Growing Revenue Sources for CPA Firms

March 5th, 2020 Posted by Marla DiCarlo
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The CPA industry is changing rapidly.

Technology and the changing tax code have altered the tax preparation business, and traditional revenue sources may not be sufficient to grow a CPA’s practice. Successful CPA firms generate revenue from a number of sources.

The number of individuals who use a CPA firm for tax preparation is declining, due to a number of factors.

Tax Preparation

The CPA Journal points out that an increasing number of taxpayers are using the standard deduction and not itemizing, and therefore may not need the help of a tax professional. 

In addition, the number of firms offering tax software for individuals has also increased, and software is becoming easier to use. Many taxpayers are choosing to use tax software and not consult with a tax accountant.

Some CPAs are growing their businesses by specializing in estate taxes, tax planning, or specific business structures. 

The Tax Cuts and Jobs Act (TCJA) offers substantial tax benefits to business owners and the self-employed. Pass-through firms, and such partnerships and sole proprietors, may be able to deduct qualified business income and reduce their tax liability. A CPA can generate revenue by navigating the TCJA law and maximize the tax benefits for business people.

CPAs can also produce revenue by providing payroll services.

Payroll Processing

Payroll is often the most complicated task that a business must complete, and CPAs can manage the process each payroll period. The CPA uses the data gathered by the employer to calculate tax withholdings and net pay, and to generate payroll tax reports.

When the business tax return must be created, the CPA will already have the payroll information for the tax return. 

A growing percentage of Americans are approaching retirement age, and CPAs can help these clients by specializing in long-term care and estate planning issues.

Long-Term Care, Estate Planning

Older clients (or the children of aging clients) need a plan to pay for long-term care costs. The cost may be paid out of an investment portfolio, or funded using long-term care insurance. 

Consumers must consider insurance costs, the amount of available coverage, and the policy benefits. The long-term care benefit must be large enough to justify the insurance premiums paid for coverage.

The federal estate tax exemption has increased sharply, and many taxpayers no longer face an estate tax liability issue. CPAs can help clients determine if prior estate planning steps are no longer necessary. Many people set up trusts and use life insurance products to fund the estate tax, and these expensive plans may no longer be necessary.

Financial Services

CPAs are expanding their revenue sources by offering financial services.

Insurance

CPAs can obtain a license to sell health and life insurance products, including disability insurance, and term-life insurance. A business owner with a young family may need life insurance to support the family if an unexpected death occurs.

A property and casualty license covers property insurance and vehicle insurance issues. If a business owns a warehouse, commercial property insurance will protect the company if the warehouse is damaged.

Financial planning

Some CPA firms designate a member of the firm to become a personal financial specialist (PFS) or a certified financial planner (CFP). These experts charge a fee to consult with clients and create a formal financial plan. The financial planner reviews the plan with the client at least annually, and proposes changes to update the plan.

Investment advisory

A CPA firm can create a company division to provide asset management and investment advisory services. Some firms set up formal revenue-sharing arrangements with existing investment advisors.

The financial services industry is moving away from a commission-based business model to a fee-based structure. If the CPA firm chooses to offer services to clients, a staff member may become licensed to offer fee-based investment advice. 

CPAs often have close relationships with business owners and individuals. A CPA firm can leverage these relationships to offer insurance, financial planning, and investment advice.

Representing Taxpayers With Tax Issues

The tax code is complicated, and some taxpayers don’t file timely returns, or respond to IRS notices. Businesses can run into trouble if they don’t meet deadlines for submitting tax withholdings for payroll. 

A CPA firm can provide services to taxpayers who need to resolve IRS issues. CPAs can help the taxpayer file missing or late tax returns, and work with the IRS to minimize fees and penalties related to late returns. 

If the CPA firm has expertise in a particular industry, it may develop a referral network from other firms that don’t have the specialized knowledge. Franchise businesses, for example, must carefully account for revenue, expenses, and the franchise fees owed to the franchisor. This business structure is unique, and presents accounting and tax challenges.

In addition to IRS issues, CPA firms often specialize in state tax issues, such as sales and use taxes. If the CPA can successfully resolve a tax issue, they may receive referrals from satisfied clients.

Referrals to Business Brokers

Business brokers provide critical guidance to owners who are considering a company sale. The broker helps the owner market the business, identifies potential buyers, and negotiates the final sale price. In some cases, a CPA can earn a referral fee from a business sale transaction.

A CPA is a trusted company advisor, and is likely to discuss a potential business sale with a client before the owner takes action. A business broker can protect the interest of the seller, and help to maximize the sale price received at closing. It’s often in the client’s best interest to work with an experienced business broker.

The AICPA Code of Professional Conduct prohibits CPAs from earning third party referral fees if the CPA performs an audit, review, or compilation. CPAs who provide consulting and tax services, however, may earn referral fees.

If you’re a CPA and need to refer a company to a business broker, find an experienced firm.

Work With an Expert

Raincatcher works with other professionals, which may include an exit advisor, valuation expert, CPA, and attorney. The firm uses industry-leading proprietary valuation resources to value a business.

Raincatcher’s experts will operate as trusted advisors throughout the entire sale process, so the owner can sell a business at an attractive price without regrets.