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Why We Should Always Be Honest With Our Clients

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I think that my best and worst trait is that I am honest to a fault with clients. But before I explain why, I want to point something out. If I won the lottery on Saturday, I would still wake up on Monday morning, do my research, and go to work as if nothing happened.

I am in this business, legitimately, because I like to help people. I charge a good fee for what I do, but money is just a byproduct of the services I perform. I don’t think there will ever be a day when I will fully retire. I might slow down, but I don’t know what I would do with myself if I wasn’t working.

About three times a year, I will take money out of my pocket. I feel that if a client isn’t saving more in taxes than what I am charging them in fees, then the client needs to stop doing whatever they are doing.

To illustrate my point, a client of mine for the last 15 years will start companies that she says will make a lot of money, but they never do, and she ends up dissolving them. About four years ago she started an LLC, and she swore that this time she was going to make money. So I elected for the company to be taxed as an S corporation. 

For four years, all she had were expenses and no income. So this tax season I asked her to make an appointment so we could talk. For all of these four years, I’ve been charging $1,300 to file an S corporation tax return. This year I had an open and honest conversation with her. I asked her if she was planning on making more than $15,000 in the next five years. She honestly said she didn’t think so, as she was having issues with the business. Other accountants wouldn’t have said anything and would have kept cashing her checks each year.

But I was honest with her and told her she was paying me more to file her corporate return than she was saving in taxes. I told her to nullify her S election so she wouldn’t need to pay all of this money to file the return each year. I explained to her that once she nullified the election, she couldn’t be an S corporation for five years.

She appreciated the candor. (Now, realize that I am taking food off my table to give her this advice.)

Another client who I inherited owns three LLCs taxed as S corporations. The problem is the LLCs do nothing more than hold a rental property, so we have rental losses that carry over to her personal return as passive losses. I have no idea why these LLCs were set up this way. The simple fact that these companies are S corporations doesn’t change the character of the income when it flows over to the personal return.

I explained to her that filing the S corporation tax return, in this case, was just an extra step that she doesn’t have to take. I told her to nullify the S election and just claim the income and expenses for the rentals on Schedule C, which is cheaper for her. She was appreciative, and we nullified the election.

When I was a partner in a partnership for 18 years, I had a quota to meet every tax season. Because of this quota, I would never have given this type of advice to a client. However, it is the right thing to do. We obviously need money to survive, and we are in business to make money, but what’s right is right.

The day I start giving advice because I need the money will be the day that I find something else to do.

In this business, making money isn’t the only thing that is important. You have to consider your reputation. These clients could easily go to another accountant who could ask them why they are set up the way they are, and they will say that I did it, and the next thing you know, I have clients who are upset with me. They will tell another person, who will tell another person, and the next thing you know, you have the reputation of someone who is just in this for the money.

Most of what we do to advertise ourselves is based on a reputation. Just because I lost out on money today doesn’t mean that I will tomorrow. These clients can talk to other potential clients to let them know that I did what was in their best interest and not mine.

It is a very careful line that we walk as trusted professionals. Just make sure that you don’t only worry about making money, and always do what is right for the client.


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