Financial planning using a client's Form 1040.

• Author: Schulman, Michael David

By now, tax season is over. Clients have received their tax returns, praised their return preparers for getting them their refunds (or blamed them for a balance due), and are about to file their returns away. Perhaps the returns will be needed for a mortgage, a business loan, or a financial aid application. Other than that, they are likely to be ignored.

Many CPAs never follow up with their clients after tax season. They deliver the returns, send a bill, and say "see you next year" as they wave goodbye.

With the difficulties facing our economy, CPAs can provide valuable assistance to their clients by taking some time after busy season to use the tax return as a guide to helping their clients deal with the current economic difficulties. A tax return is an excellent point at which to begin the personal financial planning process. While clients might feel threatened if asked to complete a lengthy financial planning questionnaire, starting with an already prepared document is easier on the client and is a natural transition to financial planning.

This article discusses how to use the basic Form 1040, U.S. Individual Income Tax Return, and the associated Schedule A, Itemized Deductions, to begin the financial planning process. For clients who do not realize that their CPA provides financial planning services, it is a natural way to strengthen the relationship.

Using the Form 1040

The following are points to consider in reviewing Form 1040 for financial planning ideas. (1)

Filing Status (Lines 1-5)

If a client is using the "married filing separately" filing status because the marriage is dissolving, review his or her beneficiary designations to see if changes are necessary. For example, a client going through a divorce might want to remove her husband as beneficiary of a life insurance policy and name her children instead. Once the divorce is final, wills, trusts, powers of attorney, life insurance and annuity beneficiary designations, and other advance directives will all need to be reviewed.

Dependents (Lines 6a, 6b, and 6c)

Dependents are usually the client's children or parents. For dependent children, consider education planning and the need to fund future tuition costs. Ask whether clients have a will; they should have one that names a guardian for their children, even if they do not have a taxable estate.

If they have a dependent parent, ask similar questions about how they are paying for their parent's support. Does the parent need...