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"Aggressive" versus "Proactive"

 

from TaxCoach™ Briefs
Volume 1, Number 8 — July 20, 2006
by Edward A. Lyon, JD

Planning taxes and selling tax savings should be the easiest part of building your business. (If you do it the way we teach, it is.) After all, who doesn't want free money from the government? But clients sometimes fear that 'tax planning' necessarily means using 'aggressive' strategies, pushing into 'gray areas,' and crossing lines from legitimate tax avoidance to illegal tax evasion.

In fact, tax planning means nothing of the sort. If clients fear that your strategies might cross inappropriate lines, you simply have to outline the difference between 'aggressive' and 'proactive' planning.

'Aggressive' tax planning means pushing legal limits -- stretching deductions, stretching definitions, and pushing into gray areas. Some clients want this sort of service. They think if they don't get audited, you're not trying hard enough. If that's really what they want, and you're comfortable giving it to them, that's fine. (I tell my clients that I'll be as aggressive as they want me to be, within the bounds of the law.) But you don't have to limit yourself to those sorts of clients.

'Proactive' tax planning, in contrast, means scouring your clients' circumstances to find every possible black-letter opportunity. This concept of your service should reassure clients who feel uncomfortable with 'aggressive' strategies. And ultimately it delivers more value in the long run.

Let's say you have a client who sells real estate. Which will save her more? Hiring her teenage daughter and setting up a medical expense reimbursement plan to deduct family medical costs as business expenses? Or defining her summer barbecue as a 'client appreciation event' and hoping the IRS doesn't question the 100% deduction?

Douglas R. Andrew is a financial educator who advocates using tax-advantaged mortgage debt to invest in tax-advantaged whole life insurance to build wealth. While you may not agree with his strategy, he illustrates the distinction between 'aggressive' and 'proactive' planning beautifully in his book Missed Fortune:

'I think an aggressive, thorough, certified public accountant can be well worth the investment. Of course, by 'aggressive' I don't mean a CPA who crosses the line into gray areas of tax preparation. I mean someone who acts as more than the tax preparer who plugs the numbers into the proper blanks. A good CPA will meet with you a few times a year to assess your situation for that year and discuss strategies to alleviate unnecessary tax.

So often, people stumble on a tax strategy that may apply to them -- perhaps in an airline magazine article -- then go to their respective CPAs and ask 'Hey, I've read about this tax strategy. Can I do this in my set of circumstances?'

'Yep, you sure can.'

'Well, why didn't you tell me about it?'

'You never asked!' comes the reply.

TaxCoach means never having to say 'you never asked!'

Click here to learn more about planning taxes with TaxCoach™.

 

Taxation Planning . . .

 

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recommendation:
 
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Executive Editor,
CPA Technology Advisor
 
www.thetechgap.com

 

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