of communications, having a few different e-mail addresses (one for “work work”, one for work reading and networking, one for personal use and shopping) can help to create boundaries that will keep you from being distracted by work when you are trying to shop and vice versa. Once you have your various inboxes set up (or not), it’s time to take a cold hard look at all of that digital clutter. Let’s face it, most of us don’t read the consumer disclosures when we sign up for something or use a business’ website. Whenever you provide your e-mail address to a business or use their website your e-mail address is captured. Unfortunately, not only does the business with which you are transacting use that as consent to e-mail you, often the use disclosure includes authorization for the business to sell your data (either anonomized or not) to other businesses. That’s why when you order custom business swag from one company you are not only inundated with additional e-mail from that company but you start getting e-mail solicitations from businesses selling similar or complementary products and/or services. The same thing happens when you register for continuing education classes, enter a drawing at an expo using your business card, or join a professional organization. You start getting e-mail solicitations from that company, but if, or when, that company monetizes their e-mail list, your e-mail address is included. Yay! (Can you sense my sarcasm?) I read once that it takes an average of nine “touches” to convince a consumer to make a purchase. Unfortunately because e-mail is relatively inexpensive and easily automated, many retail businesses use it to make all of those touches. Between regular shopping, gift shopping, professional organizations, professional news, regular news, it’s really easy for the amount of e-mail into your various inboxes to get completely overwhelming in a short period of time. That’s why it’s just good business to spend some time once or twice a year curating your subscriptions! If the thought of trimming down your subscriptions gives you FOMO, keep reading for some tips and tactics to make sure you still get important notifications while eliminating the excess.

In our recent issue, we discussed the exponentially growing universe (or metaverse if you will) of DeFi or blockchain based gaming. In that article, I shared how dedicated players support their livelihood, especially in places with a low cost of living, by playing the games. In this issue we will explore the concept of a “Trade or Business” as defined by § 162, and how specifically how blockchain gaming meet this threshold. For a quick refresher of what constitutes a § 162 activity, see our article “Pros and Cons of Cryptocurrency Mining as a Trade or Business. Why become a trade or business? Meeting these requirements can make a difference between video games being treated as a hobby and becoming a tax benefit. Click here to keep reading.