How Financial Advisors Can Help Clients Compile the Right Tax Information for Their CPA
As a financial advisor, one of your key roles is to ensure your clients are well-prepared for tax season. Compiling the correct information and forms is critical, not just for accurate filing but also for optimizing your clients’ financial outcomes and making the tax season experience as smooth as possible for them. By guiding your clients through this process and prepping key information for their CPA, you will enhance the value of your services and help clients avoid common tax pitfalls.
Here’s how you can help your clients get organized for tax season and ensure they have everything their CPA needs.
Step 1: Determine the Required Tax Forms
Understanding which tax forms your clients need is the first step in ensuring they’re well-prepared. The forms required depend on their income sources, investments, and other financial activities throughout the year. Ideally, as their trusted advisor, you have insight to a lot of this for each client and can be a resource in their form gathering process. Providing your clients with the right resources to identify these forms can streamline the process.
Actionable Steps:
Use Online Tax Form Questionnaires: Direct your clients to online resources that help determine which tax forms they need. Here are a couple reliable options:
Create a Custom Checklist: After using these tools, create a personalized checklist for each client based on their specific financial situation. This might include forms like W-2s, 1099s, 1098s, Schedule K-1s, and others relevant to their circumstances. This will help your client stay organized and they will see additional value in your services by having a personalized checklist you update each year with or for them.
Step 2: Gather Essential Documents and Information
Once you’ve identified the necessary forms, the next step is to gather all of them. You can assist your clients by prepping certain financial information in advance, making the process smoother for both the client and their CPA.
Actionable Steps:
Income Documentation: Ensure your clients gather all income-related documents, including W-2s for employment income, 1099s for investment income, freelance work, or any other side jobs, and K-1s for partnership or S-corporation income.
Investment Records: Compile detailed records of investment transactions, including purchase and sale dates, cost basis, and realized gains or losses. If you manage your clients’ portfolios, you can provide a year-end summary that includes this information.
Retirement Account Contributions: Prepare a summary of your client’s contributions to retirement accounts (401(k), IRA, HSA) and ensure they align with IRS limits. If your client has a Backdoor Roth IRA, document each step to ensure proper tax reporting.
Deductible Expenses: Help your clients compile records for deductible expenses, such as charitable donations, mortgage interest, student loan interest, and medical expenses. If applicable, help gather documentation for any tax credits, like education credits or energy efficiency credits.
Step 3: Organize and Review Tax-Related Documents
Helping your clients organize their documents before sending them to their CPA is a vital step in ensuring nothing is missed. Proper organization also makes it easier for the CPA to identify any potential tax-saving opportunities.
Actionable Steps:
Create a Tax Document Folder: Encourage your clients to create a digital or physical folder to store all their tax-related documents. If they’re comfortable with digital tools, consider using a secure cloud storage solution that allows easy sharing with their CPA.
Review for Completeness: Before your client submits their documents to the CPA, review the folder together to ensure all required forms and documents are included. This might involve checking off each item on the checklist you provided earlier.
Prepare a Summary for the CPA: Include a brief summary of any significant financial changes or events from the past year, such as large investment gains, qualified charitable distributions, new income sources, or life changes (marriage, divorce, new dependents) that could impact the tax filing. Clients may not understand which parts of your planning have a tax impact, so it’s important to make sure you’re proactively keeping track. You can update the list throughout the year so it’s not a memory game at tax time!
Step 4: Coordinate Directly with the CPA during tax season
Establishing a direct line of communication with their CPA can help ensure your client’s financial situation, and your diligent planning, is accurately reflected on their tax return. This collaboration can also lead to more comprehensive financial planning for the client.
Actionable Steps:
Initiate a CPA Introduction: Offer to introduce your client to their CPA and set up a meeting or call to discuss any complex financial situations or recent changes. This is best if done outside of tax season, if possible.
Share Financial Insights: At the beginning of tax season, provide the CPA with a detailed overview of your client’s financial plan, including any strategies you’ve implemented, such as tax-loss harvesting, charitable giving plans, or retirement account conversions.
Follow Up on Tax Planning Strategies: Work with the CPA to ensure that tax strategies you’ve advised are implemented correctly, such as ensuring tax-efficient withdrawals or confirming the application of specific tax credits.
Conclusion
Helping your clients compile the right information and tax forms for their CPA is a crucial service that enhances their overall financial well-being. By taking these actionable steps, you can ensure your clients are well-prepared for tax season, optimize their tax outcomes, and strengthen the relationship between you, your client, and their CPA.
Proactive preparation not only simplifies the tax process but also reinforces your role as a trusted financial advisor who adds significant value year-round.
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