From the February 2012 issue of Investment Advisor • Subscribe!

2012 Tax Season Survival Guide: 22 Days of Tax Planning Advice

Preparing for the hectic tax season doesn’t have to be a struggle

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Tax season is officially here. For some advisors, preparing clients’ tax returns is a standard part of their services. Others may provide guidance and assistance, but someone else completes the actual tax return. No matter your style, there are several best practices and operational procedures that you should consider to help make tax season a little easier for your firm.

A good place to start tax season is with your custodian’s calendar. Take a look at your custodian’s schedule for sending out 1099 reports. For example, your custodian might use a different timetable for sending out 1099 reports for accounts that include mutual funds that have received income or distributions than for accounts that only include stocks or bonds. This is especially important if your clients have accounts that include a mix of mutual funds and other securities. They would receive the 1099 for their account that includes only equities, but may become concerned when they don’t receive the 1099 for their mutual fund account at the same time.

Reconciling the information included on your clients’ 1099 statements versus the same data on your own performance reports can be a challenging project. In theory, the information should match as long as you are properly reconciling the accounts in your reporting system. In addition, since most 1099 reports are in a PDF format, you can also consider copying and pasting the account data in a table format. Once loaded into a spreadsheet, you have new opportunities to more efficiently merge and compare information. Your custodian may also allow you to download 1099 reports for a number of accounts in a single file, which will make it easier to access and maintain the information.

Perhaps one of the more frustrating aspects of tax season is when a client receives a revised 1099 report. This can happen for a number of reasons and can lead to extra work for you and your client—especially if the client has already filed his or her taxes based upon the initial 1099 report. Advisors can minimize this risk by making sure that clients understand that this can happen if securities issuers have to revise their data. Sometimes waiting an extra week or two before filing their taxes is not a bad idea, essentially making sure a revised 1099 is not already on its way. Advisors should also be on the lookout for these revised 1099 reports by leveraging the tools available through their custodians. Many custodians provide alert features, search criteria and other tools to help you stay informed of any 1099 report revisions. This can really assist you with providing excellent service to your clients by being proactive with this information, perhaps even notifying your clients of the 1099 revision before they receive it in the mail.

Another fairly significant effort during tax season is making sure that other professionals (CPA, tax advisor, attorney, etc.) who serve your clients’ needs receive all the necessary documents as well. The most common way to fulfill this task is to send the documents via email. However, if you have a Web portal solution, for example, file sharing with Dropbox, then you should consider creating an account for each of these professionals as well. If you utilize a Web portal solution, you have the ability to securely upload documents and ultimately have more control over the process. If a document is misplaced, the file is still in the professional’s account and they can re-download the file. 

Tax season can be a very busy time of the year. It involves a hard deadline as well as significant effort in collecting critical information. When it goes smoothly, it is mainly time-consuming work, but the level of frustration rises when mistakes or surprises occur. Minimize these issues by implementing the appropriate best practices and operational procedures for your firm.

See AdvisorOne’s Special Report, 22 Days Tax Planning Advice for 2012, throughout the month of March.

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