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This is the first in a series of blog postings from advisor Mike Patton on how he works with clients during tax season and throughout the year to maximize his value to clients on tax planning. Future blogs in the month of March will include postings on tax aware investing See AdvisorOne’s Special Report on the 22 Days of Tax Planning Advice for 2012, with separate articles on each business day of the month to help you with your tax planning efforts for clients and yourself.
As we approach tax return filing time, there are opportunities for advisors to add value, even if you’re not your client’s tax preparer. In this post, the first in a series of blogs, I'd like to share what I am doing during this season for my clients.
Item No. 1: Checking Clients' 1099s
Clients should have received their 1099s by now. Although most will contain all of the necessary data, believe it or not, there are a few firms that do not include the cost basis for securities sold. In fact, the custodian that I use 'had' a relationship with one such clearing firm. This firm, which shall remain unnamed, showed the gross proceeds, but not the basis. To remedy this, I would export the 'gains and losses' for the calendar year into an Excel spreadsheet. Then I would send this to the client’s tax preparer. Because it was in Excel, it can easily be sorted by capital gain treatment, position, etc.
Item No. 2: Checking Clients' Returns
I sent out an email to all financial planning clients recently requesting a copy of their 2010 tax return and their 2011 return when completed. In an effort to become more involved in this area, and to assist in identifying errors and ways to save, clients were very appreciative. After all, to maximize cash flow, you must either increase income or reduce expenses, or both. And the more free cash flow, the greater the potential for wealth accumulation.
One of the returns I reviewed recently was from an elderly couple who had been using the same preparer for decades. The problem was that this particular preparer had made numerous errors on their return. Although I do not prepare returns, and have no plans to do so, I can help identify issues which need addressing. In this case, I referred the client to a CPA who filed an amended return for the year in question. The result? The client saw the benefit I brought to the table. And after all, that's what it's all about!
Item No. 3: Updating Tax Status on My CMS
I just completed a revision of my contact management system. The update included adding fields which will increase my ability to effectively communicate with clients. For example, I added the fields, "taxable" and "tax deferred." Then I created a query so I can filter clients with taxable or tax deferred accounts. To those with taxable accounts, I can send communications geared to tax issues and for tax deferred accounts, I can suggest that they make a contribution to their IRA for 2011. Of course, I would include the parameters whereby they can make a contribution such as having earned income.
There are many things we, as advisors can do to become more involved and add value for our clients when it comes to issues revolving around taxes. These are only a few. Perhaps you'd like to share some of your ideas?
In a previous blog, Mike explored some tax avoidance strategies for small businesses, such as an advisory firm.
See AdvisorOne’s Special Report, 22 Days Tax Planning Advice for 2012, throughout the month of March.