Jackie walks through a case study for a student in the Certified Concierge Accountant program using TaxPlanIQ.
This is a case study for one of our students so that we can see the best way to set it up.
So I've logged into your trial instance of TaxPlanIQ, and then we're going to go to tax planning. And we're going to create a new tax plan. And then I'll just use the test trial client named this study. And then we're going to go to their last file tax return and pull their total tax and their tax taxable income, so $66,646 and $293,390.
So it auto-calculates the effective rate, their marginal rate, so let's see taxable income is $293k, so marginal rate, let's click the little i (for info) and see where we're at here.
And are they married or…? Let’s go back.
They're married. So for married, they're in the 24% tax bracket. But I don't know where they're going to be this year if they're hopping up to 32%. Right. So that's one question.
Another income swap to see what's in that? adjustments to income?
So they itemize, that's great.
What state are they in? is a question
QBI deduction? So let's see, did they get the full QBI deduction? I don't know. We'll see.
Can we maximize that further? Maybe they're right on that threshold of hitting specified service income caps, you know, 315k.
So if they are in a specified service business, we want to try to get them around that legally if there's a way to do so. So they got their child tax credits. That's great.
Other taxes SE tax? Okay. Wonderful. So yeah, there's definitely an opportunity to minimize that. Okay, great.
So here's their occupation, health care, and realtor. All right, so I wonder which is which with the W2. And if I recall correctly, the students in Michigan, and it looks like their income taxes are higher than real estate taxes, and sales tax. So you're getting capped out there. So yeah, we could reallocate a little bit of real estate taxes, the home office deduction, over to the business schedule to help a little bit with this cap.
Or, of course, they're projected to lift. I don't remember if that's already passed, or about to pass, but lifting that cap on the 10k anyway, so that'll be helpful. But that's not something that is direct, you know, an ROI that you're going to provide them, it's just a government-provided item.
Home mortgage interest,
no non-cash charity, I hate to see that. So, you know, especially in the higher tax brackets, people can tend to easily come up with five up to $5,000 of non-cash, charity, furniture, clothing, especially with kids involved, and with how much cash charity gave here. There might be an opportunity for a donor-advised fund if they want to really like up their charity in a particular year if they have a higher tax year. So that could be an option for them. There's definitely something here for charitable planning because this is a pretty large charitable deduction compared to the norm.
So let's go back to our tax plan, let's add the non-cash charity strategy.
So and we can probably backdate that for 2020 as well. So I'm going to put $5,000 here and save that. But then I'm also going to add a little note here that
Okay, like they're doing 10% do they do a 10% Donor Advised Fund.
And the students telling me 2020 was a slower year for them, they moved to a new state (takes a while to establish a new presence). 2021 will be much better as they are now licensed active in four states, Colorado, Kansas, Missouri, and Florida.
Okay. Oh, so there's definitely some opportunities with their business side to leverage, you know, state sales tax maybe, but more state income tax and Nexus. So let's pick the sample business here. And let's do Oh, it looks like the sample here is a C Corp. And that's not what we want.
So let's go back and let's add a related party for (Actions, Related Party, + Related Party)
Okay, so actually, Best Guys LLC (Trial Sample) is an S corp, I'm going to do as our example here and update that.
And let's just pick the state tax rate, she told me California? No Colorado, so probably not as bad as the California state tax rate, but I'll just use that as an example for now. And let's start that in 2021.
And I'll just put in $5,000 as kind of a plug for what you might be able to do there. Okay, awesome.
So let's go back to the return ( to look it over once more)
So we spent about five minutes on this. Let's see what we've found so far.
Oh, about $2400 in 2020 Savings and $3000 in 2021. And we haven't even gotten into the business side of things. So that's awesome.
All right. So there's that interest income we're already going to mark that as potentially shifting the child, real estate agent they've got barely any deductions here simplified business use of home, gifts, software, fees, SE tax.
They're netting 77k here if we had done you know, S corp election, which you could still potentially do a late S corp election for 2020 it would be aggressive since you haven't paid them wages in 2020. So we could maybe just apply those to 2021 and essentially, half the weight through wages and payroll taxes involved here instead of the 10k of self-employment.
So let's go ahead and add that so click + strategy, let's pick that sole proprietor, S corp election
Our tax rate is... let's add custom for Self Employment rate at 15.3 and press “add”.
The start year is 2021 and our plan amount at the bottom here, (sorry, it's kind of cut off on my screen) is gonna be about let's say we can do a reasonable compensation study to reduce their self-employment taxes by half. There are different ways you can do this. But we'll go in this direction right now.
You can also add the reasonable compensation analysis itself. And is the query on the self-employment tax. And I'll just put in like, again, like $1,000. So this is just kind of a reminder for you to potentially do a reasonable comp analysis with RC reports ( our vetted vendor) And let me see if our reasonable comp analysis is one of our free trial strategies.
So actually, we have some internal notes here on how you can take advantage of those opportunities, breasts, resources. So we have been before your RC reports, and we actually have discounted pricing that you can get with them.
So I think they give about $300 off for an annual subscription. So it's definitely worthwhile, you could actually pass on this reasonable comp analysis cost to the client. And we can include it here if we want to. So one-time fee 7.9. Make that. And then that's actually unlimited reasonable comp analysis for other clients in the future, too.
So, it becomes pretty worthwhile.
Okay, and then we've got all the other kinds of business, additional business expenses you mentioned. So an actual home office actual Auto 100% bonus. They took, okay, so it looks like there's an error on their 2019 return. So that's up to you, if you would amend 2019 for it, or, you know, try to catch up, so to speak on 2020, depending on what that error was of.
Health insurance, do they have an HSA? How do we account for this in the tax plan? So you just you just ask them, so shoot them a note, ask them, you know, what's your health care coverage? How much out of pocket medical do you have? Retirement planning. So you know, if they're gonna move to an S corp, we could do a sap if they're the only employee, we actually have a really nice retirement plan analysis in the software.
So if we add that strategy, we need to do it under the business. So maximize employer match for the business, and this is for it there. marginal rate, they're actually in a higher rate, because their total tax is, you know, the self-employment tax plus the regular income tax. Start here, so this is 2020 because we can still do a Sep for them. So if we take 25% of the, like, 75k that they made net in the schedule C. Looking at like 18 750, or they could do a solo 401k. And um, which would actually maximize it even more for now let's just be conservative, let's do about like 20,000 to retirement that is recurring, save that. And then if we go to the strap strategy, we talk about what that set contribution is.
We give you some other information on the different types of strategies, but I also recently added, and let me see if it's gotten pushed out to y'all yet. Some in our resources, we have a retirement chart, we have the comparison of plans. And we actually have a comparison Maximizer calculator. So if you go to this, this is pretty neat. I just did this the other day for a client at some point, how much can I contribute? And you can run this for them.
So type of business. So we're gonna let's see either you know, silver powder for 2020. And then let's say they're 40. I don't know how old they are, and then the net profit was $5,000. Calculate. And so here we go.
So we've got the self-employed 401k, it's probably a little too late for 2020. For that the simple IRA, or the more even more accurate Sep, which takes out, you know, half of their adjustments. So, yeah, let's go with a Sep, the $13,940.
But you don't have to do this when you're just guesstimating.
The projection, this is part of what you would do if you're like actually implementing the tax plan. So we're really doing like an estimate when we're doing this here. And you can make it more conservative if we want to reduce that estimate for 2020.
But for 2021, we can actually do even more. So I'm going to actually do, I'm going to edit the strategy, not make it recurring and just apply to 2020. And I'm going to reduce it.
Because that's what since I looked it up. And then for 2021, we'd actually rerun these numbers, if you don't know this stuff off the top of your head. We're doing an S Corp. We're doing 2021. You said they're higher in 2021. Let's do like 100,000. net profit. And see here, we can do like a self-employed 401k up to like 44k. Another question you can email the client is, how much are you able to contribute to retirement for last year and for this year forward. And, and a lot of this 401k contribution isn't due until like the end of 21.
So I'm going to go ahead and say that we could max it because it's really at the end of the day up to the client, what they choose to do. So let's add our sole proprietor 401k, marginal rate, starting at 2021 recurring. And our plan amount, actually, I'm going to use, what I'll do is I'm just going to pop in this 44 five. And then I'm going to overwrite the taxes saved on the plan to the 45. Because we manually calculate it. Awesome.
I will put a link to our little calculator here. And you can put all these kinds of notes in here as well. All right, and then we can add like the auto strategy. Business vehicle pass through at a marginal rate. Say we can fix that in 2020. Let's say that's. And that's a one time strategy.
And then we can also add miscellaneous business deductions, marginal rate, start your 20. So I mean, that could include a lot of different things like accountable plan, whatever, let's say, probably find a $10,000 worth of things on a recurring basis. Okay, cool. So let's see what else you have.
So we're not sure about health insurance, we could put a little plug in here or, you know, placeholder for health insurance, like HSA, or out of pocket, medical stuff like that, let's just put in a plug. And then you could research what really applies to this client. So now at this point, I'm going to go look at you know, what kind of ROI Do we have so far? So we already have our so part of our one time implementation fee would be the strategies we can implement retroactively for their 2020 return, which is about $16,500 and that's just like a first pass guess. And then moving forward year to four, we have easily identified $60k plus of tax strategies.
So let's speak about what all is involved here. So the one time strategies is our, you know, late late S corp election, retirement planning assistance with their financial planner miscellaneous council plan etc, identifying their health plan options, charitable planning assistance, and the vehicle and then moving forward, so I would easily charge, you know, 8k or so, for this and then moving forward, we also want to charge for kind of phase two savings. So this is like
phase one onboarding. So let's get some numbers in for that. Save that. And then let's go back. So what that does for us here, is gives them an immediate, like $10k worth of tax savings, when prepping or prior your return to that's great. And then I don't really care about getting them more of an ROI, because I think that's good to like, retroactively be able to get them now. Um, and then for 2021, four, let's look at what kind of additional spaces we have. So you could actually not even go here now and just say, I've pretty easily identified this for phase two, I want to re-quote you at that point. Or you could go ahead and quote them and say, okay, you know, I need to do some state analysis here, that's several $1,000, easily, we've got the S Corp. election, whether you apply that to 2020, or 2021. Employer benefit review, we already are going to be doing that. There's another round of kind of charitable planning, additional charitable planning you could do here. So I mean, you're looking at reasonable comp analysis, etc. I mean, you're let me make sure I got this wrong. Yeah, retirement, etc. So I mean, you're looking at another phase of planning, that would be around, let's say like $14k to, or you could even actually do higher than this. And this would happen in 2021. So they would immediately pay you the $8,500 implementation fee for phase one. And you could even roll 2020 prep in this if you wanted to. And then this year, after you finish prepping for the 2020 return, you could do that in the face of implementation fee. And then we'd go ahead and add our maintenance fees.
So first of all, you want to offset what they're already paying and compliance fees. So let's say that's, that's probably not very much, say $1000 bucks yearly, that started in the first year of your planning. And then we've got your new recurring. three states, for example, pretty. And let's say that's going to be around, you know, there, you could start them out on the pro plan and then actually reevaluate for a lead or you could go and pitch them the top elite plan you're looking at, for 5000 $6,000.09 $10,000 depends how much you know what's involved with accounting.
Right now, this is for just the tax side of things. And if we do, let's say like $880 a month and that starts in 2021. Let's take a look and make sure that we're still giving them an appropriate ROI. So I'm okay so assuming that like compliance fees they would have paid otherwise increase their ROI here. If you want to, we could essentially just say this is 200%, because that's what I like to show our clients. And then over the 20, or 21 time period, you've got a lovely 215% ROI, just baseline phase two implementation fee, that third party fee for reasonable comp, and then their maintenance sees moving forward that they would start paying now. So they would pay you the $8,500 plus the $800, and whatever a month, and that gives them a nice half a mil tax savings over the next 10 years. So this is actually a really, really solid plan. And there's a lot of opportunities here that, gosh, you know, we barely broke the surface on a pretty simple return. And so I'm really liking this one.
Let me go back to your comments and see if there's anything Oh, I think I've probably addressed most of your questions here. But yeah, so um, I'll shoot you this video and then we'll go from there. And it took me about you know, just under 30 minutes to prepare this and you got a pretty awesome ROI. And I'd also like to know what you would normally be charging a client for this, you know, what do you just charge them about $1,000 for their 1040 prep, because we just, you know, we just netted you what 30k plus on this client and it's really win-win with the savings. So this is great.
Latest Update: I went into taxplaniq and corrected the retirement planning savings (from 44K to 11K) which reduces baseline tax saving to about $25, 000 per yr.
Based on that, I'd substantially reduce the Phase II implementation fee to 3K or so and keep an ROI of 200%...Phase II doesn't have to be set in stone yet though b/c you don't know what their savings or strategies will be yet at that pt. So focus on Phase I for now and then you can give them an "idea" or hint of Phase II planning which would result in another $10,000 per yr in tax savings, etc. You'd want to discuss how much they can do to retirement and if it is substantially more than the $44,000, there are more retirement strategies and abilities and the implementation fee would be adjusted up again.