An x-ray is a very helpful diagnostic tool for doctors. A patient may look healthy on the outside, but on the inside, something could be very wrong. An x-ray shows what’s under the surface, and that’s why it’s so valuable.

What an x-ray is to a doctor, a tax return is to a financial planner. Like an x-ray, the tax return shows what’s going on beneath the surface of someone’s financial life. It can reveal issues that someone is not even aware of, and it gives valuable information that will help determine where to go from here.

What a tax return tells us

When my team and I meet with a new client, one of the first things we do is look at their tax return. In addition to finding out how much they pay in taxes, tax returns show us how much a client’s investments are paying in dividends and if there’s been any other activity, such as sales that led to capital gains tax. Finally, tax returns show us how much they have given to charity.

Next: The diagnosis and treatment plan

First, a doctor reads the x-ray and diagnosis the problem. Then they come up with a treatment plan. The same is true for me with someone’s tax return. We may find a client paid too much because they didn’t take advantage of breaks that the IRS allows. That will be addressed for next year.

Another thing we may see is that income from investments is all being taxed and with some charitable planning, those taxes can be reduced. Financial tools like charitable gift annuities or trusts may be the perfect solution. That’s just one option, however; there are many.

What’s missing from the tax return

Like an x-ray, a tax return also has its limitations. It shows me in numbers the financial story of someone’s life, but it doesn’t show me other vital things that I need to know in order to help plan their financial future.

What are those vital things? They’re things the IRS doesn’t care about, but I do: what the family financial needs are, their wants, and what their vision is for life. Charitable giving is not a device for avoiding unnecessary taxes, it’s a way of supporting the people and causes they value most along with building their legacy. Only once that’s known does it make sense to make a detailed plan for the future. I’ve found that many financial professionals skip this step in the planning process, but my we consider it the foundation of a healthy financial plan.

What does your tax return reveal?

Most people are not trained to look at a tax return the way financial professionals are, and, understandably, they miss a lot of what’s under the surface. If you want to know what’s under the surface of your tax return, and what that means for your financial health and well-being, contact me for an assessment.