A Functional Checklist for Beginner Tax Advisors

While advisory might seem like the big boys corner with regards to the accounting profession, many “supposed” financial advisors lack the skill to be proper tax advisors. This may be attributed to the fact that most institutions of learning, fail to teach accounting students about the higher-level services.
In most cases, the firms who employ these fresh-out-of-school accountants have to tutor them on how to make a link between tax returns, the figures in the books and additional service offerings.

How about a Checklist?

As easy as it sounds, it is indeed an effective way to start. Just as young accounting interns in some CPA firms are usually given two checklists (AICPA and additional services checklists) alongside every tax return file. You can produce your own checklist to aid you through your period of “potentiality” with regards to your potential position as an advisor.

Perhaps you have come from an engineering background or worse, thus, the preparation of a similar checklist which you can use as a foundational checklist until you understand enough to make yours.

This checklist is structured in an IF, THEN format.

If the return has this:

• Low (or no) investment income
Check these boxes:

• Discuss extensively the need to save for rainy days or pitch the need for an emergency fund.
• Also endeavour to suggest a meeting with an investment advisor.

If the return meets these conditions:
• A steady source of self-employment income and little-no evidence of retirement plan

• W2 from any employer that does not indicate participation in company retirement plan

• No current year IRA contribution

Check these boxes:

• Discuss options for retirement plans as it relates to small businesses

• Suggest meeting a meeting with a good investment advisor with regards to retirement plan options.

• Ensure to broadly explain the power of compounding interest

If the return has this:

• Dependent offspring or grandchildren (any age)

Check these boxes:

• Make suggestions with regards to saving for college

• If the children meet certain age criteria, offer to assist with completing their FAFSA

• Bring up discussions with regards to education

• Chip in the benefits associated with bringing children to work in family business

If the return has this:
• Self-employment income from any source at all

Check these boxes:

• Discuss long-term plans for business in perennial pattern

• Broadly project the basic principles of business valuation

• Check if current business entity is correct

• Discuss the need for periodic meetings in a bid to ensure the actualisation of business strategic goals.
• Design a rough succession plan for business regardless of how young the owner might be.

If the return has this:
• Substantial gambling income

Check these boxes:

• Talk extensively about whether gambling activity rises to level of business for reporting on Schedule C

• Check to ensure that gambling is not an issue

If your client’s file does not contain any of these:

• The Name of a good investment advisor

• The Name of an attorney

• Any traces of estate plan or business succession plan

Check these boxes:

• Refer to attorney and/or investment advisor partners

• Talk about the benefits associated with planning a succession regardless of how young the owner is.

• Talk extensively on the long-term plans for business

If the return has this:
• Schedule C or other source of income that has generated losses more than three years out of previous five (five out of seven for horse business)

Check these boxes:

• Bring to client’s attention the hobby loss rules and the looming risk of IRS audit

• Further discuss methods of reducing costs and increasing revenues

If the return has this:

• Schedule C, Schedule E or any other business income and bookkeeping is of shoebox and spreadsheet variety

Check these boxes:

• Talk about the benefits of keeping good books

• Further expand on other options for helping client with bookkeeping

If the return has this:

• Substantial tax liability and no evidence of estimated tax payments or limited resources for payment

Check these boxes:

• Repeatedly emphasise the need to set aside funds for tax payments

• Recommend the book “Profit First by Mike Michalowicz” to client and follow up

If the return has this:

• S-corporation with distributions exceeding salary or no salary

Check this box:

• Talk about realistic compensation

If the return has this:

• Substantial self-employment income (the firm should define this) and no S-corp election

Check these boxes:

• Check to see if the current business entity type is appropriate.

• Discuss all the tax benefits of filing tax returns as an S-corporation

If the return has this:

• Employees

Check this box:

• Enlighten the client on the options for outsourcing payroll

Final Thoughts
This is a foundational checklist as mentioned earlier to help clients remain tax free and increase their wealth.
It is noteworthy to clear up a popular belief among clients who feel that a financial expert is one who will clean the slate whenever it is messed up.

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