Tax Analyzer

Demystify Tax Planning in RightCapital

RightCapital's Tax Analyzer is a powerful and versatile module that provides key tax planning insights for advisors, and demystifies taxes for clients. Whether you need to review a client's tax returns from the previous year, dive deeper into their projected future tax returns, or compare and contrast the impact of different scenarios on a client's taxes, this module equips you with the tools to succeed.

You can find this module within the Tax > Tax Analyzer tab of each client plan:
Key Takeaways:
  • Scan tax returns using state-of-the-art OCR technology, instantly converting a client's 1040 and other schedules into clear, malleable data for analysis and comparison.

  • Easily identify where clients fall in relation to crucial contribution limits and income thresholds for various tax credits and deductions.

  • Dive deeper into a client's projected tax returns for any future year. Projected tax returns are based on the Proposed plan from the Retirement Analysis module.

  • Adjust specific line items in the Action Items to compare a client's "original" tax scenario, to a strategically fine-tuned "alternate" scenario.

Tax Analyzer Availability
Trial
Basic
Premium
Platinum

The Tax Analyzer is available on both the Premium and Platinum subscription tiers. If you are interested in upgrading your account, please reach out to sales@rightcapital.com.

Uploading Returns

Before we explore everything the Tax Analyzer has to offer, let's start by reviewing the Uploaded Returns tab. If you plan to upload a client's previous-year tax returns for analysis, this is likely the first thing you will want to do within this module.
Not planning on uploading returns?

It isn't necessary to upload tax returns to use the Tax Analyzer, as this tool also calculates projected tax returns based on plan inputs. If you don't foresee yourself uploading your clients' returns, you can skip ahead to Original vs. Alternative Scenario.
Within this tab, click the blue 'Upload a return' button in the upper right corner to begin the upload. This will open a new window in the center of your screen, in which you can drag and drop a file, pick a file from your computer, or import a file from one of several file storage services:

Requirements

Please be mindful of the requirements below when uploading tax returns:

  • Only advisors are able to upload returns within the Tax Analyzer. Invited clients will not see the 'Upload a return' button on this page within their client portal.
  • In the current state of the tool, only tax returns from 2023 are supported. Tax forms from any other year will not be recognized.
  • Uploads must include a populated 1040 form. Unpopulated 1040s and files without a 1040 will not be recognized.
  • In addition to the 1040, other supported forms include the Schedule 1, Schedule 2, Schedule A, Schedule D, Schedule SE, and Form 6251(AMT).
  • Only one file can be uploaded at a time. The 1040 and other schedules you wish to include should be merged into a single file prior to upload.
  • Returns must be uploaded as a PDF file. Other file types are not supported.
  • For the best results, upload a digital copy of the client's tax returns directly from their CPA or tax filing software. Alternatively, you can upload a clearly legible paper scan (300 DPI or higher is recommended).
Note on Privacy & Security

When tax returns are uploaded, RightCapital will automatically redact social security numbers, account/routing numbers, and other sensitive information across all forms. Returns are only saved and stored after they have been redacted; RightCapital will never store any sensitive personal information within the Tax Analyzer. Forms and schedules that aren't supported will never be stored, and are permanently deleted upon upload.

The Tax Analyzer uses the same bank-level encryption used by the RightCapital Vault. You can click these hyperlinks to review RightCapital's data security and privacy policies for more details.

Upload Status

After uploading your file, a brief period of processing will occur. Once this is finished, a status will appear in the 'Status' column to the far right of the page:

Completed - indicates that all information on the forms was legible, and all of the schedules necessary to fully calculate results are included.

Needs Review - indicates that certain schedules/information are missing from the upload. You can click on the status to review exactly what's missing, and what the implications are. When an upload needs review, you can either acknowledge the disclaimers and click 'Confirm' to continue, or you can re-upload a new file with the missing information.

Unrecognized - indicates that the information was unable to be read during the OCR process. To resolve this, you can try re-uploading a higher quality file with better visibility. This may also occur if there is no 1040 included in the file, or if returns from unsupported years are uploaded (see Requirements above for more).

If your PDF meets the requirements above and is still resulting in an unrecognized status, we recommend flattening the PDF file and attempting to re-upload. This can be done using your preferred PDF software.

File Review

Once they've been uploaded, you can click on file names in the far left column to open a file preview. Within this window, you can view the redacted copies of the tax returns on the left-hand side, and a line-by-line overview of each form on the right-hand side:

If a value failed to scan or was captured incorrectly, you can hover your mouse over a line item and click the pencil & paper icon to the far right. This will allow you to override the value captured by the OCR with a new value. Be sure to click the blue checkmark to the right of the text box to save your changes.

Original vs. Alternative Scenario

Each subtab within the Tax Analyzer will compare a client's "original" tax scenario, to an "alternative" tax scenario. To set a solid foundation, let's quickly review what each of these scenarios is, and how you can adjust each one to set up specific comparisons.

Original Scenario

The original scenario can either be an uploaded tax return (for a historical comparison), or a projected tax return (for a future-looking comparison). You can choose between the two using the first dropdown menu in the upper right:

  • When using RightCapital's "projected tax returns", you can choose a future calendar year to view. These projected returns will be based on the Proposed plan from the Retirement Analysis module.
  • When using an "uploaded tax return", you can choose a specific file that you've uploaded in the Uploaded Returns tab. With this option selected, the comparison will be focused on a prior calendar year.

Alternative Scenario

The alternative scenario will use your original scenario as a baseline, in addition to any changes that you've made using the Action Items. At the bottom of the page, you can make adjustments to the values of specific line items to curate your alternative scenario:
A limited number of essential line items will be displayed as a starting point, but you can click the Edit button in the lower right corner to open a full list of adjustable line items. Within this drawer, you can check the boxes to choose which line items you'd like to see, and click Save to update your action item display:
Note on Action Items
Please note that each year will have its own unique set of Action Items. Making changes to the values or layout for one year will not impact the action items for other years. This is true both for Projected Tax Returns, as well as Uploaded Tax Returns.

For clients that are married filing separately or non-married filing single, radio buttons in the upper left will allow you to switch between each's clients information. As a reminder, you can change a plan's tax filing status within the Profile > Expenses > Taxes and Fees card:

Summary Tab

The Summary tab is the best place to summarize the details of a client's "original" tax scenario, compared to their "alternative" tax scenario. There are three charts available on this page, which can be toggled between by clicking the downward-facing arrow next to the name of the chart:

Federal income taxes

The Federal income taxes chart will highlight differences in federal income tax, AGI, taxable income, and deductions between the original and proposed scenarios. You can hover your mouse over the bar chart to view specific values, and quickly identify the differences between each scenario using the key metrics to the right of the chart:

Ordinary income tax bracket

The Ordinary income tax bracket chart will show where the original and alternative scenarios fall in relation to the ordinary income bracket thresholds in the year selected. You can hover your mouse over the bar chart to view specific values, and quickly identify the marginal bracket for the alternative scenario to the right of the chart:
Note on Tax Bracket Thresholds

Like other areas in RightCapital, the Tax Analyzer will project tax bracket thresholds out into the future using your Tax Inflation rate. The bracket thresholds displayed for ordinary income will also change depending on your chosen Tax Law setting for a given client.

Capital gains tax bracket

The Capital gains tax bracket chart will show where the original and alternative scenarios fall in relation to the capital gains bracket thresholds in the year selected. You can hover your mouse over the bar chart to view specific values, and quickly identify the bracket for the alternative scenario to the right of the chart:

Thresholds Tab

The Thresholds tab lists income thresholds and phase-outs for various account contributions, tax credits, and deductions. Using this page, you can quickly identify a client's eligibility for each item, and compare eligibility between the original and alternative scenarios:

Eligibility can be visualized using the color-coded dots in the "Original" and "Alternative" columns on the right side of the page:

  • green dot indicates that a client is below the listed threshold in that scenario, and would be eligible for that item.
  • A yellow dot indicates that a client is within a phase-out range in that scenario, and would be partially eligible for that item.
  • A red dot indicates that a client is above the listed threshold in that scenario, and would not be eligible for that item.

You can hover your mouse over the color-coded dots to view specific values for each scenario. The numbers displayed may be taxable income or one of several MAGI values, depending on the formula used to calculate eligibility for specific items. Comparing a client's original scenario to an alternative scenario can be a valuable way to show clients how certain hypotheticals may impact their eligibility for certain contributions, deductions and tax credits.

For example...

Using the Action Items, you can easily demonstrate to clients how taking a higher-paying job might impact their ability to contribute to a Roth IRA:

If future years are selected, thresholds will be displayed in future dollars (using your tax inflation rate). Some items may also change depending on your chosen Tax Law setting for a client.

Details Tab

The Details tab provides you with a table view of the different tax forms, directly comparing the original and alternative scenarios line-by-line:

Values that are different in the alternative scenario compared to the original will be highlighted blue for quick and easy identification. This can be a valuable way to demonstrate to clients how changes to specific line items can impact their broader tax picture.

For example...

By increasing IRA distributions on Line 4b, you can highlight the impact that something like Roth conversions would have on the client's AGI, Taxable income, and Total tax:

When viewing future projected tax returns, you can toggle between the 1040, Schedule 1, and Schedule A using the dropdown arrow at the top of the page. When viewing an uploaded tax return, you will have access to all supported forms that are included in that upload. This can include the 1040, Schedule 1, Schedule 2, Schedule A, Schedule D, Schedule SE, and Form 6251(AMT).

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