Every year, it feels like tax season gets busier. This year's tax season will be no different considering the amount of "tax planning" activity that occurred in late December in response to the new tax laws for 2018.
To help, here are 10 important best practices for the upcoming tax time:
1. Know the Delivery Schedule
Your broker-dealer or custodian should be able tell you the delivery schedule of the tax reports for your client accounts. The type of investments in the account is a big factor that will influence how soon (or late) the tax report will be produced. If the tax report is significantly delayed, you should be able to learn which investments are holding up the final report.
2. Plan for Tax Report Revisions
Make sure you have a process in place that ensures you are alerted to an update as you want to be informed before your client receives the revised report. Also, determine how material the actual changes are and what needs to be done. Finally, consider any "downstream" effects the revision may have depending on the level of detail of the reports produced by your firm.
3. Utilize Aggregate Tax Reports
Due to the tremendous amount of data and details, make sure you are utilizing reports that aggregate the information for all your client accounts. This makes it much easier and efficient to identify potential outliers as well as provides a better "dashboard" of the information.
4. Determine Cost Basis Details
Each year, more investments are moved to the "reported" category for cost basis reporting, which means cost basis and proceeds details are sent to the IRS from your custodian. However, there may still be investments in the "non-reported" category, especially if they were purchased many years ago. Make sure it is clear to your client where they get the cost basis details and whether the particular investment has been reported to the IRS.
5. Review Investment Donations
When clients decide to donate securities to their favorite charity, it is always important to confirm the right tax lots were selected for the gift. This important detail can potentially be overlooked particularly during the year-end crunch time.
