Every year, it feels like tax season gets busier. This year’s tax season will be no different considering the amount of “tax planning” activity that occurred in late December in response to the new tax laws for 2018.
To help, here are 10 important best practices for the upcoming tax time:
1. Know the Delivery Schedule
Your broker-dealer or custodian should be able tell you the delivery schedule of the tax reports for your client accounts. The type of investments in the account is a big factor that will influence how soon (or late) the tax report will be produced. If the tax report is significantly delayed, you should be able to learn which investments are holding up the final report.
2. Plan for Tax Report Revisions
Make sure you have a process in place that ensures you are alerted to an update as you want to be informed before your client receives the revised report. Also, determine how material the actual changes are and what needs to be done. Finally, consider any “downstream” effects the revision may have depending on the level of detail of the reports produced by your firm.
3. Utilize Aggregate Tax Reports
Due to the tremendous amount of data and details, make sure you are utilizing reports that aggregate the information for all your client accounts. This makes it much easier and efficient to identify potential outliers as well as provides a better “dashboard” of the information.
4. Determine Cost Basis Details
Each year, more investments are moved to the “reported” category for cost basis reporting, which means cost basis and proceeds details are sent to the IRS from your custodian. However, there may still be investments in the “non-reported” category, especially if they were purchased many years ago. Make sure it is clear to your client where they get the cost basis details and whether the particular investment has been reported to the IRS.
5. Review Investment Donations
When clients decide to donate securities to their favorite charity, it is always important to confirm the right tax lots were selected for the gift. This important detail can potentially be overlooked particularly during the year-end crunch time.
6. Double-Check Retirement Contributions
Always double-check the retirement contributions in your client’s tax-exempt accounts. Was the contribution correctly coded for the right tax year? Also, pay particular attention to pension types of accounts that involve both employee and employer contributions. It is much easier to resolve any errors when they are identified during the current tax reporting year.
7. Use Multiple Client Communication Tools
During tax season, when clients are looking for their information, they want it now. Given this expectation, use multiple communication tools for distributing the tax information and guidelines for your clients. Consider posting the information on your website, send an email, use social media, anything that will help get your client’s attention.
8. Understand How Clients File Taxes
Do some clients use TurboTax or other software? If so, make sure it is clear how they import the tax information for the accounts managed by your firm.
9. Be Ready for Last-Minute Requests
You know that these requests are coming. Your clients can’t find a specific report, their CPA wants clarification on a realized gain, and they aren’t sure if they even owned it. Plus, every request ends with ASAP. Remind your employees to not overlook your security and data protection procedures before providing any information.
10. Prep for Next Season Starts Now
Keep in mind the steps that you can take for next year’s tax season. Consider reviewing items that include the default accounting method on accounts, well-received client communication strategies, report modifications, etc. A little investment of time in these areas can yield nice benefits for the next year.
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