Tax Snapshot User Guide

from how ordinary income is computed to how the effective state tax rate is derived, how MAGI thresholds are determined, and how Medicare premium projections work. Use this as your definitive reference whenever a client or colleague asks “where does this number come from?”

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13-page guide with screenshot examples, formulas, and FAQs

Produced by: FP Alpha | Version: October 2025 | Pages: 13

Top Summary Section

The top of the Tax Snapshot displays the client’s key tax metrics at a glance. Here’s where every number comes from:

Metric	Definition	Source
Filing Status	Client’s current tax filing status	Tax Questionnaire
Capital Gains or Loss	Net long-term + short-term capital gains/losses. If no Schedule D, uses 1040 Line 7	Schedule D Lines 7 & 15, or 1040 Line 7
Capital Loss Carryforward	Combined ST/LT carryforward from Sch D Line 16 minus Line 21. Only applies if Line 16 is negative	Schedule D Lines 16 & 21
Federal Taxes Paid	Total federal tax from the return	1040 Line 24
Owns Business	Whether the client operates a business	General Questionnaire
Effective LTCG Tax Rate	Actual rate paid on qualified dividends + long-term capital gains, using federal LTCG brackets (0%, 15%, 20%)	1040 Line 3a + Sch D Line 15
Federal Income Tax Bracket	Marginal bracket based on taxable income and filing status	1040 Line 15 + filing status
Effective Federal Tax Rate	Total Tax (Line 24) ÷ Taxable Income (Line 15) × 100. Returns 0% if taxable income is zero	1040 Lines 24 & 15
Marginal State Tax Rate	Top state bracket based on federal taxable income as a proxy. Updated annually per state	1040 Line 15 + state brackets
Effective State Tax Rate	Sum of effective rates across all state brackets. Always ≤ marginal state rate	1040 Line 15 + state brackets

Income Breakdown

The Snapshot breaks income into five categories. Understanding the formula for each is essential for explaining numbers to clients:

Income Type	How It’s Calculated
Ordinary Income	Taxable Income (1040 Line 15) minus Qualified Dividends (Line 3a) minus net capital gains (Sch D Lines 7 + 15). If ST+LT gains are negative, uses 0 for capital gains. If ST is negative but LT is positive, adds them together.
Taxable Income	Directly from 1040 Line 15.
Adjusted Gross Income	Directly from 1040 Line 11.
Earned Income	Wages (1040 Line 1a) + Business Income (Sch 1 Line 3) + Passive K-1 income (if the client answered “Yes” to the active involvement question in the Tax Questionnaire, K-1 income counts as Earned; if “No,” it counts as Passive).
Social Security Income	1040 Line 6a (total Social Security benefits).
Passive Income	Rental Real Estate (Sch E Line 26) — only if the client answered “No” to the active involvement K-1 question.
Portfolio Income	Taxable Interest (1040 Line 2b) + Total Dividends (Line 3b) + Taxable Pensions & Annuities (Line 5b) + Royalty Income (Sch E Line 23b).

K-1 INCOME CLASSIFICATION NOTE: If the return has a value on Schedule E Line 26, the Tax Questionnaire asks: “Are you actively involved in the operation of the business which issued you a K-1?” If YES, that income is classified as Earned Income. If NO, it’s classified as Passive Income. This question directly affects the income chart on the Snapshot

Deductions Section

The Snapshot compares the client’s standard deduction (based on filing status and age from the General Questionnaire) against their itemised deductions (from Schedule A). FP Alpha uses the higher of the two in its calculations. Itemised deductions displayed include: healthcare (Sch A Line 4), state and local taxes (Line 7), interest expense (Line 10), and charitable donations (Line 14).

Charitable Contribution Limits

Limit Type	Applies To	Calculation
60% Limit	Cash gifts (Sch A Line 11)	AGI × 0.60
30% Limit	Non-cash gifts (Sch A Line 12)	AGI × 0.30
30% Special Limit	Certain appreciated capital gain property	AGI × 0.30
20% Limit	Certain private foundation gifts	AGI × 0.20

MAGI, QBI, Roth & Medicare Sections

Section	How It Works
Modified AGI (MAGI)	Simplified calculation: AGI (1040 Line 11) + half of self-employment tax (Schedule 2 Line 4 × 0.5) + tax-exempt interest (1040 Line 2a). Note: FP Alpha uses a simplified MAGI; the specific MAGI formula for each individual tax credit can vary.
QBI Analysis	Uses Taxable Income (1040 Line 15) compared against QBI thresholds for the relevant tax year. Only appears if the client has a business in the General Questionnaire and has uploaded Schedule C.
Roth Conversion	Displays Ordinary Income (see formula above). If the in-depth Tax Questionnaire question “What portion of your taxable IRA distributions were Roth conversions?” has been answered, that amount is displayed separately on the Snapshot.
Medicare Premiums	Compares MAGI against income thresholds for the appropriate year to determine additional Medicare Part B and Part D premiums. Important: amounts shown are what the client will owe in two years (due to the two-year income lag). Amounts shown are additional premiums above the base premium, not total premiums.
Estimated Tax — Safe Harbor	Federal Taxes Paid (1040 Line 24) × 1.10 = safe harbor estimate. If AGI exceeds $150K ($75K if MFS), the client must pay the lower of 90% of current year’s tax or 110% of prior year’s tax to avoid underpayment penalties.
Schedule B	Extracted directly from Schedule B — shows individual interest and dividend payors.

Frequently Asked Questions

How do I hide sections or customise the PDF output?

Click the “Hide” button in the upper right corner of any data set box on the Snapshot screen. Hidden boxes will not appear in the downloaded PDF. This lets you tailor the output to show only what’s relevant for the specific client conversation.

How do I add my logo to the Snapshot PDF?

Navigate to Account → Settings → Preferences and upload your company logo. This logo will appear on all reports and PDF downloads across the platform, not just the Tax Snapshot.

How do I edit the extracted tax return data?

The data is extracted directly from the uploaded tax return. To edit it, navigate to the Tax Questionnaire in the Data & Documents Hub. The questionnaire displays the raw extractions organised by tab (Tax Return Input, Income, Charity and Gifts, Investment, Employer, Retirement, Social Security). Modify any field and resubmit to update the Snapshot.

Why is my Effective Federal Tax Rate higher than my tax bracket?

The effective rate is calculated as Total Tax (1040 Line 24) divided by Taxable Income (Line 15). Line 24 includes additional taxes from Schedule 2 such as the Alternative Minimum Tax, self-employment tax, or repayment of premium tax credits — none of which are part of your income tax bracket calculation. This is one of the most common questions clients ask, and the answer is that the bracket only reflects income tax, while the effective rate reflects all federal taxes.

How is the State Effective Tax Rate calculated?

FP Alpha applies each bracket in the state’s tax rate structure to the portion of income taxed at that rate, then totals them. Because this only includes state income taxes (not property or sales tax), the effective state rate will always be equal to or lower than the client’s top state bracket. FP Alpha uses federal taxable income (1040 Line 15) as a proxy and does not read state tax returns. State brackets are updated annually.

How is the Effective Capital Gains Rate calculated?

Capital gains are taxed at preferential rates (0%, 15%, or 20%) depending on income level. The effective rate reflects the blended actual percentage, which may differ from the standard bracket because portions of gains may fall into different rate tiers and some gains may be offset by losses. FP Alpha divides total capital gains tax paid by total capital gains income to produce this blended rate.

Tips for Getting the Most from the Tax Snapshot

Upload a native PDF of the tax return, not a scan or screenshot.

The AI extraction works best on native PDFs generated directly from tax preparation software. Scanned documents may produce extraction errors that need manual correction in the Tax Questionnaire.

Complete the General Questionnaire before uploading.

Birth dates are needed for the standard deduction calculation (age 65+ thresholds) and Medicare premium projections. Filing status and business ownership also affect what appears on the Snapshot.

Answer the K-1 question in the Tax Questionnaire.

If Schedule E Line 26 has a value, the system asks whether the client is actively involved. This determines whether the income shows as Earned or Passive on the income chart — a significant difference for planning conversations.

Use the Hide feature to customise before downloading.

Not every section is relevant for every client. Hide boxes you don’t need before generating the PDF. The client will see a cleaner, more focused document.

Upload your company logo in Settings.

A branded Snapshot PDF looks significantly more professional when presenting to clients or sharing with CPAs. This is a one-time setup that applies to all reports.

Check the Medicare premiums section carefully.

The amounts shown are two years out due to the income lag. Make sure you’re explaining this timing to clients, especially if they’re doing Roth conversions that will spike income this year.

Ready to generate a Tax Snapshot?

Upload a client’s tax return in Data & Documents → Tax Planning and the Snapshot generates in minutes.

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Disclaimer: Information provided is for educational purposes. Your advisor does not provide tax, legal, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions.