Using Excel in the classroom: performing a multilevel tax analysis of an S corporation conversion.

• Author: Nellen, Annette

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The AICPA, incorporating feedback from practicing accountants, developed the Model Tax Curriculum (MTC) to provide recommendations to accounting academics for designing a tax course for college undergraduates. One emphasis in the MTC is the need for students to develop technology skills necessary to successfully undertake tax planning, compliance, and research strategies (visit the AICPA's MTC resources page at tinyurl.com/z323cey for more information). Since accountants regularly use Microsoft Excel, developing students' ability to employ this tool in an efficient and reliable way, such as to model tax planning strategies, is essential to their future career success.

The authors created an Excel-based case to give students an opportunity to use Excel to integrate multiple types of tax law, including the 0.9% additional Medicare tax on wage income. (The Excel spreadsheets are available at thetaxadviser.com/s-corp-case.) By integrating multiple types of taxes into one analysis and watching how those components change with various income assumptions and the type of business entity, students will gain a deeper understanding of the interplay among the taxes. They can discover which taxes dominate at low, midrange, and high levels of business income. Performing this case analysis can also improve students' understanding of how the tax law may affect various business forms with similar operations differently. The case also allows students to develop their skills in Excel and see its value in examining various tax planning scenarios. For instance, they will see how Excel graphs and charts can create a visualization of the various planning options.

The case requires students to perform the work of a hypothetical tax professional who is helping a client determine the federal tax implications of converting her sole proprietorship to a single-owner S corporation. To complete the case successfully, students must employ a multilevel analysis that incorporates the impact of conversion on income taxes, payroll taxes, self-employment (SE) taxes, and the additional Medicare tax. Students are asked to model the relevant factors and calculations using a formula-based approach in Excel, using a predesigned template to accompany the case. After completing the case, students should gain a deeper understanding of the differences between the taxation of S corporation income and that of SE income at the individual level, including the concept of salary and the liability for payroll or SE taxes. The analysis also showcases the advantage the S corporation form possesses with respect to the 0.9% additional Medicare tax.

Implementing this case offers educators an opportunity to invite local tax practitioners into the classroom to discuss their own Excel projects and the importance of Excel skills in tax practice. Tax practitioners employ Excel-based analyses across many areas of taxation, from tracking partnership basis elections to analyzing tax aspects of financial statement reporting. Having a practitioner discuss these experiences or demonstrate how he or she uses Excel in certain analyses is highly valuable to reinforce the importance of mastering Excel-based skills, such as those required by this case. Instructors are encouraged to invite local practitioners either before or after distributing this case.

Microsoft Excel Case Templates

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