Indeed, as Nationwide Life Insurance spokesman Kevin Federline is well known for saying during Super Bowl commercials, “Life comes at you fast.” Advisors, of course, can add value to their client relationships by reminding investors to start preparing now for the tax season. The idea is that starting the process now can make tax preparation less stressful and less of a burden. By doing so, of course, advisors can demonstrate that they have their clients’ best interest in mind and that they are forward thinkers who take measures to avoid being reactionary.
Tax documents, meanwhile, can be powerful tools for financial planning and for helping advisors find new opportunities to help their clients. By ensuring that individuals’ tax preparation process goes smoothly, advisors may be more likely to get quality face-time to go over tax returns and find new ways to help investors.
For clients who are expecting a tax refund, taking actions now can make it easier to submit returns in a timely fashion, which can mean receiving their money more quickly from the IRS. Conversely, those who may owe money want to ensure that they file in a timely manner to avoid having to pay IRS penalties and taxes.
At the same time, many aspects of preparing for tax filing may take time, such as tracking down copies of lost documents. Advisors can start conversations by explaining that the tax season will arrive quickly and that planning well in advance is a good idea. Advisors can point out that some aspects of preparing for tax seasons may seem like common sense, but are still worth discussing.
For example, a simple reminder to dedicate a file folder for tax forms may go a long way. It can make life easier for investors and while most individuals will instinctively take such actions, some individuals may allow the hustle bustle of their day-to-day activities cause them to overlook doing so. Advisors should ask their clients if they have moved during the past year.
They should emphasize that clients who have moved should update their mailing addresses with the many entities, including employers, freelance clients, banks, and other financial service providers, that mail out tax documents. That way, clients can be sure that they receive their tax forms promptly and don’t have to chase down documents at the last minute.
In a similar manner, clients who itemize their tax deductions should ensure that they have appropriate documents, such as receipts for expenses associated with freelance work or for expenses associated with providing apartment rentals or other activities that generate income. Obtaining copies of those records can be a time consuming process, so it’s important to ensure that the paperwork, when possible, is readily available.
Advisors can also discuss what forms their firms will send to clients to help investors make sense of the deluge of paperwork that they may receive after the end of the year. The documents can include IRA statements and statements of dividend income, capital gains and taxes paid to foreign countries on non-U.S. investments.
Tax discussions should conclude with a mention that you, as an advisor, would be happy to review completed tax forms. You can point out that information from tax forms can help you better customize your investment recommendations. Clients in higher tax brackets may want to invest in municipal bonds, for example, and clients without access to 401(k) plans may want to invest in individual retirement accounts.
Either way, taking the time to help investors prepare for the tax season can go a long way in helping to strengthen relationships with clients.