What Exactly Am I Looking For In the Tax Returns?

One of the standard practices for a CDFA® case is reviewing the tax returns. Are you a little confused as to what exactly you’re supposed to be looking for? I certainly was when I first started. The fact that I had done my own taxes for years, including when I owned a small business, was immensely helpful in weeding through the data. Let me give you just a few key areas to pay attention to.

First, make sure you actually see the year end W-2 and pay especially close attention to Box 12. All kinds of assets show up there that are often not disclosed. If there are ANY codes at all, look up the meaning online and be sure the attached asset has been disclosed.

Secondly, pay attention to the Schedule D, investment gains and losses. I often find out about investment accounts that I didn’t know about. Also, very important is any carry over loss balances. Those are worth real money and should be listed as a marital asset. Also make sure you know where any dividend income came from listed on Schedule B.

Third, is there a Schedule C indicating self-employment income? Are the deductions real or should some be backed out to get accurate income for one of the parties? How about rental properties that would be listed on Schedule E? Make sure you look at the expenses and report them LESS depreciation. Schedule E will also show flow-through income from S Corporations, royalties, or trusts.

Line 33 of the 1040 is for deducting Student Loan interest. Did you get the student loan balances?

Line 50 shows any contributions to retirement plans. Does it match what the clients reported to you as their contribution amount?

Once you review tax returns for a while, a lot of these things will jump right out at you but for now, having a checklist to review is not a bad idea at all.