In 2023, Mary Jane and her husband Peter, both architects, come to your accounting firm to seek help. They tell you, "We are concerned we're paying more tax than we owe. Our last accountant said we don't qualify for the QBI deduction because we are in the service industry, we are both architects. But we recently heard that might not be true? We'd like to provide you with their 10-year projection plan and ask if you'll help determine if they are correct or incorrect." Below is what we know: Income Projections o Year 2023: $220,000 o Future Years: We estimate revenue will increase by $10,000 more than the prior year's increase, specifically: $230,000 in 2024, $250,000 in 2025, $280,000 in 2026, $320,000 in 2027, $370,000 in 2028, $430,000 in 2029, $500,000 in 2030, $580,000 in 2031, and $670,000 in 2032. Tax Rates and Limits: o Year 2023: As provided by the IRS for 2023. o Future Years: Estimate assuming no inflation adjustments. QBI Deduction: o Year 2023: $0? - This is what our other CPA said, we don't think this is right. o Future Years: Even though the QBI deduction law ends in 2025, assume congress will extend it through 2032 with no inflation adjustments from 2023. After-Tax Cash Flows: o Year 2023: We'd like $156,000 in after-tax cash flows to live off of, the rest can stay in the business. o Future Years: This number can remain the same, ignore inflation. We are currently a Partnership, but our other accountant suggested we switch to an S-Corporation immediately. He provided a comparative analysis page, but it just showed our revenue and after-tax cash flows, that were identical for both entity types. That didn't really help us understand why we should switch or what the cost difference between switching is. Hence why we came to you, we really don't think the previous person knew what they were doing. Also, a dynamic QBI model is a must, that way we can play around with income numbers, and it will automatically change to the correct amount.

 

1. A one-page memo (Microsoft Word) with: a. Your recommendation as to whether or not Mary-Jane and Peter should switch to an SCorporation or stay a Partnership, and if they should switch, what year should they do so. b. A summary table comparing what you believe are the key important figures someone would want to know in making an entity choice decision between partnership vs. SCorporation. Be sure to include the reason the final cash flows are different.

2. An Excel Workbook with: a. Excel calculations for your analysis. b. Dynamic QBI Deduction Model for each year, specifically a dynamic model allows inputs to change (I suggest you use the template from Chapter 2).

3. A Graphic PDF a. Visually show how key tax and non-tax measures are different between Partnership and S-Corporations using Tableau or other visualization software. b. Include at least 3 graphs, with a paragraph below each explaining what Mary-Jane and Peter are looking at and what is causing the underlying difference