An effective tax engagement letter is at the foundation of any productive client relationship. A well-written letter that is efficiently distributed can:

  • Mitigate liability risk for tax professionals
  • Build client trust
  • Enable an earlier start on workpaper preparation

Here’s how your firm can create an effective tax engagement letter and facilitate faster client responses.

What is a tax engagement letter and what should it include? 

A tax engagement letter is a written agreement that defines the working relationship between the firm and the client. If you don’t know where to start, reference a sample tax client engagement letter from a trusted source. An engagement letter sample is helpful when crafting your own. 

Note: The American Institute of CPAs (AICPA) offers a free sample tax client engagement letter with multiple examples. 

Overall, an effective letter should be accurate, unambiguous, and disclose any information relevant to the working relationship. Consider the following best practices when developing your firm’s letter. 

Clearly define the scope of work 

The details of your firm’s financial services may seem straightforward to you, but your clients might have different expectations. It’s important to define exactly what work your firm will be doing in order to avoid misunderstandings. Consider using a bulleted list of specific accounting and tax services your firm will provide.

Set client expectations 

Both parties have responsibilities in this agreement and your engagement letter should reflect that type of relationship. Instructions are critical here. Let your clients know that they’re in charge of submitting all relevant tax information by a certain date. You can also enforce your own accountability by including a target date for tax return delivery. 

Outline your fee structure 

List exactly how much your clients will be billed for specific services. If there are any upfront fees, available discounts, or penalties for late payment, make sure to include that information too. Taxpayers will appreciate the transparency. 

Make sure it’s easy to understand 

Words that are commonplace in the tax industry might be foreign to your taxpayers. Don’t use jargon. Make sure the language in your engagement letter is broad enough for non-tax professionals to understand. It’s also acceptable to use a warm, friendly tone in the letter’s introduction. 

Apply updates annually 

The tax industry is constantly evolving. It’s possible that your firm has made some recent changes to its services as well. Your engagement letter needs to keep up. Each year, update your engagement letter to accurately reflect current tax laws and your own internal policies. 

Time to distribute: Go paperless and embrace e-signatures 

Mailing out tax engagement letters in paper envelopes was once the standard way to collect signatures, but it was not very efficient. The pace of snail mail delivery and the tendency for taxpayers to procrastinate created delays. Those delays left firms with less time to work against the deadline. 

In the last ten years, firms tried to deliver engagement letters via online portals, but the process backfired. Clients had to print, sign, scan, and upload the letters, which often required a trip outside the home. It was no more efficient than paper mail. 

Today, electronic signatures are the gold standard. Tools like TaxCaddy, Acrobat Sign, DocuSign, and PandaDoc allow users to sign documents digitally from any device. Taxpayers can review their engagement letters on the go and e-sign with just a few taps. No printing, scanning, or mailing necessary. 

The key improvement is that clients can respond as soon as they see a notification. A multi-step process requires planning and creates procrastination. E-signature apps only take a few minutes “then and there.” A faster receipt of signatures means your firm can get an earlier start on preparation. This gives your tax preparers some much-needed breathing room during peak season. 

Transform the taxpayer experience with a modern taxpayer collaboration platform 

Tax engagement letters are not the only aspect of taxpayer collaboration that has undergone digital disruption. Tax document gathering, tax return delivery, invoicing, and tax payments have also been transformed by modern technology. 
Modern clients prefer to manage their financial lives from their mobile devices. SurePrep and other vendors offer solutions to meet demand from 1040 clients. Learn more by reviewing our breakdown of the leading taxpayer collaboration platforms. 

On the market: Taxpayer collaboration platforms

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