Why do you want to see my tax return?

by Joel Morrison, CFP®, CFS®

Why do you want a copy of my tax return? We get this question sometimes from existing and potential clients. It puzzles me. Why wouldn’t you want your financial planner to get a copy of your tax returns, the main financial document that you are required to submit annually? It’s like asking your doctor to provide you a diagnosis, but not letting them examine you.

So here is a list (not even close to comprehensive) of some reasons you should provide these to your financial advisor:

• Catching IRA/529 contributions that were not reported (perhaps you forgot to tell the CPA or TurboTax). This is one I caught today before I wrote this up, which is why it is first on the list!
• Monitoring capital gains and losses to help manage your portfolio in an intentional way, not accidently pushing you into a higher tax bracket.
• Advising on proper withholding for IRA distributions.
• Catching cost basis errors (we get a lot of these), especially when someone has passed away and there was a step up in basis.
• Suggesting charitable strategies like Qualified Charitable Distributions, or Donor Advised Funds, where they might make sense.
• Knowing if you are affected by AMT (Alternative Minimum Tax), in order to suggest ways to maximize the benefit of your itemized deductions.
• Incorporating rental property assets and income into your financial plan, since those are more illiquid assets.
• Looking at potential Roth IRA conversion strategies.

I’ll stop and catch my breath there. When your financial advisor asks to see your tax returns, they aren’t being nosy, they are being prudent.