#003 – 5 Things To Look For On Every 2022 Tax Return
By now, most of your clients should have filed their 2022 tax returns, AND more importantly, you should have a copy! Getting the data is only the first step, though; you have to make sure you know what to look for and then are communicating effectively with your clients on those topics. So with that in mind, here are 5 things you should look for (at a minimum!) on every client tax return:
1. Personal Identifiable Information. You should have your client’s personal information in your CRM. So, make sure it ended up on their tax return correctly. I had an advisor recently tell me a story about a client getting a nasty gram from the IRS. It was sent because their social security number was wrong and had been for years leading to the client incorrectly being the subject of an audit. It doesn’t happen often but is easy to prevent.
2. Anything you worked together on during the year. Every financial event has a tax impact which means YOU have an impact on your client’s tax return. The only way you can know for sure that the work you are doing with a client is being reported correctly is to check the report (a.k.a. Their tax return). Don’t assume that the tax documents sent by the custodian will be enough.
3. Form 8606. Roth conversions and backdoor Roth contributions get reported incorrectly all the time. Even without the pro-rata rule being applicable, we see this get messed up over and over. You should be checking to see if the form is included AND if it was filled out correctly.
Pro Tip: if a prospect has Form 8606, try saying, “I see that you have non-deductible IRA contributions on Form 8606. What is your strategy for having tax-free money in retirement?”
4. Charitable Contributions. With the standard deduction so high, many taxpayers are not getting a tax benefit from their charitable giving, but this doesn’t mean that they can’t. It does mean that you have to help them be intentional and leverage the planning strategies available to them to give charitable in a tax-efficient way.
5. Line 24 “the amount of your hard-earned money the IRS kept last year”. Most taxpayers have no concept of how much they actually pay in taxes. They get fixated on their payment at tax time or the fact that they got a refund for the year. While those certainly shouldn’t be ignored, they are not the measure of whether someone is getting killed on taxes. Understanding and helping your clients understand just how much they are paying in taxes helps frame the conversation for why tax planning is important.
What can you do about it?
This week it’s really simple:
- If you don’t have your client’s tax returns yet, request them.
- Have a system for reviewing every client’s tax return every year, and make sure you are focused on the things (maybe even 5 of them) that are most relevant for the client base you serve.
- Apply the dishwasher rule. Even if you didn’t find anything earth-shattering, make sure your clients know the great work you are doing for them.
Happy Tax Planning!