Value Adds from Tax Returns

Discover the most impactful documents you can request from clients, including tax returns and investment statements, to unlock comprehensive financial insights and elevate your advisory services.

5 min read

What are the most powerful documents that you can request from a client?

1. Tax Returns: These provide insight into a client’s income, tax situation, and potential areas for tax planning strategies.

2. Investment Statements: Information about current investments, asset allocation, and performance helps assess the client’s risk tolerance and investment goals.

3. Retirement Account Statements: Details from 401(k), IRA, and other retirement accounts are crucial for retirement planning, understanding contribution limits, and withdrawal strategies.

4. Insurance Policies: Life, health, disability, and long-term care insurance documents are needed to evaluate coverage adequacy and identify potential gaps in protection.

5. Estate Planning Documents: Wills, trusts, and powers of attorney ensure that the client’s estate planning wishes are understood and properly aligned with their overall financial plan.

They are all important, but which one is really “the key to the kingdom” when it comes to being able to deliver long-term, massive value to clients who have hired you?

As a junior advisor, I remember shadowing my father, Floyd Shilanski, and watching him go through a client’s tax return was akin to watching an artist try and determine where to start chiseling for the sculpture to emerge.  He would hold the return in the upper left-hand corner with his left hand and with his right, take his pencil, and start moving page by page down the return.  He would scratch some notes on a legal pad, which could NEVER be transplanted by the stenographer without questions, and hold the silence in the conference room in the palm of his hand. 

If you ever get a chance to visit Floyd Shilanski at a conference, you have to watch him do this. Give him any old return and ask him to go through it with you as if you were a client. If you plan on being at the Retirement Tax Services Summit this September (and how can you not be when everyone who IS someone in advising is going to be), grab him. For the cost of a glass of fine Chianti, you will get a master class because, as my dad told me when we exited the conference room, “They come in for the investment advice, but they hire you for the tax planning.”

The opportunity cost of NOT looking at the Tax Return

Oh, rental properties, how I love and loathe thee.

Ever met a client who was just jazzed about adding more real estate to their portfolio? They have several multi-family homes and love to remind you that when they review their net-worth report, their real estate portfolio is worth more than their stock portfolio.

OF COURSE IT IS! YOU HAVE BEEN SINKING ALL YOUR MONEY INTO THOSE PROPERTIES.

Ask a client if their property cash flows, and there is only one answer – yes.  It’s like someone buying a car; no one tells you that they got ripped off, everyone got a good deal, and everyone outsmarted the salesman. 

Want to know if that property really does cash flow? Yep, you guessed it. Grab that tax return and pop over to Schedule E.  You will learn way more about that property than what the client is going to divulge because no one is ever reporting more income than what they are earning on their tax return. 

Even the most staunch patriots aren’t running around trying to increase their income so that the IRS can collect more. Can tax returns be misleading? Sure… but they have a lot less ego involved than a person does. 

When we don’t ask for the tax returns, we aren’t able to gauge other aspects of financial planning fully.  We can’t wrap our arms around the client’s complete financial picture. 

Where is the line between tax planning and tax advice?

My good friend (and the hands-down reason that I charge for advice without exception) had a horrendous tax bill in 2023 that she was grossly unprepared for.  She sat down with her Edward Jones Advisor in April of this year to discuss how she got there and what she needed to do differently. She brought in all of her pay stubs, 1099’s, and tax returns. She was shocked when her advisor told her, “Sorry, I am not allowed to comment on your taxes other than to recommend that you fully fund your retirement accounts.”

He isn’t a bad advisor – in fact, she likes him a lot, but that doesn’t mean that he is allowed to give tax advice. 

In a litigation world where we are all hyper-sensitive to the threat of regulatory changes, we see more and more financial advisors opting not to ask for their clients’ tax returns altogether or to simply direct the clients to their CPA with any and all questions. 

We are so afraid of giving the wrong advice that we fail to give any advice.

Tax planning generally involves:

1. General Strategies: Providing clients with general strategies for minimizing tax liability, such as contributing to retirement accounts, taking advantage of tax credits, or discussing the benefits of different investment vehicles.

2. Education and Information: Offering educational resources about tax laws and implications. This can include discussing the general benefits of tax-advantaged accounts or the impact of capital gains taxes.

3. Hypothetical Scenarios: Discussing hypothetical situations or generic examples to illustrate how certain tax strategies might work without referring to the client’s specific circumstances.

4. Broad Recommendations: Making broad recommendations that do not constitute specific advice tailored to the individual client’s tax situation.

Tax advice involves:

1. Specific Recommendations: Providing specific recommendations or courses of action tailored to the client’s individual tax situation. This includes telling a client exactly what to do in their unique circumstances.

2. Detailed Analysis: Offering a detailed analysis of the client’s tax situation, including personalized projections and calculations.

3. Preparation and Filing: Assisting with the preparation and filing of tax returns, which is usually the role of a tax professional.

4. Representation: Representing the client in dealings with the IRS or state tax authorities.

Regulatory Distinctions

•Registered Investment Advisers (RIAs) must be careful not to cross the line into providing specific tax advice unless they are also licensed tax professionals (e.g., CPAs or Enrolled Agents).

•The SEC and state securities regulators generally require that financial advisers who provide specific tax advice either have the appropriate credentials or collaborate with qualified tax professionals.

“Consult with a Qualified Professional”

At one point, we had a Compliance Officer tell us that we needed to add a disclosure to all of our outgoing correspondence that said – and I kid you not – “We cannot guarantee the accuracy of this information and recommend that you consult with a qualified professional.”

Forgive me, but isn’t that why they hired us? Aren’t we supposed to be the ones who ARE qualified to give advice?

The intent was to make a blanket statement so that when it came to specific types of advice that you weren’t licensed for, that you told the client to consult with someone who is.  

If you aren’t proficient in taxes, and Lord knows that I am not – the love of reading tax code while suntanning on the beach belongs to my baby brother, Micah Shilanski – then you should absolutely be consulting with someone who specializes in this field. Developing relationships with Centers of Influence here is paramount to ensuring that you, as the Advisor, are intricately involved in the tax planning process while the CPA/EA is preparing the tax return. 

Learning how to work with Centers of Influence, as taught by Matthew Jarvis, is one of the most popular training programs that The Perfect RIA offers. 

A misstep with COIs (who, regrettably, set you up for more failures than wins) means that it will become all too obvious as to who the UNqualified Professional is to the client.

Why

So, why is this so important? Why should you drop everything and make sure you’re at the RTS Tax Summit this September? Let’s break it down.

The Tax Return is the Key to the Kingdom

We’ve all heard it before: clients come in for investment advice, but they stay for the tax planning. Why? Because tax planning is where you can add the most value. It’s not just about minimizing liabilities or finding deductions; it’s about understanding the full financial picture of your clients. By mastering the art of reading and interpreting tax returns, you unlock a treasure trove of opportunities to offer more personalized, impactful advice.

Imagine sitting with a client, dissecting their tax return, and uncovering strategies that could save them thousands. Imagine the trust and loyalty you build when clients see the real, tangible benefits of your advice. Attending the RTS Tax Summit will equip you with the skills to do just that. You’ll learn from the best in the business, including industry legends like Floyd Shilanski, who have turned tax return analysis into an art form.

Avoiding Opportunity Costs

Missing out on the insights hidden in tax returns is like leaving money on the table. Rental properties, investment portfolios, retirement accounts—all these can be better managed and optimized when you have a clear picture of your client’s tax situation. By attending the Summit, you’ll gain the expertise to dig into those details and provide advice that goes beyond the surface level. You’ll learn how to identify when a property truly cash flows and when it’s more of a drain than an asset.

Bridging the Gap Between Tax Planning and Tax Advice

The line between tax planning and tax advice can be blurry, but it’s crucial to understand where you stand. The RTS Tax Summit will help you navigate this landscape, ensuring you’re equipped to offer valuable insights without overstepping regulatory boundaries. You’ll learn how to provide general strategies and education while knowing when to bring in a licensed tax professional.

Building Stronger Client Relationships

Clients are looking for advisors who are proactive, knowledgeable, and truly invested in their financial well-being. By enhancing your tax planning skills, you show clients that you’re not just another advisor but a crucial partner in their financial journey. This builds trust, loyalty, and long-term relationships.

Learning from the Best

At the RTS Tax Summit, you’ll have the chance to learn from experts who have mastered the integration of tax planning into financial advising. You’ll get hands-on experience, practical advice, and the opportunity to see live demonstrations. Plus, you’ll be surrounded by like-minded professionals who are all eager to elevate their practice.

The Bottom Line

Tax planning is not just an added service; it’s a cornerstone of comprehensive financial advice. By attending the RTS Tax Summit, you’ll gain the skills, knowledge, and confidence to make tax planning a central part of your practice. Don’t miss this opportunity to learn, grow, and enhance the value you provide to your clients. Register now and take the first step towards transforming your advisory practice.

Ready to take your practice to the next level? Register for the RTS Tax Summit today and unlock the full potential of tax planning. Your clients—and your future self—will thank you.