Advisor's Bulletin March 2026 - Using the 2025 Tax Return to Spotlight Financial Security Needs

USING THE 2025 INDIVIDUAL INCOME TAX RETURN TO SPOTLIGHT FINANCIAL SECURITY NEEDS

Introduction

Financial professionals’ single most important task is to help clients identify and solve their financial security needs and objectives. What tool is more appropriate for identifying and emphasizing the urgency and significance of solving those problems than the IRS Form 1040?   

Income taxes are on everyone’s mind. With the April 15 due date for individuals’ 2025 tax returns being imminent, almost everyone is thinking: What can I do so I will not have to pay so much tax in 2026?

Now’s the time to ask clients or prospects for a copy of their 2025 IRS Form 1040. The completed form and schedules offer a wealth of information that can lead to life insurance, estate, and employee benefit planning opportunities.  

Your examination of a client’s income tax return may point out education funding inefficiencies, exposures that can be covered by life, health, disability, or long-term care insurance, retirement planning gaps, and estate conservation needs.  

To help guide you through the process of mining the tax return for important information, we’ve developed a planning checklist to be used as a tool as you review the return with your client. The checklist questions are contained in the boxes on the pages that follow.  

For the purpose of the checklist, references are made to Form 1040 and its schedules A, B, and C. Our best clients and prospects are likely to file Form 1040, which we have reproduced in the appendix for reference. A significant number of those clients are likely to have key information on one or more of the schedules. Most of the checklist principles can also be applied to Form 1040 SR for those seniors who choose to use that federal tax filing form.

Form 1040 and Its Schedules

The top of the front of Form 1040 includes areas to fill in personal information.

Label Area

The taxpayer is asked to include the taxpayer’s name and address and provide the Social Security number of taxpayer and spouse. 

1. When was the last time your Social Security benefits were confirmed in writing? If not recent, verify benefits online at gov/reviewyourstatement.
2. Is this a new address for you? If yes, then:
   1. Did you check to see if you have enough property and casualty insurance in your new home?
   2. Is the deductible mortgage interest and real estate tax expenses at your new address sizable enough to
      1. Change from standard deduction to itemized deductions?
      2. Change withholding amounts for wages?
   3. If you also switched employers, have you extended your medical insurance coverage under COBRA?
   4. Did you sell your prior residence? If yes, then:
      1. Do you qualify for the principal residence capital gains exclusion?
      2. Are any capital gains taxable?
      3. How have you invested the proceeds?
   5. Are you holding a prior home as an investment?
   6. Is there adequate life insurance to pay off any debt on your real estate holdings?
   7. Have you updated your will and other state-sensitive documents?

Filing Status

Here, the taxpayer must state whether the taxpayer is single, married, head of household, or widow or widower.

1. Are you single or widowed? If so:
   1. You are not entitled to an estate tax marital deduction at death, so if net worth is substantial, plans should be made.
   2. How will you pay your bills if you become disabled?
   3. Are you likely to get married? If so, review retirement plans, estate plans, and beneficiary designation
2. Are you married? If so:
   1. Is your spouse a U.S. citizen? If not, the federal estate unlimited marital deduction will not be available.
   2. If the marriage is not stable or has ended during the year, check estate planning documents and all beneficiary designations.
   3. Is either spouse liability prone? If so, consider retitling assets to protect the high-risk spouse’s property.
   4. If filing separately, consider changing to jointly to maximize eligibility for deductible IRA contributions.

Digital Assets

1. Ask if the client holds any digital assets, even if the transaction box is checked no.
   1. The value of digital assets and their potential transfer at death should be part of the client’s estate plan.
   2. Information about access to digital assets should be shared with trusted family members.
2. If the digital asset transaction box is checked yes, then
   1. Consider the capital gains or income tax effect of the transaction in the future.
   2. Discuss long-term plans for digital assets in the investment portfolio.

Dependents

The taxpayer lists those who depend on the taxpayer’s financial support for food, clothing, shelter, and education. This listing will alert the planner as to whom the client is responsible for—especially young children—and will set the stage for educational and insurance planning. Be sure to consider Section 529 plans and other tax-advantaged college savings programs. Also, some clients may be taking care of elderly parents and can potentially deduct their medical expenses. For those situations, evaluate whether proper estate planning provisions are being made in case something happens to the caregiver.

1. How old are your children?
2. How much are you setting aside each month to send your children to college? What means are you using for such savings?
3. Would your surviving spouse and children have enough monthly income if you died tomorrow?
4. What income-splitting devices are you using to shift income to your children’s lower bracket?
5. Are there cost-effective ways you should consider to provide financial security or pay the education expenses for your children?
6. Do you have working-age children? If so, are they working in your business? If so:
   1. Have your children contributed to a traditional or Roth IRA?
   2. Are there any business income-shifting techniques that might be appropriate using your children?
7. Apart from your children, do you have other dependents? What have you done to protect them if you die?
8. Do you have up-to-date wills, durable powers of attorney, and living trusts to protect your dependents if something happens to you?
9. Are your IRA, life insurance, and pension beneficiary designations up-to-date and consistent with your estate planning documents? How recently have you checked?

Income—Lines 1 to 9

Wages, interest earned, dividends, business income, alimony received, and other sources of income are shown here. Wages indicate the level of retirement and employee benefits the taxpayer has and help to indicate his or her insurance and estate liquidity needs. Wages can also raise estate, employee benefit, and financial planning issues. Finally, the level of wages for a nonowner employee can help identify whether the employee is key to a business.

1. When will you retire? Are your investments adequate to support retirement?
2. Will your family continue to have enough income if you retire or become disabled?
3. Is your family's lifestyle dependent on both spouses working?
4. Is your liquid taxable investment pool large enough for an emergency or opportunity?
5. Are you receiving Social Security benefits (line 6a)? If so, have you considered techniques, such as purchasing a deferred annuity or permanent life insurance, to reduce exposure to taxation on your benefits?
6. If you are 63 or older, have you considered tax-management techniques designed to keep Medicare Part B premiums low?
7. High income is an indicator of wealth (line 9). Have you checked your potential estate-tax liability?
8. Do you expect any changes to income in the next few years?
9. Are you using 401(k) or other tax-deferral techniques to decrease your taxable income?
10. Have you checked to see if tax-free or tax-deferred investments make sense for you?
11. Your W-2 indicates a retirement plan. Are you maximizing your contributions and deferrals?
12. Did you receive any IRA distributions (line 4), or are you planning on taking any in the near future? If you are charitably inclined and are age 70 or older, have you considered QCDs—if eligible?

Adjustments to Income—Line 10 and Schedule 1

The taxpayers list the IRA deductions, HSA deductions, health insurance deductions, student loan interest, pension (including SEP or SIMPLE), and alimony deductions on Schedule 1, summarizing them on line 8 of Form 1040.

1. Are you an owner of a closely held business? If so:
   1. Have you set up a SEP-IRA or other pension plan?
   2. Have you considered incorporating or forming an LLC to reduce your business liability exposure?
   3. Do you pay for health insurance from your business?
2. Did you receive alimony? If so, what kinds of protections do you have in place with respect to the remaining payments?
3. What are your loan repayment financial obligations? What provisions have you made for them for yourself and for your family in the future?

Standard Deduction Questions—Line 12

The questions in this section help determine the amount of the standard deduction available to the taxpayer. For those who check the box that they are 65 or older, the following questions are relevant:

1. Have you signed up for Medicare? If so:
   1. Have all Medicare supplement options been considered?
   2. Have HSA contributions been discontinued?
   3. Have tax management strategies to reduce future Part B premiums been considered?
2. Have Social Security claiming and tax management strategies been considered and implemented?
3. Can you reduce income taxes by choosing to itemize rather than claiming the standard deduction? Should deductible-expense bunching strategies be considered for future tax years?

Above-the-Line Tax Deductions—Line 13

This is the section where the taxpayer calculates taxable income. 

1. Even if you do not itemize, have you made deductible contributions of cash to any charitable organization? Such contributions are not tax-deductible for nonitemizers in 2025, but there is a limited above-the-line deduction for 2026.
2. If you own a business, is the qualified business income (QBI) deduction available to you? Does it make sense to consider strategies that might maximize QBI?

Credits and Payments—Lines 19 to 33

In this section, the taxpayer lists the tax credits available, in addition to reporting tax deposits the client may have made during the course of the year.

1. If the child tax credit or the adoption credit has been claimed (lines 19 and 30), would you be able to continue to care for a young or special-needs child if you become disabled or die?
2. Should payroll tax withholding be adjusted for 2026? Remember that over-withholding is like making an interest free loan to the IRS, and under-withholding may cause the IRS to impose an extra penalty.
3. Should quarterly tax deposits be made for 2026?

Refund or Amount You Owe—Lines 34 to 38

This is the moment of reckoning. The taxpayer either overpaid taxes and will receive a refund or underpaid and will owe taxes and perhaps pay a penalty. If the taxpayer is extremely lucky, the tax prepayments were just right.

A refund might be used to begin an education or retirement plan, to purchase life insurance or protect the taxpayer’s income through disability income insurance. If the taxpayer receives a large overpayment, it may indicate the need to confer with his or her CPA regarding a reduction in withholding and use those freed-up monthly dollars to meet financial planning goals.

1. Have you budgeted enough money to pay your taxes?
2. How have you planned to invest your refund?

Third-Party Designee

Check on the client’s relationship with the taxpayer’s tax preparer. Determine whether to engage the tax professional in a client-centric conversation or to recommend a potential new tax advisor.

Signature Area

1. Do you know if your occupation (e.g., surgeon) indicates the need for special disability coverage?
2. Do you know whether your occupation (e.g., contractor) requires special liability insurance coverage?

In the signature area, the taxpayer and spouse list their occupations.

Schedule A

This schedule—a blank copy of which is in the appendix—shows the taxpayer’s itemized deductions. 

1. Do you have adequate medical insurance?
2. Are all of your dependents adequately covered by medical insurance?
3. Have you looked into postretirement health-care coverage?
4. Do you have a “fund” to cover medical costs that are not covered by insurance?
5. Have you considered long-term care insurance for yourself, spouse, or for parents?
6. Have you considered buying a home rather than renting (line 8)?
7. Do you have any out-of-state property that might create probate issues for your heirs (line 8)?
8. Do you have adequate insurance coverage—life, disability and property—to cover the mortgage on a first home (line 8)?
9. Have you considered accelerating your mortgage payments (line 8)?
10. Did you refinance your home mortgage? Would refinancing now make sense (line 8)?
11. Would you be interested in “leveraging” your charitable gifts (lines 11–12)?
12. Are you interested in making charitable gifts through payroll deduction (lines 11–12)?
13. What do you know about charitable remainder trusts and what they can do for you as well as the charity you want to benefit (lines 11–12)?
14. Do you know how charitable lead trusts work (lines 11–12)?
15. Have you considered gifts of appreciated property (lines 11–12)? How about gifts of life insurance?

Schedule B

This schedule shows details about the taxpayer’s interest and dividend income. The types and levels of investments, as indicated by a taxpayer's interest or dividend income, can provide information on risk tolerance, asset diversification, financial sophistication, and the degree to which the taxpayer’s portfolio has been protected from inflation. It may indicate the need to reposition assets to achieve more tax-exemption, tax-deferral, long-term growth, higher income, or better creditor protection.

1. Are you earning adequate interest in your checking account?
2. Do you have enough cash for all potential needs?
3. Are you earning the highest reasonable return on investments?
4. Should some of your money be invested in tax-free or tax-deferred investments?
5. Is your investment portfolio adequate to meet your long-term objectives?
6. Is your portfolio properly diversified?
7. Do you worry about the investment risk you are taking?
8. Is your portfolio too conservative?
9. Have you considered repositioning some cash into mutual funds to increase safety?
10. Have you properly timed mutual fund purchases to avoid immediate taxable distributions?
11. Are your assets divided up in a way that will minimize federal estate taxes?

Schedule C

This form is where the taxpayer lists profit or loss from a sole proprietorship. Profit and loss from partnerships and joint ventures would be shown on Form 1065, with any pass-through income tax

results reported on an individual Form K-1. You should discuss such issues as legal liability and double taxation with respect to possible asset protection moves, and the appropriateness of an alternative form of business.

1. Have you considered trying to manage income by using a corporation or other business entity?
2. Could incorporation (or forming an LLC) provide you with better creditor protection and lower tax exposure?
3. Have you considered employing a dependent in your business?
4. When did you last check the adequacy of insurance on your business property?
5. Will your business die when you die?
6. Will your disability cripple the business?
7. Are you making the maximum contributions to your company’s retirement plan?
8. Are you on track in funding your retirement income?
9. Are you using a SIMPLE, SEP, or other pension plan for retirement?
10. Have you looked into ways to reduce your self-employment tax?

More to Consider

Here are some additional tax-related questions to ask and documents to request:

1. Has the client ever filed any gift tax returns? If so, it’s evidence of wealth and possible estate planning exposures. If not, and if the client has estate planning worries, it may be an opportunity to encourage the client to use the lifetime gift tax exemption. 

2. Is the client making annual exclusion gifts (currently $19,000 per donor per donee in 2026) to family members? If so, it indicates wealth and estate planning exposures that should be reviewed. 

3. Ask to see personal state and local tax returns. These forms may reveal locality-specific tax planning opportunities, much as Form 1040 does. 

4. Ask to see business tax returns and financial records. These forms may reveal planning opportunities as well. 

5. Ask to see estate planning documents and all beneficiary designation records. These forms can be reviewed for their tax effectiveness, as well as ensuring that they match the client’s current wealth distribution intentions.

Conclusion

 While Form 1040 is only one of many documents that should be reviewed during the data gathering process, the information in it is vital to the financial planning and life insurance professionals.   

The tax return can directly reveal opportunities related to:

• Income tax savings,
• Investment diversification,
• Income management related to business, and
• A client’s charitable giving profile.

The information on the tax form can also start conversations about:

• Family financial and insurance needs,
• Estate tax management,
• Probate,
• Wealth transfer intentions, and
• Business continuation.

In April of each year, most of our clients and prospects are preparing their income tax returns. Why not take advantage of the fact that taxes are on their minds to help them plan for the future? 

Pick up a copy of their forms and begin the planning conversation.