Tom Talks Taxes - August 27, 2021
Four tax software programs you should consider for your practice
The modern 21st century tax practice has technology and automation at its core.
There are hundreds of software programs that can make a difference in your business. For example, there are programs that help you automate processes, enhance productivity, or manage client relationships.
I’m not going to talk about these types of programs in this edition. Instead, I want to focus on programs that directly impact the tax portion of your business.
If you only use tax preparation software plus Microsoft Office to handle technical tax issues — keep reading.
Below are four programs that I find invaluable and how I use them in my tax practice.
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 as well). For example, I can provide an extremely accurate pay-off calculation for a client, or I can project a non-filer’s 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 with my clients with precision on the overall impacts of various tax actions and options. Interest is a significant, but often overlooked, cost to the client in IRS issues. Being able to quantify IRS interest savings increases the value I can demonstrate to the client when value pricing an engagement, as an example.
RCReports (Starter plan starts at $299 per quarter)
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 overpayment of payroll taxes, then they are quite possibly paying thousands in excess payroll taxes each and every year.
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 (BLS) data sets.
Here’s a quick example: your client is a 100% owner of a 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 $250,000, assume she saves 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.
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 type of advanced tax planning work is a not a “tax tip” or a free service.
TaxTools ($199 initial license and $189 annual renewal)
TaxTools is the Swiss army knife of tax programs - there are hundreds of 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 5 Year Federal/State Tax Planner. It allows me to compare a series of tax return scenarios side-by-side. I have two main uses for it:
Evaluating tax planning options by modeling their effect on one tax year, and
Estimated tax and withholding planning for each quarter of a tax year.
Tax Help Software ($500 per year for Executive version)
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 third-party reporting documents 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; in addition, it generates reports so you can quickly assess a taxpayer’s overall IRS situation. It also generates the Form 2848 or Form 8821, Tax Information Authorization, you need to access this data.
The IRS often miscalculates the collection statute of limitations end date (CSED). This date is critical when working with taxpayers who have IRS problems. THS generates the best estimates of a taxpayer’s CSED so you can compare it to the IRS’s computation.
You don’t have to do IRS representation to find value in THS - it tracks estimated tax payments and federal tax deposits. For example, let’s say you had a Form 8821 on file for every client: you could easily access economic impact payment amounts and advance child tax credit payment amounts from the IRS account transcript.
There are IRS transcript access programs offered for free or as part of another program suite. Would I use them? No. I use THS.
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