FP Alpha, a New York-based tech company, has launched the second generation of a tax tool it created for advisors to help them examine the multiple outcomes of client tax decisions.

The Tax Projector, which first launched two years ago, uses artificial intelligence to examine clients’ various tax documents, including their W-2s. It then extrapolates what the following year will look like for the clients’ taxes according to the choices they make.

The next generation of that tool, launched last week, will provide more options and more information for advisors.

“This one is much more advanced and allows for a lot more scenarios,” said Andrew Altfest, the founder and CEO of FP Alpha (he’s also the president of his family’s namesake firm, Altfest Personal Wealth Management). “It’s very robust, but easy to use, so that an advisor who is not doing tax preparation, which most are not, can easily plug into this type of analysis and … get credit for tax reduction strategies to be more valuable to their clients.”

With the latest version of the tool, an advisor can incorporate a variety of tax scenarios, including the client’s filing status or the client’s hypothetical relocation to a different state, and can project the impact of those decisions out to three years.

The new tool can even provide side-by-side comparisons of multiple scenarios so an advisor can determine the best tax strategy for a client. The tool has become more flexible to give advisors more discretion over the scenarios, according to Rachel Schwab, product manager at FP Alpha.

“We like to leave it up to our advisors,” she said. “They have different needs so we are trying to build and be flexible to address all of those needs—the simple and the complex—in an easy-to-use, easy-to-understand format.”

The tool is partly designed for advisors who do not have the experience or expertise to provide comprehensive tax planning for their clients, said Altfest. They may not be doing it “because it was too time consuming to enter in all that data or because … their competency wasn’t as strong here,” he said, adding that “FP Alpha saves a lot of time and guides them to the right answer in a very easy fashion. That’s the benefit of the AI.”

The projections only go to three years, Schwab said, because anything beyond that would be difficult to predict, since the variables would be changing with laws and inflation.

Advisors can print PDFs of the different scenarios in a simple and clear format to show to their clients, Schwab said. 

The Tax Projector tool can be used in conjunction with FP Alpha’s different tax strategies. Advisors can adopt a specific tax strategy from the firm and incorporate it into the projections model of the Tax Projector tool, Altfest said.

“[Advisors] can go in and model in those different strategies into the tax projector tool to see how that would impact a client’s current tax liability and future tax liability,” he said.

The Tax Projector complements an estate planning version of the tool, which also came out in 2020. The estate planning version analyzes legal documents related to estate planning, including wills, trusts, powers of attorney and healthcare proxies. The AI then reads them and shows clients a snapshot with a distribution plan, Altfest said, demonstrating the ways assets will be distributed in accordance with a person’s wishes and the tax implications of their choices.

Altfest hopes the Tax Projector will appeal to those advisors who do not normally handle tax planning and make them feel comfortable in the space. He also says it’s an inexpensive option for advisors who do have experience in the space.

“We’re bringing new people into the market, plus clients aren’t getting help in tax planning but want it,” he said. “But for the people who are doing tax planning, they’re also using our software … they look at this as a big-time savings.”

The firm is always looking to improve and roll out new projects. It will launch its next big upgrades for both the Tax Projector and the estate planning tool by the end of March next year, and it will release smaller enhancements in the interim, Schwab said.