Clues to Uncover Client Assets: Accounting Partners and the Form 1040
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Clues to Uncover Client Assets: Accounting Partners and the Form 1040

Putting clients’ best interests first is no longer relegated to certain designations of financial professionals. With the passage of the Regulation Best Interest (‘Reg B.I.’), nearly every FINRA-licensed professional has the mandate to operate in clients’ best interests and helping them make tax-efficient decisions is one way to do just that.

Although clients pay attention to balanced, diversified portfolios with strong returns, it’s the generated income taken home after taxes they care about most. A tax-smart approach to financial planning and investment management delivers greater value to your clients. As a financial professional, it gives you a competitive advantage and produces tangible benefits for the households and businesses you serve. As a curious and conversational partner, you can help clients minimize tax liabilities – and uncover new assets – using these six clues.

Build Relationships with Clients’ Accountants

Certified public accountants and enrolled agents are some of the most trusted and valuable partners for our own business – and they are for our clients, too. Strong relationships with accountants not only provide an important referral source for financial advisors but also enable us to serve clients better. Although you might not prepare a return or deliver tax advice, I encourage you to facilitate joint meetings with a client’s accountant or ask to review their tax forms, primarily their IRS Form 1040.

Use Line 2b on Form 1040 to Discover Outside Accounts

Line 2b outlines taxable interest. If the interest is higher than what you reported on the client’s 1099 and if the amount is significant, it indicates assets not under your management. Although a 1040 won’t reveal the account size, you can estimate its value based on interest earned and from where it was paid – which the client and his or her accountant should know. Also, ask if the interest is from six-month liquidity funds for emergencies. This account might be over-funded with assets not invested for optimal returns. A simple equation can be used to forecast balances on the amount of liquid money bearing interest. In this environment of laddered CDs and money markets, let’s infer rates to be approximately 1% returns or less.


  • Simply take the amount of interest and divide it by the inferred rate of return of 1%.
  • If Line 2b Taxable Interest is $5,000 dollars, what is that 1% of?

- $5,000 divided by 1% return on assets (.01) = $500,000 potential account
- Similarly, if Line 2b Taxable interest is $2,500, take $2,500 divided by 1% (.01) = $250,000 potential account

This discussion can uncover excess cash not being used to its full potential and depending on your client’s goals (protection from marketing volatility, guaranteed rate of return, etc.), you can recommend alternative solutions that might afford tax benefits and greater returns.

Find Potential High-income Households on Line 3a

Based on qualified dividend indicators, you could infer equity income or other invested assets not under your management. Stock and preferred stock portfolios could be uncovered at these 2020 qualified dividend levels:


  • 0% – Less than $40,000 income for single filers, $80,000 for married filing jointly or less than $53,600 for heads of household.
  • 15% – Income up to $441,449 for single filers, $469,049 for heads of household or $496,599 for married filing jointly.
  • 20% – Incomes in exceed of the 15% thresholds noted above for each taxpayer.

Highlight Opportunities for Portfolio Efficiency in Line 7

Line 7 reveals long- and short-term capital gains and can identify whether the clients is being subjected to unnecessary taxes in their net-worth accumulation phases. You can be an asset in determining greater portfolio efficiency to minimize these taxes. Short-term gains are taxed at the highest marginal rates and are subject to state taxes. Ultra-high-income earners will also be affected by the alternative minimum tax (AMT) for short-term gains. Long-term gains are taxed up to 23.8% and subject to state income taxes and AMT for ultra-high-income earners.

Identify a Career Change on Schedule 3 Line 10

Excess Social Security can point to a career move in a client’s life. When leaving one job to take another, earned income from the two employers can exceed the Social Security contributions – the limit for which is $142,800 in 2021 – and might indicate possible retirement plan rollover.

Social Security is not cumulative between jobs, and each employer taxes at their own payroll. If a client pays above the annual limit, he or she will be due a refund.

Evaluate Aasset Allocation Based on Schedule B Lines 1 & 5

Interest and ordinary dividends on lines 1 and 5 simply help highlight where portfolio income is generated – often from a security account. It’s always wise to request clients’ existing brokerage statements so you can review asset allocation and recommend effective financial strategies.

Building relationships with tax professionals and getting familiar with opportunities on the Form 1040 only serves to benefit your clients. It helps optimize tax efficiency, enhance portfolio opportunities and makes you an invaluable asset to clients and partners alike.

Wayne Anderman CFP® MBA is the founder of Anderman Wealth Partners, based in the Greater Fort Lauderdale Area, and a registered representative of Avantax Investment Services. Member FINRA, SIPC. Investment advisory services offered through Avantax Advisory Services.