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March 06, 2023 at 02:20 PM
Related: 13 Things Clients Don’t Get About Taxes: Advisors’ Advice
When you sign on a new client, it’s a good idea to ask them for copies of their tax returns from the past two or three years, and to obtain a copy of their most recent return when it is completed this tax season.
It also makes sense to review the returns of existing clients. Regardless of how long you’ve worked with them, reviewing their tax returns can help ensure that you fully understand their tax situation.
Why review client tax returns?
Nobody is insinuating that a client is lying about their financial situation or trying to hide anything. Rather, reviewing a client’s tax returns can tell advisors a number of things about the client’s financial situation that the client may not fully understand themselves, or be able to fully articulate to their advisor.
In onboarding a new client, you likely had them complete data gathering forms listing their various investments and other assets. You have likely discussed their financial goals and objectives as well. Beyond this, a review of their tax returns can reveal even more details about their situation and can be a great help to you in determining how to best advise them.
With existing clients, you may or may not be closely involved with their tax situation. Some advisors do tax preparation for clients; others do not. In either case, this review may shed light on additional planning opportunities for your client, or may lead to changes in your planning strategy.
In the gallery are eight reasons to review a client’s tax returns.
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