There are a lot of nuances to income taxes. Here are four ways to help you get a full picture of your client's income.

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Key Takeaway

When you understand a client's income sources, filing status, deductions and effective tax rate, you can identify strategies to help build better outcomes.

4 Key Things to Know About Your Client's Taxes

Select each item to learn how it factors into your client’s overall tax picture.

Filing Status

Filing Status

 

Tax rates and brackets can be impacted by filing status. You should be able to explain the differences between filing as single, head of household or married filing jointly/separately.

Sources of Income

Sources of Income

 

Look beyond a client's W-2 and your firm’s 1099. Consider all sources of income such as incentive compensation, real estate and assets held away.

Tax Deductions

Tax Deductions

 

Clients can choose a standard deduction (a fixed amount based on filing status) or itemize deductions (e.g., state and local taxes, mortgage interest, charitable giving).

Effective Tax Rate

Effective Tax Rate

 

The blended, effective tax rate is applied to your clients’ taxable income after deductions and represents their average tax rate. Prioritize it over the marginal tax rate, which is the highest tax bracket applied to the last dollar earned.

Next Step

Suggest an annual review of clients’ tax documents such as W-2s, Form 1040, 1099s and K-1s.

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Understanding the Effective Tax Rate

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Examples provided are for illustrative and informational purposes only and not intended to be reflective of results you can expect to achieve.

The Firm does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Tax laws are complex and subject to change. Investors should always consult their own legal or tax professionals for information concerning their individual situations.