Giving tax advice

How to Price for TCJA-Related Services

Oct 15th 2018
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You may already be getting ready to assist your clients in multiple ways thanks to the Tax Cuts and Jobs Act (TCJA), but how exactly do you charge for these tax planning services?

This is not an easy question to answer as CPA and tax prep firms use various and sundry methods to set prices for services. For example, some of the pricing methods that have been employed by CPAs include:

  • Time charges (e.g., hourly rates)
  • Tiered rates, depending on level of complexity
  • Fixed fees
  • Fee schedules for products delivered
  • The same pricing as last year plus an inflation factor
  • Competitive amounts (based on what other would charge for similar products and services)
  • A percentage of savings in certain situation (e.g., from year-end tax planning strategies)
  • Value pricing
  • A bundling of services using the methods described above

The last singular option, value pricing, has been gaining the most attention in recent years and is likely to keep clients engaged under the TCJA. Essentially, firms price their services based on the external value created—as perceived and determined by the client—rather than internal costs incurred in generating those services. With value pricing, you put yourself in the client’s shoes and charge based on the value that your services represent to him or her.

Going with this relatively new approach, which some have called radical, may require a change in your corporate culture. It often forces tax practitioners to focus on some intangibles like commitment, leadership, creativity, and innovation, as well as dedicating resources to continuing education. Why is that? If you don’t know the new tax law inside out, you aren’t adding enough value to your clients.

Susan Tinel, an EA running a firm in San Diego, California with about 200 clients, had previously switched over to value pricing, with positive results. She never offers hourly rates.

“People are already engaged and thinking about premium packages,” says Tinel. “Of course, every situation is unique.” She advocates delving more deeply into each client’s personal situation to find out to out what they don’t like and what they do like. Then you can react accordingly.

Other tax professionals have different opinions on the matter. Francis Varrone, who heads up a CPA firm in Montville, New Jersey with about 250 clients, thinks that flat rates will become more prevalent. “The TCJA tax changes for 2018 bring us closer to a more simple tax preparation in the near future,” said Varrone.  “So, with the exception of attest function services in the CPA business, the fee structure will be reflecting some major changes. In my opinion, flat rate fees will be implemented in the near future on annual, semi-annual, quarterly and monthly tax services.”

Obviously, there’s no “right” or “wrong” answer here. First, CPAs should figure out what’s best for their firm and clients. Second, they must get the word out so that clients aren’t blindsided. This can be accomplished by letter, email, phone or in a face-to-face meeting.

The worst thing you can do is to spring a new pricing method on clients without any warning, so be up-front and forthright about any changes.

Next week we will look at the changing face of your client profile 

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