Tax Advisory in Action
Jasen Stine: Welcome to Account
Trends everybody. I'm Jason
Stein with Intuit Accountants.
My co-host, david Bergstein, and
I are excited to be with you
every couple of weeks to share
the latest news, interesting
perspectives and hottest trends
in the tax accounting world.
We'll have special guests on the
show to help break these trends
down and give you food for
thought as you find new ways to
deliver for your clients. And,
most importantly, we plan on
having some fun while doing that
. Welcome, okay, welcome back to
Account Trends everybody. Jason
Stein here, your host as always
, and with me, mr Bergstein. How
are you today, sir?
David Bergstein: I'm doing
fantastic today. Good to see you
again. We've been seeing a lot
of each other lately.
Jasen Stine: Yes, You're getting
tired of me yet. Absolutely,
absolutely.
David Bergstein: Absolutely
tired of me. Okay, so last
conversation, and I'm sure this
will air before it happens,
Quickbooth Connect went live
with registration. Did you know
that?
Jasen Stine: Yes, I did know
that. Well, I sat on the
programming team for QBC and
we've been working hard to put
together a really cool program
for everybody. Very exciting
year, a little different. We're
bringing some new blood, new
speakers to the forefront and
it's going to be interesting.
But it's going to be sold out,
so don't wait to buy your ticket
.
David Bergstein: Are you already
bought my ticket yesterday when
it went live. I want to resell
it at a higher price later on,
in case I decide I don't want to
go.
Jasen Stine: This is the first
year that we're able to do that.
We're opening up the
registration. We're encouraging
people hey, don't wait, buy your
ticket, because we know it's
going to sell out. But for the
first time, you can actually
transfer your ticket to someone
else. Not that we're encouraging
people to hawk tickets to QBC,
but I'm sure there will be some
of that.
David Bergstein: In addition,
today, you know what's also
interesting my Intuit stock,
which I bought at various prices
, finally hit the $500 mark.
Jasen Stine: Oh, did it. I know
if you knew that. I did not.
That's cool. That's a big
milestone. I don't think we've
ever hit 500 before. I remember
I think the first 500,.
David Bergstein: It'll go up,
it'll go down, but it's now past
that plateau so you never can
tell where it's going to go. I
guess you'll check it out.
Jasen Stine: We're looking, it
looks like we're hovering at 490
. It's funny 25 years ago when I
started with Intuit, our
company stock was, I think, 90
bucks a share, so that's just a
testament of our growth.
David Bergstein: And if you held
on to it, maybe someday you'll
be able to move to a bigger
chicken coop.
Jasen Stine: Right, with less
roosters, hopefully.
David Bergstein: So what do we
got today? We got someone who
likes to count pennies and turn
those pennies into bigger
dollars and supposedly has
reliable tax expertise.
Jasen Stine: Speaking of growth,
yes, we have Mr Randy Hughes
with us today from CPA Pennies.
Randy has built quite a cool
business, really largely
centered around tax advisory,
and we wanted to bring him on
the show do something a little
bit different. We talk a lot
about thought leadership on the
show, David at kind of a higher
level, and so Randy was kind
enough to give up some of his
time. We're welcome to the show,
Randy, by the way.
Randy Hughes: Pleasure to be
here, gentlemen. Yes, nice to be
here with you.
Jasen Stine: Really glad to have
you because we're really eager
to hear about kind of digging in
on how you go about these tax
advisory services. David Randy
is a member of our tax council,
I think, and one of the big
reasons that we wanted to bring
him on was because of his unique
business and what he's been
able to do and some of the
stories that he's got to tell us
. I'm super excited to have you
here, randy, to share your
experiences with our audience.
Randy Hughes: And absolute
privilege to be here.
Jasen Stine: Oh yeah, no, man,
it's our privilege. So let's
start off with just a little bit
about your journey. Tell us you
know kind of, how did you get
to where you are here today?
Randy Hughes: Absolutely. Yeah,
well, it's again a privilege to
be here with both of you,
gentlemen. And yeah, the story
is this I wanted to work for
myself. I had an accounting
background. I wanted to work for
myself and a friend of mine
suggested that I explore tax
preparation. I thought it was a
good idea, so I went out and did
all of the things that were
needed to establish a tax
preparation business needed to
find some clients, so I put
flyers. I made up flyers on my
own computer and the funny thing
is, you know, you don't have
your. Well, at least I will
speak for myself. I didn't have
confidence when I first started
out. This is going back 21, 22
years now, and so, even though I
had scored well in school on
tax preparation, I decided to
target apartment complexes to
put my flyers because I was
afraid of schedule A at the time
. You know I'm new to the
profession. I wanted to keep it
simple I'm thinking of the 10,
you know the 10 for the easy
form and all of that stuff, just
to get my feet wet. So I
started with flyers and I put
them in apartment complexes so
that I could avoid schedule A,
and it worked for the first year
and a half. And then that
second season did the same thing
. Somebody came in and handed me
a 10, 98 form and said, oh yeah
, you know, I live in the
apartment complex now, but I
sold my house last year, but
before I sold it, here was my 10
, 98, because I still like to,
you know, claim my mortgage
interest. And I was like, oh, my
goodness, what am I going to do
? But you know it, really I'm
going to be honest with you. It
was one of the best things that
happened to me, because it
forced me to take a situation
that I really already knew, but
to work through it in a real
life situation. And by virtue of
working through that real life
situation, you know, prepare the
return. There were no issues.
But the lesson it taught me is
that as long as I understand the
concept of what needs to be
done, I can research and find an
answer later. And that was a
very important lesson, because
now, fast forward 20 years where
our business model is around
tax planning and advisory tax
services. That's exactly what we
have to do. If we had to wait
until we mastered everything and
knew everything before we sat
in front of a client, we
wouldn't sell a thing, but
understanding the power of
understanding a concept
conceptually what you're trying
to accomplish, and then having
the confidence to know that you
have access to resources to find
the answers that you need to
achieve your desired goal, which
, in this case, is lower taxes.
It is, it was a God send lesson
all those years ago and it
serves me well today.
Jasen Stine: Well said, my
friend.
David Bergstein: In doing all of
that, you know you're not just
a tax preparer, you're a CPA, a
certified tax coach, a
continuing education, and also
you're a certified tax
resolution specialist. So I
guess your niche has always been
tax and the tax planning, and
you've seen it grow.
Randy Hughes: Absolutely yeah,
and all of those. And the
fascinating thing is, through
all of those things that you
mentioned, you know those,
they're all entities or
industries, and into and unto
themselves. We like to think
about it and I think about it as
we have this, what we call tax
service umbrella, and under this
tax service umbrella we have
three different areas that are
unique unto themselves. Now, the
one that we're most familiar
with as accountants and
definitely people in the
community, is tax preparation.
Right, everybody knows what tax
preparation is. Why? Because the
IRS requires us to file a
return and the majority of cases
right Every single year. And
because, as taxpayers, we're
afraid of non-compliance,
because of the penalties and the
punishments that could be
associated with that. We file
our tax return, but by and large
, most people, they don't want
to think about taxes. But
there's this entire other
industry of tax planning that's
out there that really needs a
seat at the table by itself. So
it's not like a latch on, you
know, it's not. It's not like
you know, I think, the
illustration I'm thinking of you
. It's not like you're dragging
it along along with tax
preparation. Tax planning is
something all to itself. It has
its own seat at the table. And
then to your point, david
resolution, resolution has its
own seat at the table too. It's
a whole industry into and unto
itself, and so focusing on those
three, you can really help a
person in a more comprehensive
way than just doing the
compliance work of the tax
preparation return every single
year.
Jasen Stine: And one more
question about your business,
and then I want to get into
those use cases we were talking
about. Yeah, randy, you have a
unique approach to your staffing
model. As a successful firm,
you're able to offer some
specifically unique structure to
your team. Can you talk a
little bit about that?
Randy Hughes: Absolutely yeah.
So we have a team. There's eight
of us all together, counting
myself, and the unique thing
about us is all of us work
part-time, and that's
specifically by design. The
reason why we work part-time is
because we want to make sure
that we have the capacity to
come up with the creative ideas
that are required with things
such as tax planning. So
generally, we work between 15,.
Each team member works somewhere
between 15 to 30 hours per week
. I'm on the 15 hour range
myself, and then we have others
that varied and also depending
on the time of year, of course,
because it does pick up a little
bit more during tax season,
naturally. But the reason why we
do that is we want to make sure
that the team members have time
for other things that they feel
are important to them. Some of
them like to travel, some of
them have families, some of them
have community service. All of
us do some form of volunteer
work. We don't require that, but
it's interesting that everybody
has decided to do some type of
volunteer work, and when we have
those things outside of work,
then we're more excited to come
into work, and we're more
excited to come into work. It
creates our creative capacity,
which is really what you need
when it comes to tax planning if
you want to be able to produce
the type of results that you're
talking about in the initial
stages of explaining it to a
taxpayer.
Jasen Stine: And then what I
think is super cool about that
too just what we were talking
about before we started
recording the episode was this
allows you to go back and forth
and live between Jamaica and
Florida, and live your best life
.
Randy Hughes: That's it, yeah,
and we absolutely love it. Lots
of flexibility.
Jasen Stine: Folks listen up
because Randy is doing it right
here. So, randy, let's talk
about, let's get into this,
let's really help people. Talk
to us about how you serve your
clients and soup to nuts you
know from getting the clients,
selling them on the service and
executing it.
Randy Hughes: Absolutely. That's
an excellent question because
we can talk about tax planning,
but if we're not able to execute
and implement, then we're
really just talking about wishes
and dreams, right? So precisely
so, here's the it starts with
for us. Anyway, we believe our
philosophy is it starts with
when we feel like we're going to
have the taxpayers' attention.
When are we going to have the
taxpayers' attention? We know as
a firm that some of the best
tax plans are built either in
January or sometimes even in the
summer, sometimes even in the
summer. That's an excellent time
to do tax planning right, but
the typical taxpayer doesn't
necessarily want to hear about
taxes in January or the summer.
Why? Because the typical
taxpayer doesn't like taxes.
They have to pay taxes, right.
They don't want to have to
concentrate on it, and the tax
return, as we explained earlier,
is something that they're
required to do. So they do it
because they're required to. We
completely understand that. So
our challenge was trying to
figure out all right, we know
that tax planning is best done
either at the very beginning of
the year or starting even in the
summer. But we also know that
our clients are not or the
taxpayer is not as engaged, not
as excited or motivated to talk
about taxes in the summer. How
do we overcome that problem?
What we found is best for us is
we have to start laying the
groundwork during tax season,
when individuals have made a
conscious decision to focus on
taxes. So what we do in our firm
is we use the results. When
it's time to deliver results,
hey, this is what you owe, this
is what you're getting back we
choose to use that as an
opportunity to educate and
explain to the client what's
actually happened, because
that's when we have their
attention, especially if they
have a balance due. Right, an
individual has a balance due. A
lot of times they want to know
why do I have a balance due? Why
is it more than it was last
year? What did I do wrong? What
did I do differently? What can I
do? That's when you have their
attention, when they realize
they have to stroke a check or
give bank information for the
IRS to pull. So we start to lay
the seeds and the groundwork
there, because we have their
attention at that particular
point. Now, sometimes, we're
able to go straight into the
process. More times, though,
what ends up happening is we lay
the seed there and then we
follow up a few months later,
because once the seed is laid,
they know they have a problem.
We're not necessarily in a rush
to try to sell them right then
and there, because they're
trying to depends around how to
deal with the IRS. That might
not be the best time to come to
them and say, okay, in addition
to this, now we also want you to
pay for this and this.
Psychologically they may not be
able to deal with that, but we
lay the seed. Hey, this feeling
that you're feeling right now
you don't have to feel this next
year. We see some ways, we see
some areas. We can help you with
this. We would love to talk to
you about it in a couple of
weeks. Would you be interested
in a conversation? Once they say
yes to that, then we have to
follow up, and that's generally
what we do. So how does the
process look? We'll usually send
a communication because we
already have their tax return.
We already know, we already have
an idea of what type of
strategies we can use to help
them. So we internally because
we've gotten so good at tax
planning we usually have a
ballpark. We usually know a
range of what we'll be able to
save them if they pull the
trigger on this strategy, that
strategy or that strategy, right
? So then what we do is we set
up a complimentary meeting and
just to kind of lay the
groundwork for this, this is
really a it's a. It's a three
meeting process with additional
meetings to follow. So let's
just start with that. When we
approach tax planning and for
those of you that are interested
in tax planning, you're
thinking how do I do this, how
do I set this up? Out of the
gate, you want to know this is
going to be at least three
meetings that you're going to
have with your tax client when
you're setting up a process for
tax planning. The first one is a
complimentary meeting. It's
where you explain what tax
planning is, and the reason why
that's important is because your
tax payer is right now thinking
tax planning is finding out
their bill on April 5th and then
being told to contribute to an
IRA. They think that's tax plan.
That's not tax planning. That's
a good idea during the tax
preparation process, but that is
not tax plan. So we have a
complimentary meeting to help
them to understand what tax
planning actually is. A lot of
times what we do is many
individuals are focused on that
balance-do number. We draw their
attention to the total tax
number. So we'll ask them how
much do you think you paid in
taxes last year, by the way? And
they always, always undercut
that number and we say, no,
actually what you paid is up
here online. I can't remember
the number right now. I line out
line 30, line 20, line 30. But
it's not the number on the
bottom of page two, it's the
number in the middle of page two
, on the 1040, right, your total
tax number. So our goal with
tax planning is to address this
number, not the number at the
bottom, because the number at
the bottom can be adjusted. With
increased withholdings, with
estimated tax payments, we're
trying to adjust the actual tax
that's being paid throughout the
year. Once they understand that
, then it's like oh yeah, that
makes sense. So, yeah, how do we
get that number down? Glad you
asked. And we talked to them
about the process and we divide
tax planning into six different
categories, six different
categories that we can pull from
to help to reduce that bill as
low as we can. So once we
explain the process, we ask them
does this sound appealing to
you? And inevitably they say yes
and then we say, well, now that
you know how much you paid in
taxes. How much would you like
to save? You tell me how much
would you like to save in taxes.
So you paid $70,000 last year
just in tax. Now you didn't
scroll to check, but it came out
throughout the year how much of
that $70,000 would you like to
save next year? And you get a
number. And then, once you have
that number, once they have that
number in mind, we now know,
based on experience, what we
already know or believe we can
do, based on having already
looked at their situation. And
then we have four tax plans that
we already have ready and then
we place which plan we think is
going to be best for them, based
on what we feel we could do and
based on the savings we're
looking to achieve. And then
we'll quote them on that plan.
Now, if they say no, I'm not
interested right now, it's
really them saying not yet.
Because here's the thing, jason
and David, the tax liability is
not going to go away. They're
going to have this problem if
they don't do something right.
So it's just, they're not yet,
so they don't have enough paying
yet, so we just wait it out.
But if they say yes, then they
pay for the engagement. Then we
go to the discovery meeting.
That's a more comprehensive
analysis of what we're going to
do for them, based on their
situation, and then, about two
or three weeks after that, then
we have what's called the
presentation meeting, where now
we've now identified these three
or four ideas that we bring to
them that are going to get them
the savings that we talked about
, and we present those ideas to
them in a comprehensive plan.
Then, at that particular point,
we set them up on a maintenance
plan where we meet with them
every quarter at least every
quarter to make sure that the
things on the plan are actually
being executed, because there's
nothing worse than having
someone pay for a plan. They
absolutely do nothing with it.
Then you prepare their taxes and
they don't see a difference,
because you know the question
that's going to come back right,
why did I pay for this? Why did
you sell me this, if there's no
difference? That's the reason
why we require now the
maintenance plan. We didn't
always require maintenance, but
we require it now to make sure
that the steps are followed. And
then, when we get to the next
tax season now we prepare the
return. Two weeks, we prepare
the return with the tax
strategies that have been
implemented and we prepare the
return assuming they had not
done any of those things so that
they can see the difference.
Because remember the pain point
when we gave them the results
the previous year? That's what
got their attention, so we know
we're going to have their
attention again next year. So we
want to say you know, remember
that pain you felt. Well, this
year is this much lower. But you
know what, had you not done
anything, we would have been
coming to you with this number.
Then they get a chance to look
at the difference and then they
understand why they have the
plan. That's kind of a
long-winded answer, but I hope
it answers the question.
Jasen Stine: No, no, I loved
every bit of that, randy. I
think our listeners probably
will too, because that's the
thing that people are trying to
wrap their head around is like
how do I execute this? What is
the process I should be looking
at? How do I sell the value to
clients? Right, you just
described all those things, and
I love the little tidbit at the
end about how you show them the
difference between the two,
because the purpose and the
putting that's it.
David Bergstein: Let me hit a
question here. When you say you
get to a point you are from four
different options, before you
really get into it, is that four
different categories? That a
plain vanilla of everyone before
you dig into it?
Randy Hughes: From a pricing
standpoint, yes. So we have what
we call levels. We have what we
call the level zero, which we
don't present initially. We have
a level one, a level two and a
level three. Generally speaking,
it depends on the type of setup
that the taxpayer has, which is
going to determine which level
we have. Are they a business
owner? Are they a W-2? Primarily
a W-2 earner? Those types of
questions are going to determine
which level we're going to
pitch them on. Also, what type
of revenue are they bringing in?
Because the more revenue
they're bringing in, the more
opportunities there are for
tangible savings. That's going
to play a part into which level
we present them with. But if we
get into a situation where and
this is something that's
important for those of you that
are thinking about tax planning
when we get into a situation
where it seems like none of
those level one, level two or
level three work, we have this
level zero, which is a little
less than half the cost of level
one. If you want me to get into
pricing, I absolutely will Just
let me know once I finish this
thought and we can talk about
that. But we have this level one
, which is a little bit about
half of what the level one costs
. We keep that in our back
pocket for this reason. Let's
say that we go through the
presentation. The person sees
the value, but in their mind
they can't wrap their mind
around paying for a tax plan at
that particular point. We say,
okay, we understand no problem,
we let a few months go by. We
don't try to bring it back
around immediately. We let a few
months go by because we know
the problem hasn't gone away.
Then we will revisit them with
another option and say we had
this meeting with you a couple
of months ago and usually it's
me doing those follow-ups. My
team usually does the other
follow-ups, the initial meetings
and things of that nature. If
they don't pull the trigger,
then usually I as the owner will
jump in and say, hey, I noticed
you had a meeting with my team
but you didn't pull the trigger.
I just wanted to check in with
you as you find another
resolution for your tax
situation and if not, is there
anything that I personally can
do to help? When that happens
and they're getting a call from
me as the owner, they usually
they will tell you why they
haven't pulled the trigger If
the reason is financial. I just
couldn't wrap my mind around
paying for a level one, for us
costs about $5,000, $5,600, just
for perspective. I couldn't
wrap my mind around paying that
kind of money. You know what. I
completely understand If I take
another look at your situation
to see if there's something else
that we can do for you, and if
there is, then I come in with
that level zero which is at
around $2,000, and say what if
we could make this plan work for
you and get you some tangible
savings? Usually it works pretty
nicely because now they have a
starting point. Here's the
beauty of it If they are a
business owner, because, well,
let me back up and say this
first if you're going to sell a
tax plan for that kind of money,
you have to make sure that
you're saving the person at
least that much, either in the
first year or in the years to
come. Otherwise it doesn't make
sense. It really comes back as
like a boomerang to bite you as
the business owner, because the
person wants to know why did you
sell this to me? I paid this
money. He said I was going to
save taxes. It doesn't make
sense to them, right? So we're
always looking to make sure that
they get more savings than what
they're paying us. So let's
take the $2,000 scenario. Let's
say that they're that's level
zero, that we charge If they're
a business owner, and let's say
that they're in the 24 or 25%
tax break just by purchasing the
plan. We've already helped them
save $500 against their taxes
just by virtue of the fact that
they purchased the plan. You see
what I mean. So we build that
into the, we build that into our
calculations and and and we're
going forward. And then, of
course, there's always things.
There's always things that can
be found to make up that
difference. It's just a matter
of guiding them in the right
direction.
David Bergstein: But whatever
they're paying you, they're
getting a bigger savings in tax
in all cases. So if I'm paying
you $2,500, you're probably
telling me I'm going to save at
least $5,000 in taxes or
something along those lines. So
I see, whatever I'm paying for,
I'm getting more back.
Randy Hughes: Yeah, exactly, and
yes, that is the. That's the
reasoning behind it, because
otherwise it doesn't make sense
to the taxpayer. However, when
we offer the plan, we're very,
we're very deliberate about how
we word that, because we can't
tie the cost of our plan, can't
guarantee Exactly, because it
gets sticky, you get into
trouble and in some cases that's
not even legal right. So we
have to be very strategic in how
we word that, and usually the
way we approach it is you're
paying for a certain number of
strategies and we are paying for
a certain number of strategies,
and then we on our end,
internally, we make sure that
those strategies add up to what
makes sense for the taxpayer.
Sometimes that means we have to
kick in a few additional
strategies, which we don't mind
doing because we have to make
sure it's a win for the taxpayer
. If it's not a win for the
taxpayer, we've wasted their
time, we've heard our reputation
and it's not a good scenario
either way. So if I tell you
we're going to sell you two
strategies, but it takes me four
or five to make sure you get
your money back, you're going to
get the four or five. Basically
is how we approach it
internally, the way we do it
anyway. That's perfect.
Jasen Stine: So this is a
perfect transition into some of
the use cases. Give us some
examples of how you've executed
this approach.
Randy Hughes: All right, I'll
give you one of the most
comprehensive ones. That
happened just earlier this year
and it was literally a home run.
And I'm going to tell you, not
all of them are home runs like
this one, but this one was. This
one was a home run. This is an
individual who has been
following our firm for quite a
number of years. They had their
own account, interestingly, but
they were following some things
that we had been doing on social
media and things of that nature
, and something happened where a
person they were using was no
longer available to do their
return. Well, because they had
been following us for a number
of years, they said let's give
it a shot. We like listening to
when they give informational
learning on this topic or that
topic, so let's give it a shot.
So we do the review. And what we
learned when we did the review
because we always do a review
before we give a quote for a tax
return what we learned when
they were doing a review is that
they had a business that they
had started four years ago and
when we inquired and met with
them after giving them a quote,
we learned that they were
interested in selling it. So
they said we're interested in
selling this. We're thinking
about selling it on this
particular date. Is there
anything that you can tell us?
Well, we realized that they
qualified for Section 1202 as
long as the sale was just pushed
back by a couple of months.
Section 1202 is a provision that
says that if you have small
business stock in a C-corporate,
qualified C-corporation and you
sell it five years later than
the capital gains is excluded
from federal tax. They did not
know that, and so what we did is
we said, hey, we see some
opportunities here. We really
this is how we approach tax
planning we see some
opportunities here and we feel
like they're pretty substantial.
We didn't tell them the exact
number in that scenario, but we
told them enough and they pulled
the trigger. So they decided to
do a level two. In that case,
they paid $9,000 for their plan.
But here's the thing when we
actually ran the number, so we
started to do the work, once
they paid for the engagement,
when we actually started to do
the work job, we realized that
by giving them the direction to
push the sale back a couple of
months, which they said that
they could do this move was
going to save them over $160,000
because of this provision. We
went back and checked up all the
but they had to hold it for at
least five years. But, unknown
to themselves, they were about
to sell it at about the four and
a half year mark, just because
they were ready for retirement.
They hadn't had any other
direction. We were like whoa,
hold on, stretch this out a
couple of months, we take
advantage of this provision, and
then you walk away and we ran
the numbers into being about
$160,000 savings. The $9,000 was
nothing to them when they
understood that they had that
type of savings as a result of
that provision. And what ends up
happening with a win like that
is now they tell their friends.
And now their friends come over
and not all of them qualify for
the same things, but you find
what works for each individual
situation at that particular
point. So that was a huge one
from this particular year.
Jasen Stine: And am I doing the
math right on this ROI here,
Randy? That's a 1,777% return on
investment.
Randy Hughes: That's it, and
that's just the first year.
That's just one thing, because
one of the things yeah, now are
they going to have that type of
savings every year, but with a
tax plan. A tax plan is not just
one big idea. Tax plan is a
combination of ideas and those
other ideas that they got along
with the tax plan. They can
duplicate that in year two, year
three, year four, year five,
and with us, unless there's a
significant change, you're not
buying another tax plan, you're
on maintenance, but those other
things are taking care of the
maintenance by far and it's a
win-win for us and for the
client.
Jasen Stine: Sounds like you
didn't charge near enough.
Randy Hughes: Yeah well, we
didn't know the numbers. We knew
we had something, but we hadn't
found the numbers. At that
particular point we definitely
could have charged more. So
that's something again for those
of you that are considering tax
planning. That's why the review
process is such an important,
deciding what you want to
include in your review process.
If you decide that you want to
incorporate a more comprehensive
review, then you know those
numbers and then you can
probably gauge based on that, so
that you're absolutely right.
That could be adjusted depending
on what your review process is
like.
Jasen Stine: What a cool example
.
David Bergstein: I was going to
say I like everything I'm
hearing, but it's just a thought
. I'm probably off the wall and
Jason will shut me up. But what
a different approach as you go
forward with these clients talk
about hey, we do tax advisory
services and part of our tax
advisory we're paying us an
annual fee, tax returns, part of
the deliverable. We will come
up with tax planning ideas
through our advisory services
based on your unique needs. So
instead of selling them a plan,
you're actually putting them on
subscription pricing. I'm
looking at it a little
differently, of course. We're
going to give you advisory
services based on your needs and
each year we'll come up with
other things based on what goes
on. So I'm just looking at
changing it around a little.
That make any sense.
Randy Hughes: That makes
excellent sense, david, and to
your point we agree with you.
And so that's why, when we sell
a tax plan, so they pay for the
tax plan, but then after that we
also sell them a maintenance
plan. And that maintenance plan
is a quarterly arrangement where
they pay anywhere from $5 to
$600 per quarter and the purpose
of the maintenance plan is to
make sure that the original tax
plan is executed, but then also
that maintenance plan takes care
of their tax preparation for
the following year. It also
allows us to incorporate some of
the smaller things, like I'll
contribute to your IRA, oh, home
office induction, I mean those
little things. All of that's
included in a maintenance plan
year over year. So once we sell
the plan, there's still another
opportunity for between $1,500
to $2,000 per year because we're
constantly working with the
client. And so for the clients
now that you brought it up,
because inevitably what's going
to happen, especially the
accountants out there that are
thinking about adding this and
they're going to say how do I
sell somebody? How do I go to
somebody and say I want to sell
you at $9,000 plan and then, oh,
I want to come back and I want
to hit you up for another $500
every three months. How do you
do that?
Jasen Stine: Right.
Randy Hughes: That's a good
question. That's an excellent
question. Here's something that
we would like to encourage you
to use. That's worked very, very
well for us. We use the analogy
of a vehicle. When you go out
and purchase a vehicle, you're
paying an initial cost for that
vehicle, but you know you have
to maintain that vehicle as the
years go by. You're going to
have to replace the tires,
you're going to have to get oil
changes, you're going to have to
replace the fluids. You're
going to have to do something.
Now, if you're buying a really
luxurious car, they may sell you
something and say, hey, we're
going to include all of that,
but you're paying some type of
subscription for it. But if
you're buying a car that doesn't
come with that, you're having
to go to the mechanic and you're
having to come out of your
pocket. Every single time you do
the oil change, every time you
do the tire rotation, the
alignment, all of those things,
you have to put gas in it. The
dealership doesn't pay for your
gas. They sell you the car. You
still got to put gas in it.
Right? The maintenance plan is
something very similar. You're
buying the plan and now we're
going to help you maintain that
investment through the
maintenance program.
Jasen Stine: And I love that
it's required.
Randy Hughes: Yeah, and you know
what we learn the hard way?
Well, let me not say the hard
way, we learn through experience
at that's best. Because when we
first started them, gentlemen,
people would get them. We would
have what we call our
presentation meeting. It made
complete sense. And then we get
the tax time and they hadn't
done anything. And then we
looked. You know, imagine how it
makes us look. Now usually
people will acknowledge yeah,
you told me to do it and I
didn't do it. But still, as the
ones putting the plan together,
we feel bad too, because we
don't want this to look like
we're just trying to take your
money. We want you to have
results, because if you have
results you're going to go and
tell your friends and then your
friends are going to come in too
, right. So we realize that the
maintenance for Quint it helps
us to help them execute the plan
so they get the savings they
need.
Jasen Stine: Well, and not only
are they going to go to all the
friends, but then that's going
to help you attract those ideal
clients that are the right fit
for your services versus
post-emfliers in an apartment
complex. It's scary.
David Bergstein: With or without
? Do you have a minimum
requirement on income earned
before you accept a client?
Randy Hughes: Throwing that out.
Well, that's a good question.
One thing we will do is not
really an income earned, but tax
paid through the years. You
could tie that to the income
that they've earned, right?
Because if we get a tax return
and we review it and we see that
the person only paid $10,000 in
total tax for the year probably
not going to try to sell them a
plan because it's going to be
tough, especially if they're
just a W2. If they don't have a
business and they're only W2,
it's going to be tough to
eliminate that $10,000, right.
But if we see opportunities
where we can, they're paying a
large total tax and we see
opportunities to get that down,
then, yes, you know. So we're
looking at it more. We're
looking less at total revenue,
we're looking more at total tax
paid. Now there are
opportunities for individuals
that are only W2 earners.
There's quite a few ideas out
there, and so you know, for
those of you that are tapping
into that market, that is
something that we encourage you
to look into and I believe, into
. It helps with those types of
things as well, which is
fantastic.
Jasen Stine: Yeah, so on that
note, randy, I was thinking
about, you know, like that
example of the $160,000 savings
and it's, you know, 1,700%
return on investment. That's a
grand example, right, which is
an awesome example of how
something so simple could be so
wildly successful. Do you have
more examples of things that our
listeners might run into on
kind of more of an everyday type
of a situation?
Randy Hughes: Yeah, that's an
excellent example. So some
things that we would suggest
that. Well, it depends on what
you consider every day. Are we
talking about individuals that
own real estate as every day, or
are we talking about more
simple than that?
Jasen Stine: I don't know
Whatever we think is the most
relevant to the listeners. I
think maybe go beyond a niche,
Something that's just a little
more common that you see.
David Bergstein: Well, real
estate is probably a kind of one
People own real estate. What
are their opportunities?
Jasen Stine: And a lot of real
estate pros will like they
engage professionals with their
taxes.
Randy Hughes: So then, here's a
couple of things that we really
would encourage as it relates to
real estate. There's two things
that we look for when we're
looking at real estate. Number
one especially if they're a
client that's coming in, we're
taking a look at depreciation.
You would be surprised at how
many returns we see where the
depreciation is incorrect. So,
and a lot of times it's because
people have tried to do the tax
return themselves. Sometimes
it's individuals. They've gone
from tax preparer to tax
preparer and some things didn't
get carried over. So for those
reasons, we always take a look
at depreciation. If we come to a
situation where the
depreciation is wrong and it's
actually in the favor of the tax
payer meaning once we make this
correction, they're going to
get a really, really big. You
know they're going to get a nice
reduction in tax Then that's
something that is really, really
nice. So that would be a 3115
form. It's a correction of
accounting form, but you can do
catch-up depreciation on there.
That's a really, really big one
for those individuals that have
real estate. Another one that we
like to do with our
high-profile clients, but it
also works for individuals who
aren't making, you know, quite
so much money is. If you're
dealing with taxpayers that have
cyclical income. In other words
, they have some years where
it's high and then other years
where it's low. Maybe they're
contractors, Maybe they do
contract work, and they have
some years where it's high and
then it goes down and it kind of
rides like that. We like to do
analysis, where we have some tax
strategies that we apply in the
high-earned years and then
other tax strategies that we
apply when the income is lower.
So when the income is high,
we're talking to them about cash
balance plans, possibly donor
advice funds, and we're also
helping them to put some money
away in an account that they can
use for other things in the
low-earning years. And we're not
just talking about bills, we're
talking about money that they
can use to their advantage in
those years. In a situation
where a person has real estate,
especially if they have a number
of real estate properties that
they're dealing with, a nice
strategy that we like to
incorporate, if individuals have
the funds to do it is, in the
low years, sell one of your
properties that has appreciated.
If the capital gain is roughly
around 100 to 200,000, then we
can do some tax planning to get
the income for that individual
under the 89,000 or whatever it
is right now, so that they pay
zero capital gains tax on that
particular year. It's not gonna
work in a year where they have
high income, but in a year where
they have low income and we're
just dealing with the capital
gains. Then we will give them
advice on when to actually pull
the trigger on the sale of that
appreciated property and if the
appreciation plus the income is
still too high for that
threshold, then we're coming
back at them with the things
that I mentioned earlier the
donor advice fund, which allows
you to put a large amount of
money away for charity but then
distribute the funds later. Or
the cash balance plan, which the
best way to describe that is
like an IRA on steroids
Basically allows you to put
contributions away a much more
aggressively than a traditional
IRA. Let's put it that way.
Those are some of the ideas that
we have. We can go with some
simpler ones if you'd like, but
those are ones that we usually
see quite often, especially with
individuals with real estate.
David Bergstein: You ever use a
throw to sad an opportunity zone
credit with anybody. I just
learned something cool about
that. It's where people can
invest in a distressed area and
end up with a lot of tax savings
. So distressed area you wanna
hear a distressed area, jason?
San Jose, california, because
the areas around it have much
more income. So your investment
is safe and San Jose is where
you used to have your quick
connect.
Jasen Stine: Think about that.
No correlation to us moving to
the Vegas spot, though, by the
way.
David Bergstein: Right, but just
thinking about that, sure
that's another great. If
someone's got a lot of money
sitting around and say, hey, you
asked them to invest in certain
ideas, I'm guessing Absolutely,
and an opportunity zone is a
nice way to accomplish that.
Randy Hughes: That's an
outstanding suggestion actually
for individuals who are
interested in real estate.
Jasen Stine: This is really cool
, I think, randy, we really. I
think you did a really good job
of unpacking both the how you
approach the work. Thank you for
your transparency on your
pricing as well, because that's
something that people tell us
all the time and I don't know
what number to attach to this,
like what is reasonable, I don't
know, and some people have kind
of packages that are more
consistent across the board and
others it's case by case. I've
talked to other practitioners
that do similar work that each
client ends up with different
amounts based on the different
situation. So I think that just
goes to show. And then what I
also love about your pricing
model is you're doing like a
combination flat fee and
subscription, and so what's
awesome about that and this is
something I've been learning
more and more lately because I
push the conversation a lot with
pros that I talk to you gotta
move to subscription. You gotta
move to subscription, especially
if you're on hourly, get off
hourly. But the fact of the
matter is lots of people, lots
of firms, approach their pricing
differently, and that's okay,
because you gotta do what makes
most sense for how your firm
operates, the culture that your
firm runs on and how you wanna
interact and engage with your
clients, and so you've done
exactly that. So brilliant. And
then just digging into the
strategies themselves and
talking about that Perfect
examples for our listeners that
are struggling to figure out how
do I wrap my head around all
this stuff. So awesome,
absolutely great. Well, that's
about all the time we have for
today. Randy, you are developing
some or maybe already have
developed some resources for tax
and accounting pros as well.
Right, you wanna talk a little
bit about that.
Randy Hughes: Oh well, love to.
Yes, we have a course called the
Well-Rounded Accountant. It's a
program, that is, we have a six
month version and a 12 month
version of the course, but the
course is designed to teach CPAs
, eas and tax preparers what we
call the five basic areas of
accounting, which we feel are
tax planning, tax preparation,
tax resolution, bookkeeping and
then CFO advisory service. We
teach and cover all five of
those in the program. Then, once
you go through what we call the
basic coursework, which is
about two weeks on each of these
, plus some things on value
pricing, so that you know how to
price your services, then you
pick your major or your niche,
so to speak. We focus in on that
particular niche, whichever one
of these fives that you pick,
and then that completes the
first six months of the course
and then the next six months is
what we call real life
application. So, kind of going
back to what we started the
conversation with, we can talk
about ideas all day, but if we
don't know how to execute them,
then what have we really
accomplished? So when the course
, once the accountant has picked
, gotten a well-rounded view of
all of these areas and now
they've picked their niche, now
for the next six months. They
work along with myself and our
staff accountants on that
particular niche and we allow
them to help us with some of our
clients. And we help them with
their clients in real life
situations so that they can see
how what they've learned in
class actually how it actually
works in real life. So the
things that we just talked about
in our call here today. We're
working one-on-one with those
individuals in real life
scenarios so that they can get a
feel and get their sea legs
underneath them, so to speak,
and that's basically the program
. So it's called the
well-rounded accountant.
Jasen Stine: I love that you're
doing that, randy. The need for
that is so strong. So, folks,
where should people go if they
wanna learn more about that
program, randy?
Randy Hughes: That's excellent.
Go to our website, cpeniscom.
That's wwwthelettercpenis,
spelled out P-E-N-N-I-E-S dot
com and there'll be a hashtag on
there for the well-rounded
accountant and that will take
you to all the information about
the course and when the next
one runs, which is in the not
too distant future.
Jasen Stine: Outstanding. Well,
folks, go be sure to go check
that out. We need more people
like you, randy, in the world,
and thanks for sharing your
insights with us. Well, thank
you so much. That's all we have
time for today. Folks, randy,
thanks for being on the show,
really appreciate it and look
forward to next time. And, for
those listening, thanks for
tuning in. Thanks for listening.
If you enjoyed this episode,
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Trends is produced and edited by
Luke Johnston. Copyright Intuit
2023.
