In the past, the following has been something I struggled with. I want to get TPT thoughts on it...
Over the past couple of years, I have regularly identify tax saving strategies for clients while preparing the returns and proceeded to implement said strategies after a discussion with the client(s). The tax savings are often not insubstantial.
In the past, I have just billed for time used to implement the strategy. These clients come out well ahead, the marginal increase is a few hundred dollars to me but they often save thousands or tens of thousands in tax.
A recent example is a expat client couple. Over the past few years we have taken the foreign earned income exclusion ("FEIE") for the spouse. This year, the spouse's foreign earned income was above the FEIE limit and I ran a quick alternate scenario, in my software, using foreign tax credits ("FTC") for the foreign earned income instead of the FEIE. I determined FTCs were more advantageous, and after a quick call (on 10/15 of all days), the client agreed and decided they wanted to revoke the election to use FEIE and use FTCs going forward. And yes, we did weigh the 5 year lock-in. It still is a no-brainer based on what's expected moving forward.
I saved the client roughly $7k in federal income taxes this year. The marginal time cost to me was 30 minutes, give or take, to run the alternate scenario, have a very quick call, then adjust the software to file using FTCs and add a revocation election.
So, in the past I would have billed 30ish minutes of additional time. I am thinking, however, of billing this client around 5-10% of the tax saved for the value-add, which I think is reasonable. Kind of a pay me or pay the IRS situation. I'm comfortable saying that many preparers out there would have just done same-as-last-year and wouldn't have even thought to make the comparison, therefore I offer a more compelling value proposition and should be correspondingly compensated.
What are your thoughts here? Yay? Nay? Any ethical or professional landmines that I should be aware of? To be clear, my overall fee is NOT contingent on the tax result, and that is the way it will stay. I just would like to make sure clients are compensating me appropriately for the big value-adds.
Sorry for the book. Hope everyone is doing better this Friday.