Demonstrating ROI and Options for Clients Using TaxPlanIQ

Some clients can be a bit on the fence about employing your services as a tax preparer or planner, so it helps to have a tool, like TaxPlanIQ, to help you demonstrate value to those clients. TaxPlanIQ’s reports show 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 show how you can use TaxPlanIQ to demonstrate both the return on investment and the tax planning options that you are offering your clients and potential clients.

Case #1

Shelita discussed a plan that she created for a couple of clients with Sharla. Sharla helped Shelita optimize the plan in order to get her clients the maximum amount of ROI.

Background Info

Shelita’s clients are a married couple. The clients are in their mid-50s, with a salary of $165,463. They had $153k in IRA distributions in order to purchase some property in a syndication the husband is involved in. Sharla noted right off that there’s some tax money potential for that in the future. The wife owns a new consulting business and had a Home office carryover. The client has filed a 1040 and a Schedule E. They also have a negative Schedule C, which Sharla noted may need to be shifted around to other places. Concerning the Schedule E, he has one rental, received approximately $11,500 in rent, and claimed approximately $12k in losses.

Ways to Save

Shelita had a plan already worked up for them to review, so Sharla went through each item in the plan to help Shelita optimize it.

Shelita’s Plans

In her plan, she had designated funds for charitable giving and a medical expense reimbursement plan (MERP). She had also set up an accountable plan for them. She proposed having the wife file taxes for her consulting business via an 1120S and their joint filing through a 1040.

MERP & Home Office Carryover

Sharla recommended having the wife’s consulting agency pay over a management fee to the husband’s Schedule C to cover the home office carryover. Additionally, Shelita had a choice-of-entity option on her plan with the intention of making an S-corp election in order to save the spouse about $20k. Sharla noted that a MERP would not be available as an option in an S-corp but that it would be in a C-corp or a Schedule C. 

“What she could do is pay her spouse a management fee on a 1099, properly declare it, and then have the spouse include a MERP on his Schedule C.” Sharla updated Shelita’s plan to include a $25k management consulting fee paid out to the husband’s Schedule C, with $11,000 of that being dedicated to MERP and $12,500 of it going toward the home office carryover. 

Sharla also suggested that Shelita look into getting them set up with an HSA. She just needs to look at their insurance documentation to ensure that they have a high deductible. 

Real Estate

The husband has one rental, received approximately $11,500 in rent, and claimed approximately $12k in losses. Sharla noted that there’s a potential for the client to claim active Real Estate agent status and qualify for the $25k tax credit, and she recommended Shelita look into that for her client.

Shelita also mentioned that the client has two LLCs that he isn’t currently doing anything with and asked what to do about them. Sharla recommended keeping those active and using them when she wants to place properties into an LLC.

Just the Beginning

Sharla said that she would present this plan as Phase One to the clients. Until the client’s real estate investments start becoming more lucrative and profitable, they will be stuck on Phase One. Once they become profitable, Shelita can start mapping out Phase Two.

Findings

They took an initial look at the client’s ROI and saw that it was at 229%. Generally speaking, Sharla recommends that TaxPlanIQ’s TaxLab participants aim for a 300% minimum ROI. She noted that there appeared to be something that they could do about that. To start with, Sharla looked at the fees Shelita is charging and found that she could split her 2022 recurring maintenance fees and the 2023 maintenance fees. Because Shelita won’t be charging her clients for January or February, the ROI would go up due to fewer maintenance fees in 2022. That change alone shifted the ROI from 229% to 280%.

Some of the strategies Sharla discussed with Shelita include: 

• Paying a management fee to the husband’s Sch. C to cover MERP & Home Office Carryover costs
• Looking into setting the clients up with an HSA
• Having the husband claim active status as a real estate agent
• And keeping the two LLCs active in order to maintain tax flexibility in the future

Shelita’s Phase One tax plan would save her clients approximately $19,600 in Years One and Two, and her clients would see a 280% ROI. The Phase One plan would save the clients $186,000 over a ten-year period.

Case #2

Luba met with Sharla to discuss a tax plan for a new client. The client’s payment method and state laws have presented an interesting and delicate situation that requires careful tax planning. 

Background Info

Luba’s client is an insurance agent with a 1040 and a Schedule C. Her client’s income on the 1040 is just over $140k. She is being paid commission as an insurance agent. This can be problematic. Luba was considering making a choice-of-entity election with the client, but the issue is that commission pays into social security.

Recommendations

Sharla offered a few recommendations to help Luba navigate the complexities of her client’s particular situation.

Choice-of-Entity Election

Luba was considering making a choice-of-entity election with the client, but the issue is that commission pays into social security. The Texas Department of Insurance makes it difficult to make entity elections for individual insurance agents. Sharla recommended potentially designating income to shift over to another entity, however, Luba noted that there was a court case that made it impossible to designate funds to an entity for anything other than business purposes.

Sharla asked if the client was able to set up an entity and pay commission through the entity. Luba stated that it would be extremely obstructive to attempt that due to needing contracts and special insurance, then there’s the issue of whether that would even be allowed in Luba’s area. Sharla responded to those objections by stating that due to the client’s income that it would be beneficial for her to consider it. 

“Your play, here, is to make an S-corp election and then get a lot of deductions.” 

Son Living at Home

Luba also noted that the client has a 22-year-old son that still lives with her, but she is unsure of whether the son is still going to be considered a dependent for her client. If so, she could pay her son, as a student, and claim an Educational Assistance Program through the S-corp. 

Sharla posed the idea of looking into whether or not a Schedule C can sponsor an EAP. She also stated that if the client is paying for her son’s college education, it may be worth paying him a $30k salary, as long as he’s actually doing things for her, and have him pay for his own college.

Setting Up an HSA

Sharla made the additional recommendation to have the client set up an HSA, regardless of whether or not they’re perfectly healthy, because HSAs are tax-deductible, they grow tax-free, and are withdrawn from penalty-free for medical purposes. Additionally, if you’re over 65, the medical-purpose-only stipulation drops off and that money can be used for anything.

Findings

This particular case wasn’t ready for a plan to be put together for it yet, but she did give Luba solid information that will help determine the best course of action for her client going forward.

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