Slideshow Secrets in the 1040

Published
  • February 16 2015, 10:45am EST

As tax season heats up, it never hurts to look at the opportunities for better client service that are buried in the Form 1040.

Perhaps nothing provides a clearer line of sight into a client's full financial picture -- and, by extension, gives you a better understanding of your clients' needs and how to address them.

Consider these seven ideas to deepen your relationships with your clients by digging deeper into their 1040s, prepared by Chad Smith, a wealth management strategist at HD Vest Investment Services.


1. MISSED IRA OPPORTUNITIES

It may sound simplistic, but always look to see whether clients are taking IRA deductions (Line 32). Setting up, maintaining and fully taking advantage of the benefits provided by an IRA is a basic -- though crucial -- part of the investment planning process.

Still, clients often do not have one -- and sometimes it's the clients you least expect. Don't assume anything: Always make sure your clients have IRAs and, perhaps more importantly, make sure they are making the maximum allowable contributions.

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2. WITHDRAWAL PROBLEMS

For clients in the distribution phase, your opportunity to help may be a bit different. Understand whether the IRA distributions (Line 15) that clients are making are appropriate given their profile.

Based on cash flow projections and long-term goals, you may conclude that they are not taking enough money from their IRA each year. It's also possible that they are taking too much. One of the biggest concerns Americans have is outliving their money, and excessive IRA distributions could deplete their assets too quickly.


3. RETIREMENT PLAN OPPORTUNITIES

Many small-business owners wrongly believe that setting up a business retirement plan is too expensive and burdensome. Others are simply unaware that such an option exists.

Schedule C (Line 12) or Schedule E (Line 17 with an active business) will let you know whether a client is eligible for a small-business retirement plan, like a Simplified Employee Pension (SEP), IRA or other qualified plan option. Such options could not only help business owners better prepare for retirement but also significantly lower their yearly tax bills.

If business owners already have a retirement plan, the deduction is on Line 28 -- and that could be an opportunity for a review.


4. CONSERVATIVE ALLOCATIONS

Clients with taxable interest (Line 8a), which is generally derived from CDs or saving accounts, present an ideal opportunity for you to gain a better appreciation of the overall financial picture.

Given the current low interest-rate environment for deposit instruments -- unlikely to change dramatically in the near future -- Line 8 provides an opening to have a conversation about placing these assets in investment vehicles that may offer greater returns.

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5. POTENTIAL FOR TAX ALPHA

Individuals making more than $200,000, and married couples filing jointly that make over $250,000, are required to pay a 3.8% Medicare surtax on dividends (Line 9), capital gains (Line 13) and taxable interest (Line 8a).

By suggesting investments with low turnover rates, suggesting or implementing more aggressive tax-loss harvesting strategies to minimize capital gains, or directing them toward tax-deferred vehicles, you may be able to help clients in the above income brackets achieve greater tax efficiency.


6. COMPETITIVE CHALLENGES

If a client reports dividends (Line 9) and/or capital gains (Line 13) that were generated by another financial advisor, then it's clear that you may have competition.

This is not a threat, or mean that you can't offer useful advice. Consider it an opportunity to talk to the client about whether they're getting the service they need.


7. INSURANCE SHORTFALLS

This may seem obvious, but you should always know if your clients have dependents (Line 6c), particularly if they are children. Such information creates a stronger relationship, of course -- but you may also want to suggest additional life insurance coverage or assistance with college planning to any clients with dependent children.