Planning Opportunities To Look For in Clients' Tax Returns

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You did it — you made it through tax season! The heavy lifting is over, but now it’s time to review tax returns with your clients. If you know what to look for, this can be a great way to find additional planning opportunities for the remainder of this year and even the next. In this blog, we’ll cover what some of these planning opportunities are and how to introduce them into your client’s financial plan.

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Itemized Deductions

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A great place to start when looking for planning opportunities to provide additional value to clients is their itemized deductions. If your client took an itemized deduction rather than the standard deduction, review exactly what they deducted. If you see that a majority of their deduction came from healthcare costs, make it a point to discuss their healthcare costs with them. There are two benefits to doing this:

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1. If they had high enough healthcare costs to take an itemized deduction instead of a standard deduction, that’s a significant expense that needs to be included in their financial plan.
2. You now have an additional service to offer: helping clients optimize their healthcare costs and coverage.

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When you talk about the healthcare costs they deducted, you may find that they have additional healthcare costs you can plan for this year. Let’s say your client had a planned surgery last year that you see they deducted from their taxes. When you ask them about this, they mention they have a second and final procedure later in the year. You can now include this expense in their financial plan to make it more accurate. 

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If your client didn’t itemize their deductions but it comes up that they did incur more than 7.5% of their AGI in healthcare expenses, then this is something to note in your CRM for next year. While one year does not predict the next with certainty, there’s a pattern in healthcare utilization year over year that could give you a good strategy to reduce that client’s taxes the following year (by itemizing versus claiming the standard deduction). 

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Healthcare costs aren’t the only expense that can be itemized. Clients can also deduct their state and local income or sales taxes, real estate taxes, personal property taxes, mortgage interest, disaster losses, and gifts to charity. Like healthcare costs, these deductions create opportunities to discuss with your client to uncover potential planning opportunities that create a more comprehensive financial plan.

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Life Events

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Hopefully, you’re already well acquainted with the life events that happen in your clients’ lives, but if not, reviewing their tax returns can help fill you in. When reviewing a client’s 1040, look for age-related events (such as turning 65 or aging off of a parent’s insurance policy), a change in filing status (such as getting married or divorced), changes with their dependents (such as gaining or losing a dependent), and employment status (such as shifting from full-time to part-time).

All of these situations, and many others, are great opportunities to sit down with clients and identify opportunities to improve their financial plans. For a specific example, let’s say that your client had a change in employment status. It could be retirement, a career change, a promotion, starting a new business, or even moving from a full-time job to a part-time job (or vice versa). They are all events that impact clients’ income and therefore are changes you’ll want to discuss with them to adjust their financial plan. This is also an easy life event to talk about healthcare since most Americans get their healthcare coverage through their employer. While discussing their change in employment status, here are some questions you can ask your client:

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• Did you have health insurance through your employer?
• Will you be able to enroll in health insurance through this new employer?
• (If retiring before 65) Have you thought about how you’ll receive health insurance from now until you turn 65? Let’s talk about some options.
• (If retiring after 65) Congratulations on retiring! Have you thought about your Medicare options? Let’s discuss it.
• Does your ex-employer offer any health benefits to retirees?
• Does your ex-employer qualify for COBRA coverage, and if so, will they subsidize any of its cost for you?

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Final Thoughts

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The opportunities to look for in clients’ tax returns can be categorized as the following:

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• Personal information (e.g., their age, address, and filing status.)
• Itemized deductions (e.g., medical expenses, charitable giving, and real estate taxes.)
• Income sources (e.g., their wages and salary, IRA distributions, and capital gains.)

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It’s important to approach all of these as conversations to have with your client about what’s going on in their life and how it impacts their financial plan. The numbers and information on the tax returns are only part of the story. Sitting down with clients to ask them about specific items and events will fill in the details and ensure you’re able to move forward with a clear plan of action to create a more accurate, comprehensive financial plan.

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