Case Study: How TaxPlanIQ Can Help You Land Potential Clients

TaxPlanIQ is perfect for helping accountants demonstrate their value to their clients. It allows you to build a comprehensive tax plan in an easy-to-understand format. 

The report you receive in TaxPlanIQ clearly shows the total tax savings and the return on investment your clients will see when they work with your firm.

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 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 number 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 to 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. If you are interested in using TaxPlanIQ to better explain your value to your clients, sign up for a free trial today!