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Reviewing Your Tax Return


Ah, winter is over and spring is officially here. I know this because tax season is over…for most of us. Those who filed extensions have some fun ahead of them.  I certainly do not enjoy tax season, except I get to differentiate myself from my peer group and continue to add value to my clients.  Let’s talk about how.

Easy question here – When was the last time your advisor asked to review your tax return?  You might even be thinking – “Um, well, never.”  At this time of the year I ask my clients to send along their tax returns so I can do a once-over of them.  Now, I am not a CPA and I do not even do my own tax return.  However, there are some key items your advisor should be looking for in your tax return that can improve your tax situation.  Because, as I have said too many times before – It isn’t what you make. It’s what you keep.

Here are a few things I am looking for on the good old 1040:

  • Lines 8a and 8b – If the federal marginal tax rate is 28% or higher I am looking to see if there are ways to reduce taxable interest.  Maybe municipal bonds instead of taxable bonds. Asset location is key too.  You know, put tax-inefficient asset classes in tax-deferred accounts.
  • Lines 15a and 15b – Here I am looking for RMDs (Required Minimum Distributions) and if a client needs all or any of it for cash flow. If not, doing a Charitable RMD may make sense to help keep the tax bill lower.
  • Line 25 – You know I love the HSA (Health Savings Account).  Triple crown of no taxes on contributions, no taxes on growth, and no taxes on qualified distributions. If you qualify for an HSA contribution, can handle a contribution to it, but are not funding, WHY?
  • Line 32 – Could a deductible IRA contribution have been made? If not, what about a Roth contribution? Or, even a backdoor Roth contribution?
  • Line 37 – Here I find your Adjusted Gross Income (AGI). Medicare surtax and Net Investment Income come into play here.  Reducing your AGI can yield a whole lot of benefits.
  • Line 75 – This is the amount you have overpaid your taxes. Now, I know many people prefer to get a refund, but if it is consistent every year and the amount is sizeable, why not adjust your withholdings or estimated tax payments so you get to enjoy your money now?
  • Line 63 – My favorite line - your total tax number. I’m sick, I know.  But, take this number and divide it by 12. This is what you are paying in federal taxes every month. Ughh...

There are lots of other key items I am looking for, but I cannot give away all my secrets😉 Regardless, you now have a few items you can review on your own tax return.  Feel free to ask your advisor what recommendations he/she has to improve your tax picture.  Maybe for the first time ever they will ask to see a copy of your tax return. But I don’t blame them. Most advisors only handle the investments and don’t do the comprehensive financial planning like I do. As part of your spring cleaning it may be time to rethink that 1% annual fee you are paying for just investment management.