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Financial Planning > Tax Planning

9 top tax tips for financial planners

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As a financial planner, chances are you get more than a few tax-related questions in the early part of the year. Of course, the financial landscape is vast, and professionals should never stray too far from their areas of expertise — but the ability to provide clients with some solid tax advice is a great way to improve customer service and retention for your business. Here are nine tax filing tips financial planners can feel comfortable passing onto their customers.


1. Remind them about health insurance.

Because of the Affordable Care Act, it’s important that your clients have health insurance this year. If they don’t, they face a penalty of $95 or 1% of their adjusted gross (taxable) income, whichever is higher, starting with next year’s return. The penalty is capped at the average cost of a bronze plan purchased through the federal exchange, but it does increase in ensuing years.

s2. Consider converting a traditional IRA into a Roth IRA.

Why would converting a traditional IRA into a Roth IRA benefit your clients? If they don’t want to pay taxes on their retirement income and if they expect to be in a higher tax bracket when they reach retirement age, it usually makes sense. They do have to pay taxes on the converted amount minus any nondeductible contributions they made to the traditional IRA. If your clients expect a large refund or their tax bracket was low last year, it could be a good time to convert.

e3. Maximize retirement account contributions.

On the topic of retirement, make sure your clients know that they can make contributions to a traditional IRA until the filing deadline and still apply them to their prior year’s tax return. This could make for a nice tax deduction, depending upon income and filing status. If they’ve also got a retirement plan at work, single filers get a full deduction with a modified AGI of $59,000 or less, and if they’re married and filing jointly the limit for a full deduction is a modified AGI of $95,000.

d4. They should start preparing their returns now.

Nothing is worse than putting off the inevitable, so if you have clients who haven’t even started their returns yet, encourage them to get going. The last thing they want to do is increase the possibility of making a mistake because they’re trying to get their return in under the gun — mistakes can lead to penalties, interest, and audits, none of which are fun.

s5. Claim the home office deduction with caution.

The home office deduction is a great way to decrease the tax liability of entrepreneurs and small business owners who work from home, but only if they qualify for it. The restrictions and qualifications for this deduction can be easily misunderstood, so it’s important that your clients do their homework and get it right — refer them to a tax professional for clarification.

d6. Tell them to be ethical.

No matter what, do not encourage your clients to hide assets or income from the IRS or take any deductions they’re not entitled to. Even though the chances of an audit are slim — right around 1%, according to the 2012 IRS Data Book — there’s no sense in taking the risk. Remember, there’s no statute of limitations on civil tax fraud. The best advice you can give is to be honest every step of the way.

s7. Encourage them to set aside an appropriate amount of time.

Filing an accurate return takes time, and your clients won’t be able to do that if their kids are crawling underneath their desks or if they’re more focused on Facebook updates and YouTube videos. Tell your customers to set aside some uninterrupted time so they can focus on their taxes. The end results are less time spent and a more accurate and effective job done.

s8. Explain how they can better prepare for next year.

To streamline the process for next year, encourage your clients to set-up a system with which they can file documents relevant to their return as they come in during the year. For clients who itemize their deductions, setting up files for charitable contributions, unreimbursed medical expenses, and job-related expenses can come in very handy.

s9. Mention filing for an extension.

If your clients are less organized or need some extra time to complete their returns, let them know that they can always file for an extension. It can be done electronically with their tax prep software or by mail if they download and complete Form 4868 — they just have to mail it in with their estimated payment by the April 15 deadline — if not, they face late and underpayment penalties.

Final thoughts

Don’t overreach. If you’re unable to provide your clients with accurate answers to their questions, simply refer them to a service or a professional who can. The IRS can be reached by phone at 1-800-829-1040. Or, clients can do an Internet search to find the number of their local office. Providing accurate tax advice for your clients is important, but if you can’t, at least point them in the right direction.

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