RTS #052 A tax return is worth 1,000 words
Of course, the saying is “a picture is worth a thousand words,” but when it comes to your clients and prospects, it’s equally true of tax returns.
Every single line of the tax return (even the blank ones!) gives you something to learn about a client/prospect or a question that you can ask if you know what you are looking at. The advisors doing the best work around tax planning insist on clients and prospects providing a copy of their tax return because of the value it can add to the process.
One of our favorite things about reviewing actual tax returns is that it skips over all the jargon and terminology and tells what is actually happening in real life. Especially as you are learning about a prospect or getting to know a new client the tax return can be invaluable for all sorts of information covering a broad range of complexity:
- Marital status
- State of residency
- States they have income from
- Dependents (including some context for how old they might be)
- Whether they are involved in digital assets
- Whether they have reached certain age milestones
- Where they are earning income from
- If they are still working
- What kind of assets they own (and whether you really know about all of them)
- Whether they are contributing to retirement accounts
- Whether they are contributing to health savings accounts
- Whether they are charitably inclined
- Whether they should consider backdoor Roth contributions
- Whether there are deductions they might be missing
- How their taxes are getting paid
- How much of their hard-earned money the IRS keeps every year
- Whether they work with a tax professional
- Whether they timely file or have to extend
- Whether they are involved in any businesses
That’s 19 areas without even breaking a sweat. And many of these would lead to additional questions and things to learn depending on the specific client. Give me 10 minutes with a tax return, and a prospect will be shocked by what I can tell them about themselves.
That, of course, comes with practice, but you don’t have to be a CPA to effectively review tax returns; you just have to get started and keep practicing.
Happy Tax Planning!
Resources that can help you transform the tax return review process:
