For the first time in seven years, this April I will not be personally preparing returns for clients. Without the countdowns for 1099s to be released, or the W-2 requests going out, I’ve refocused my attention. I’ve been thinking about the things that financial advisors can do to support tax preparation and make this season better for clients.

While some advisors may think that sending a 1099 to your client’s tax preparer is all that’s required, there are definitely some additional steps you can take to showcase your value. 

Before tax season is in full swing, here are a few tips for advisors to help clients (and their CPAs) be better prepared to file their returns. A great starting point is creating a memo that compiles all the tax pertinent details that happened over the last 12 months. Here are the main topics you should consider covering.

– Gains & Losses Report

We all know that the 1099-B form is what reports all the client’s gains/losses from their investment accounts. However, there are exceptions. While most investments may reflect the correct gain/loss, some inconsistencies may arise around the basis. If investments were transferred to the client ‘in kind’, have you confirmed that the basis details transferred to the custodian? Not every transfer and custodian is flawless, so if you didn’t buy the security, the basis needs to be confirmed. 

You can support the tax preparation process by taking an extra few minutes to review the 1099s forms for all accounts you manage and ensure the basis is being reported correctly. If not, you can catch it before the CPA does and avoid the crunch time stress. 

– Employee Stock Purchase Plan

If your client is participating in a company stock purchase plan, there may be some tax reporting that needs additional explanation. Hopefully, you were involved in the decision and execution, so you may know more than the tax preparer when it comes to the timing and cost of the positions. Include in your memo the date purchased and sold, the number of shares, and the prices that need to be reported.

– Stock Options

If your client exercised and sold stock options, don’t trust the 1099 form to be accurate! While the tax preparer can piece together most of the details based on the W-2 box 12V and the 1099-B, having the trade confirmations for any sale of stock is extremely valuable in order to take the loss on the trade fees. If they didn’t sell the shares, you can support the preparation by keeping a basis chart that tracks all the shares and details around the exercise for when the time comes to sell.

– Roth Conversions

While these may be more straightforward from a reporting standpoint, it’s so helpful to have the story outside of just Form 5498. Go ahead and add the Roth conversion details to the memo so the CPA has the timing, amounts, and account details to accurately report values and basis on Form 8606. 

– Donation of Stock

There are so many tax advantages when clients donate stock to charity, but they don’t count until reported! Form 8283 tracks the non-cash donations and the IRS wants all the details. Support their tax preparation by compiling all the relevant records: date of shares acquisition, how they were acquired (purchase, inherited, etc.), the basis, and the date it was donated. 

The donation amount is specifically calculated by taking the average of the high and the low of the stock on the date it leaves the client’s account. If you document these details at the time of the donation rather than waiting until tax filing time you will have been very helpful to the client and the tax preparer. It will make the process of taking credit for the donation smooth.

How the Memo Proves You (In)valuable

For advisors, the pre-tax season is a fantastic opportunity to provide a little extra value to your clients and their tax preparers. While it may seem redundant, the details and context you provide can help expedite the tax preparation process. Most importantly, they will help remind your clients just how essential you are to their financial lives!