7 Client Secrets Revealed by a 1040 Form
But as yet another tax season ramps up, it's never a bad idea to review what every advisor should be looking for on their clients' Form 1040s and what potential opportunities it may reveal.
Perhaps nothing provides a clearer line of sight into a client's full financial picture -- and, by extension, gives the advisor better understanding of clients' needs and how to address them.
Page through to see the full list of takeaways from IRS Form 1040, or click here to view it as a single page. -- Chad Smith
Chad Smith is wealth management strategist at HD Vest Investment Services.
1. MISSED IRA OPPORTUNITIES
Still, advisors frequently report meeting clients who do not have one -- and sometimes it's the clients they least expect. Don't assume anything: Always make sure your clients have IRAs and, perhaps more importantly, are making the maximum allowable contributions.
2. WITHDRAWAL PROBLEMS
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
Schedule C (line 12) or Schedule E (line 17 with an active business) will let an advisor 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. OVERLY CONSERVATIVE ALLOCATIONS
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.
6. COMPETITIVE CHALLENGES
Don't look at this as a threat. Rather, consider it an opportunity to talk to the client about consolidating those assets with you.