Essential Software Programs in Tom's Tax Practice

Plus, a major industry development involving AI and tax research

Before we get to the software programs I love to use, I have to discuss the major development announced yesterday: NATP announced yesterday that it is eliminating its tax research program, which is staffed by trained humans, and replacing it with access to Blue J, an AI tool designed for tax research.

While humans occasionally get it wrong, using AI here, and in general, for the entire research process, is the wrong approach.

As I teach in my tax research course, AI is a useful but limited tool in tax research. Tax research cannot be done correctly and completely with a simple prompt in a software program. Deciding the correct position for a tax matter takes judgment and discernment, comparing the law and authority to the facts.

Whether you use a human research service, AI, a Facebook group, or anything else for tax research assistance, remember that the tax professional has an ethical obligation to do further research to verify the information provided. This commitment to ethical practice is what sets us apart. The tax practitioner's use of AI must be ethical and not a crutch for a lack of knowledge and ability. I fear too many people will assume the output is correct and optimal without further investigation.

Too many educators and 'influencers' are promoting AI as the salvation for our industry. It is simply a helpful tool in select situations; it will not replace a savvy, knowledgeable tax professional. For example, It will not write the best argument for a tax position to the IRS, but it can help you shape the language of your draft response. Remember, your expertise and judgment are irreplaceable.

The responses to my Facebook post yesterday on this topic were overwhelmingly negative to this change. Ironically, here is the Meta AI summary of the responses:

Are you looking for human collaborations to help you with your tax research? If so, I recommend the following communities:

• InCite (a community of tax professionals committed to accurate collaboration and respectful dialogue, of which I am a co-founder)

• The Compass Tax Educators Network (a Facebook group I help to lead)

Now, the Software Programs

The modern 21st-century tax practice is based on technology and automation. Hundreds of software programs can improve your business. Some programs help you automate processes, enhance productivity, or manage client relationships.

I won’t discuss these programs in this article except one that I find essential. I want to focus on programs directly impacting your business's tax segment.

Full disclaimer: I recommend these programs because I use them in my tax practice. I do not get any referral or endorsement fees from these providers.

Ignition

https://www.ignitionapp.com; annual subscriptions range from $1,188 to $4,788

Ignition eliminated accounts receivable in my practice once I implemented it many years ago. It provides a seamless platform for my clients to sign an engagement letter for services and pay for those services when they execute the engagement.

Most of my tax practice clients are charged via monthly recurring billing. Ignition makes that process rarely need to be addressed post-signing unless a payment declines or a client needs to switch their payment method.

The electronic proposal that the client receives to review is attractive, professional, and customizable. I would not use another platform for engagements and billing.

Josh Youngblood, EA, CRETS did an in-depth review of Ignition on his Substack.

RCReports

https://rcreports.com; annual subscriptions range from $900 to $2,100

You cannot do high-level tax planning for business owners without RCReports. Period.

If you aren’t working with your corporation clients to regularly assess shareholder wages to avoid overpaying payroll taxes, they may pay thousands in excess payroll taxes yearly. RCReports allows you to determine appropriate, reasonable compensation for business owners using IRS- and Tax Court-approved methodologies in conjunction with robust Bureau of Labor Statistics data sets.

Here’s a quick example: your client is a 100% owner of an S corporation, paying herself $400,000 a year in salary. Let’s assume you do a salary study with RCReports and determine appropriate reasonable compensation is $150,000. By reducing her salary by $250,000, she saves at least 3.8% in Medicare and Additional Medicare Tax on that amount, or $9,500 per year. In addition, you increase the S corporation pass-through by $250,000 - meaning the potential §199A increase is $50,000 (20% of $250,000). If the value of that deduction is estimated to be $14,000 a year, the total annual savings to the owner is $23,500 per year — solely because you used RCReports to help determine reasonable compensation.

Could you charge $5,000 to do this tax planning engagement? Absolutely — if you can effectively communicate the value of the tax planning engagement compared to its cost. This advanced tax planning work is not a “tax tip” or a free service.

Tax Help Software

https://taxhelpsoftware.com; $350 for first six months, then $600 per year renewal

The IRS has various transcripts accessible to tax professionals to report taxpayer data. The two most common are the account transcript, which shows all transactions on a taxpayer’s account for a tax year, and the wage and income transcript, which shows all information returns submitted to the IRS for a taxpayer for that tax year.

Tax Help Software (THS) allows quick and effortless access to these transcripts for your clients. It also generates reports to assess a taxpayer’s overall IRS situation quickly. It also creates Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization, for your clients.

The IRS often miscalculates the collection statute of limitations end date (CSED), which is a critical date when working with taxpayers with IRS problems. THS generates the best calculations of a taxpayer’s CSED to verify the IRS’s computation.

You do not have to do IRS representation to find value in THS; it tracks estimated tax payments and federal tax deposits. If you execute Form 8821 for every client, you can easily access all account payments from the IRS account transcript.

IRS transcript access programs are offered for free or as part of other programs. Would I use them? No, I use THS because it is the best program in the industry.

TaxInterest

https://www.timevalue.com/taxinterest; $99 per license per year

No matter what type of tax practice you have, you need TaxInterest. It is the most accurate calculator for IRS interest and penalties (and some states). For example, once a non-filer’s returns are prepared, I can provide a client with an accurate pay-off calculation or project the total unpaid tax owed to plan collection alternatives. I can also use the program to verify the IRS’s account transcript information or determine the impact of tax return adjustments on interest and penalty accruals.

This program allows me to communicate precisely with my clients about the overall impacts of various tax actions and options. Interest is a significant but often overlooked cost to the client in IRS tax controversy issues. Quantifying IRS interest savings increases the value I can demonstrate to the client when pricing an engagement, for example.

TaxTools

https://www.taxtools.com/products_tt.aspx; $234 initial license and $224 annual renewal)

TaxTools is the Swiss army knife of tax programs: there are over 300 modules for worksheets, flowcharts, or fill-in IRS and state forms. Some examples include:

• Alimony Recapture worksheet (may it rest in peace),

• Dependency Exemption flowchart,

• Form 2848, Power of Attorney and Declaration of Representative,

• Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals,

• Installment Sale Income worksheet,

• Rental Property Setup worksheet, and

• Sale of Personal Residence Planner worksheet.

When it comes to state forms, TaxTools has a robust inventory of California forms, some New York forms, and power of attorney forms for several other states.

One module I love is the Five Year Federal/State Tax Planner. It allows me to compare a series of client scenarios side-by-side. I have three main uses for it:

1. Evaluating tax planning options by modeling their effect on one tax year,

2. Projecting a “business as usual” scenario forward for five years, or

3. Estimated tax and withholding planning for each quarter of a tax year.

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