Case studies reviewed by Sharla on Wednesdays at 1 PM CST
Wednesday, January 5th, 2022
TaxPlanIQ is the perfect tool for accountants. It allows you to build a comprehensive tax plan and demonstrate your value to your clients in an easy-to-understand format.
The report you receive once your client's information and your strategies have been placed in TaxPlanIQ clearly shows the total tax savings and the return on investment your clients will see when they work with your firm.
Below are two case studies that demonstrate how TaxPlanIQ can be used to bring clarity and proof of value to your tax plan when you present it to your client.
Case 1
Gary met with Sharla to discuss a potential tax plan for his clients. His goal was to get some clarity and refine his current strategies.
Background Info
Gary’s clients are a couple filing their taxes jointly. They have two kids, ages 8 and 5. The husband was living in Texas while the wife was in California but now they are both living in Texas. They file with a 1040 and an S-corp which is a rental business consisting of two properties. This is bringing them a low, passive, income. The first property only collected one month of rent while the second collected a full year.
Additionally, they are both receiving W-2s. He is an owner of a tech company while she works for a different tech company. She is also the owner of a consulting business and files a Schedule C. They currently are claiming $28,000 in losses on a Schedule E and went through a bout of collecting unemployment.
Questions for the Clients
After reviewing all of the information provided, Sharla determined there was not enough to make a solid tax plan. She gave Gary a list of questions to answer and come back with before moving forward.
- Does the husband own 100% of the stock in the company? In other words, does he have control?
- Does the Schedule C have any differences moving forward?
- Did they buy or sell the first property in 2021? Will this property look different in 2021?
- What is the S-corp entity? Is it a real estate business or just rental properties?
Sharla also requested a depreciation schedule and corporate returns if the husband has control over the company.
Once this information is provided, Sharla and Gary can move forward with using TaxPlanIQ to craft a tax plan.
Case 2
Kimberly met with Sharla to discuss a potential client. The purpose of the meeting was to determine if Kimberly could craft a tax plan even though the couple did not prepare in 2019 or 2020.
Background Info
Kimberly’s potential clients are living in Washington and currently use a 1040, 1065, 8825, and a Schedule F. They bought their farm with a private loan for $4.8 million and their mortgage is $69,000. They have $100,000 in depreciation costs. There is a rental on the property, however, they moved into the house in 2021.
They have two daughters on the return. The oldest is college-aged and the youngest is 7. The couple also has a farmhand living on their land as he works and is paid a salary.
Ways to Save
To save on depreciation, Sharla suggested sectioning their land to pull out the rental property making it non-deprecating. She also suggested separating their operational income by adding an 1120S.
Another possibility for savings includes claiming that horse care is a 24/7 responsibility and the farmhand lives on their land at the expense of the employer. This would allow them to allocate a personal use percentage to include in their W-2 income or guaranteed payments. However, this savings strategy would require legal justification before moving forward.
Sharla also suggested looking into a variety of college student strategies but due to time constraints, didn’t dive into much detail.
Findings
Sharla began inputting some of the suggestions she made for Kimberly’s potential clients into TaxPlanIQ.
Some of the strategies she included were:
- Hiring their children
- Running a cost segregation
- Implementing (just a few of many) college student strategies
Because the end of the meeting was approaching, Sharla did not have time to input each potential saving strategy, however, with the few she did include, she was already able to show $30,000 in savings. There are more savings on the table for Kimberly to include at a later date.
With more time and information, TaxPlanIQ will help both Gary and Kimberly prove their value to their clients.
Wednesday, January 12th, 2022
Below is one case study that demonstrates how TaxPlanIQ can be used to offer viable and profitable options and show value when you present the tax plan to your client.
The Case
Mari met with Sharla to discuss a tax plan for a prospective client. Her goal was to put together a tax plan that would communicate value to the initial potential client while being mutually beneficial to the both parties involved in the business in question.
Background Info
Mari’s potential client is a veterinarian based out of Texas whose practice is currently set up as an S-corp. The practice has several employees and had $3M in revenue last year. The potential client has a large capital gain due to selling a quarter of his practice to a new partner-shareholder, so now the practice’s ownership is split 75–25. The potential client has begun construction on a new building that will be rented by the practice sometime this year.
The client’s wife and two children work at the practice, and he would like to retire in the next 5 to 10 years.
Ways to Save
Sharla identified several ways for Mari to help save her potential client money.
Spouse’s Salary
First and foremost, she recommended that the client stop paying the spouse a salary—given the clerical nature of the spouse’s role at the practice. Rather, Sharla recommended that they set the spouse up as a managing consultant and have her report that fee on a Schedule C. An additional benefit to having her report her earnings on a Schedule C is that she can also pay the children through her Schedule C.
Mari asked if Sharla recommends revoking the S election and changing over to a partnership. Sharla replied that “if they do that, honestly, it’s sometimes easier just to start a new entity. It doesn’t really change anything. They still function. They can use the same name.”
New Building
As mentioned, Mari’s potential client has started construction of a new building. The building is being set up under an LLC the client started with his father. Sharla noted that if they do a cost segregation on the building and the practice runs up expenses in excess of owed rent, that could cause problems because it would create a passive loss within the entity.
However, she suggested that if the S-corp owned the LLC or if the building was under the S-corp, then those initial losses could be deducted as ordinary, which would negate the passive loss issue. Mari pointed out that the issue with this is that the 75% shareholder and his father are the ones setting up the LLC and who will own the building. The 25% shareholder is uninvolved with the entity.
During a quick brainstorming session, Sharla considered the option of having the S-corp own the LLC during the year of the cost seg, having them claim the losses as ordinary, and then divesting themselves of the LLC out to the interested parties later on. Josie chimed in suggesting that they just do a grouping election. She offered the caveat that they would have to work with that “because once they’re together, they will have to stay together.”
Sharla gave one more suggestion concerning the building, “Just pay more rent.” She recommended simply paying enough rent to cover the cost segregation during year one. The problem that crops up with this plan is that the rent deduction would ultimately be diluted by 25% due to the client’s shareholder/partner.
Defined Benefits Plan
Mari said that she had looked into doing a defined benefits plan but had been told by the pension administrator that it was too late to do that for 2021. She also noted that the client believes that the profit sharing would be detrimental due to the amount of employees he has.
Sharla pushed back on the notion that a defined benefits plan would be detrimental, explaining that the actuaries are very good at classifying workers and identifying those who are ineligible for profit sharing. There are also vesting requirements that go along with profit sharing programs. Many employees move on before they’re fully vested, leaving behind the money that would be due them otherwise.
Findings
Sharla began inputting some of the suggestions she made for Mari’s potential client into TaxPlanIQ.
Some of the strategies she included were:
- Setting up an accountable plan for the S-corp
- Shifting the spouse’s salary to a managing consultant’s fee
- Paying kids from wife’s consultancy fee*
- Setting up a simple IRA for spouse
- Running a cost segregation
- Implementing a defined benefits plan in the S-corp
*Sharla also mentioned that Mari could achieve the same thing by paying the kids through the 1065 as Property Management employees without the hassle of creating a simple IRA for the spouse.
In total, the strategies suggested by Sharla could help save Mari’s potential client more than $100,000! TaxPlanIQ can help Mari prove her value to her potential client and show him just how much he can save with her help.
Wednesday, January 19th, 2022
One Time: Onboarding and Implementation $1,000
One Time: Follow up Implementation Review $2,500
Recurring: Monthly Maintenance $447
Strategy: Accountable Plan/Home Office Deduction
Strategy: Defined Benefit Plan
Strategy: Health/Medical Expense Reimbursement
Strategy: Income Shifting to Lower Tax Rate Family Member
Strategy: Maximize Employer Retirement Match
Strategy: Pre-Tax Benefit: 401K
Strategy: Rent Home for Business Gatherings (Augusta Rule)
Strategy: SEP Contributions
Year One ROI: 294%
Year Two ROI: 460%
30 minutes of answering various questions about tax planning for certain professions/individuals, such as Real Estate professionals. Explaining the difference between passive and non-passive income for tax planning purposes. Answering questions about best tax planning strategies for retired executives with most of their money in retirement accounts.
Wednesday, January 26th, 2022
Case 1
2 S Corps (One Husband one Wife)
Husband Insurance Agent
Wife Real Estate Agent
One Time: Onboarding and Implementation $4,698
One Time: 2021 Tax Preparation $,1750
One Time: 2021 Onboarding and Implementation $4,579
Recurring: Monthly PRO Tax Planning Package $550
Recurring: Yearly Compliance Offset ($1,750)
Strategy: Accountable Plan/Home Office Deduction
Strategy: Health Savings Account Optimization
Strategy: Health/Medical Expense Reimbursement
Strategy: Personal Reimbursement for Disaster Relief
Strategy: Rent Home for Business Gatherings (Augusta Rule)
Strategy: Rent Home for Business Gatherings (Augusta Rule)
Strategy: SEP Contributions
Strategy: SEP Contributions
Strategy: Wages: Spouse/Non-Dependents/Parents
Strategy: Wages: Hiring Kids
Strategy: Cost Segregation (2023)
Strategy: Defined Benefit Plan (2024)
ROI: 340%
Case 2
One Time: Onboarding and Implementation $3,500
One Time: Follow up Implementation Review $2,500
Recurring: Monthly Maintenance $397
Strategy: Accountable Plan/Home Office Deduction
Strategy: Defined Benefit Plan
Strategy: Health/Medical Expense Reimbursement
Strategy: Income Shifting to Lower Tax Rate Family Member
Strategy: Maximize Employer Retirement Match
Strategy: Pre-Tax Benefit: 401K
Strategy: Rent Home for Business Gatherings (Augusta Rule)
Strategy: SEP Contributions
ROI: 524%