Lots of exciting AI action this week in the world of accounting including how I’m building the tax version of the FICO score.

Tax Strategy's Answer to the Credit Score

TOPI is a like a FICO score for tax efficiency.

Just as the FICO score revolutionized consumer lending decades ago the TOPI score will do the same for taxation.

Thirty years ago, the Fair Isaac Corporation (FICO) debuted the revolutionary FICO score.

This three-digit number based on credit history data provided lenders with a standardized, objective measure of consumer creditworthiness.

The FICO score's arrival transformed consumer lending, enabling fairer, faster credit decisions.

Now, a new performance indicator aims to bring similar transformation to the world of taxes – the Tax Optimization Performance Indicator (TOPI).

Just as the FICO score summarizes an individual's creditworthiness, the TOPI score evaluates a business or individual's overall tax optimization strategy.

It provides a single metric encompassing the effectiveness of tax planning, compliance, deductions, credits, incentives, and other factors impacting tax liability.

Your TOPI and The Big Picture

In case you missed it on LinkedIn, I’ve been building a new breed of tax planning software over the past few months:

Perhaps an accountant's dream come true.

AI that finds the best tax strategies in seconds.

Over 5,300 combinations to maximize tax savings including IRC citation.

Just answer a few questions (or upload a redacted 1040 form).

It will give you the most relevant strategies, estimated savings and even entity selection recommendations.

It's like having a master tax advisor at your fingertips.

No more digging through pages of regulations or second guessing yourself.

This makes tax consults faster, simpler and gives you the exact IRC from Title 26 and other official sources.

That is the “backend” for accountants (more screenshots coming soon).

But why?

And how can a taxpayer know that they are in good hands and taking advantage of every possible opportunity to optimize their tax savings while remaining compliant?

That’s where your TOPI comes in.

Why Tax Optimization Matters

Today, assessing tax strategy is often a subjective endeavor, varying between accountants.

This makes benchmarking difficult.

It also makes choosing the best accountant a gamble.

Your TOPI score provides an objective way to measure the success of tax planning and compliance approaches.

It also enables benchmarking against industry peers, revealing areas for improvement.

Beyond just minimizing taxes, your TOPI optimizes overall financial planning.

It encourages strategies like:

- Proactive tax planning instead of reactive responses

- Tax-advantaged investments and retirement planning

- Risk management around audits, penalties, and compliance

- Benchmarking against peers

- Tailored tax advisory services

- Enhanced credibility with stakeholders

TOPI empowers individuals and businesses to take charge of their tax and financial health without having to pay hundreds or thousands of dollars for “tax planning”.

It promotes better understanding of the complex tax landscape while providing clarity on tactical tax moves.

Most importantly it helps taxpayers and accountants focus on outcomes, not just which numbers are put in what boxes every April.

It’s Not Perfect, But It’s Still Early

Some may argue that the TOPI score is arbitrary or overemphasizes tax optimization.

That would be a respectable assumption.

A similar argument was made against Mr. Isaac when FICO was created.

However, TOPI is built on sophisticated algorithms incorporating comprehensive tax data.

It focuses on legal and compliant tax efficiency, which is crucial for overall financial health.

Used alongside professional advice, TOPI provides an objective starting point for improving tax strategy.

Others may express concerns about transparency or adapting to individual circumstances.

I was concerned about that myself before I created TOPI.

My intention was not for TOPI to be a replacement for a living, breathing experienced tax advisor.

Rather, TOPI is an AI that gets smarter as it accumulates more data and users (see network effects and data economics theory for a hint of how this will grow). Warning these links are serious rabbit holes!

My TOPI algorithm will be updated regularly and employs robust data protections to maintain accuracy and confidentiality.

For example, it will not accept PII (Personally Identifiable Information) nor any 1040 tax returns that are not properly redacted.

Ultimately, TOPI does not encourage avoidance but rather awareness. It promotes optimization within the existing tax framework through proactive planning.

Who Benefits from the TOPI Score?

TOPI offers advantages for multiple stakeholders—let’s explore the top three together:

Taxpayers

For individuals and businesses, the TOPI score provides unprecedented transparency into tax efficiency.

By empowering self-assessment of tax strategy, taxpayers can pinpoint areas for better tax planning suited to their situation.

For example, a low TOPI score could prompt a review of investment accounts for more tax-advantaged options.

It enables proactive optimization rather than reactive responses.

With enhanced tax literacy and control, individuals can ensure financial plans align with personal values and goals.

Businesses

For companies, the TOPI score enables vital benchmarking of tax performance against industry peers.

A below-average score can spotlight gaps in utilizing deductions, credits, or incentives compared to competitors.

This insight enables targeted improvements to tax strategy to bolster the bottom line.

Across industries, businesses can leverage TOPI to turn tax management into a value creator rather than just a compliance cost center.

Tax Advisors

For CPAs, accountants, tax attorneys and wealth managers, the TOPI score provides a powerful new tool for demonstrating value to clients.

Honestly this is the part that is most exciting to me.

Advisors can market their ability to diagnose clients’ tax health using TOPI and tailor planning recommendations to address weak areas.

Those who build a track record of improving client TOPI scores can differentiate their services in a competitive marketplace.

TOPI enables advisors to pivot from reactive filers to proactive strategists and partners in optimizing financial performance.

The score facilitates better conversations on how tax planning integrates with overall financial goals.

TOPI Use Cases and Examples

TOPI has widespread potential applications for assessing and improving tax strategy across multiple domains.

Initially it will be a very simple and rudimentary score but will become more sophisticated over time.

Here’s a development screenshot of a part of TOPI today:

Here’s what’s on the TOPI roadmap:

Tax Planning Use Cases

- Evaluating the tax efficiency of investment portfolios and retirement accounts to identify planning opportunities

- Simulating the impact of different corporate structures and reorganization strategies on tax liabilities

- Modeling the tax implications of expansion plans, real estate purchases, or other growth initiatives

- Forecasting effects of tax law changes on future tax liabilities

Compliance Use Cases

- Auditing past tax returns to identify errors, omissions, discrepancies that could lead to fines or penalties

- Monitoring compliance across multiple business entities

- Tracking completion of compliance requirements like estimated quarterly payments or payroll tax filings

Deductions Use Cases

- Identifying potential deduction opportunities being overlooked, such as work from home expenses or depreciation

- Benchmarking utilization of deductions against industry peers

- Tracking deduction claims across years to maintain consistency and avoid misrepresentation

- Validating proper documentation and eligibility for large deductions like business meals, travel, or home office use

Credits & Incentives Use Cases

- Reviewing eligibility for tax credits related to renewable energy, R&D, or social causes

- Evaluating applicability of tax incentives for business expansion, capital investments, or hiring

- Modeling optimal timing for claiming tax credits based on forecasted tax liabilities

- Verifying qualifications and calculating impact of newly introduced tax credits or incentives

My Vision with TOPI

The TOPI score empowers holistic assessment and improvement of tax strategy across all facets of planning, compliance, deductions, credits and incentives.

Its flexibility enables customized applications across industries and individual circumstances.

As the score gains adoption, its use cases will continue expanding to empower more proactive tax management and strategic financial planning.

Much like the FICO score, the Tax Optimization Performance Indicator has the potential to transform an entire industry.

My vision is a future where taxes are demystified and optimizable for all individuals and businesses, regardless of size and resources.

I envision equitable access to tax minimization strategies, where firms are evaluated on the merit of their tax optimization prowess, not just their marketing.

I see a world where tax literacy is a core pillar of finance education, where individuals feel in control of their tax picture, not intimidated by it, and businesses use tax performance as a competitive edge.

At my core, I believe taxes should be fair, objective and transparent.

My vision harnesses technology to make this ideal a reality.

I envision the Tax Optimization Performance Indicator as the key to unlocking this future of proactive, strategic tax planning for all.

This is just the beginning.

PS - If you’re interested in learning more I will be accepting beta testers soon, and if you’re as passionate about innovation in tax as me, reachout if you want to be part of the team I’m building.

1. An AI that finds the best tax strategies [LINK]

2. An AI that scans a 1040 Schedule C in 34 seconds [LINK]
   

3. An AI accountant that gives free tax advice. [LINK]