Use Your Tax Return As A Strategic Planning Tool
Congratulations! You’ve just submitted your tax return. For many, filing taxes is an obligation they eagerly look forward to checking off their list. However, your tax return is more than just a document—it can be a powerful tool to help you achieve long-term financial goals.
Instead of filing away and forgetting your tax returns, view them as a chance to uncover spending patterns, recognize opportunities to save, and maximize possibilities in the years ahead. Here’s how to get started.
Where to Focus on Form 1040
1. Filing Status and Dependents
Why it matters: Your filing status (e.g., single, married filing jointly) affects your tax brackets and deductions. If your circumstances change—through marriage, divorce, or having children, for example—your filing status may need adjusting.
Actionable tip: Consider using education savings plans, like 529 accounts, for children hoping to attend college. If you support elderly parents, explore long-term care insurance or tax credits for caregiving expenses.
2. Income Sources (Wages, Dividends, and Interest)
Why it matters: Lines showing wages (Line 1), dividends (Line 3b), and interest income (Line 2b) reveal how much of your income is taxable and where it’s coming from.
Actionable tip: Maximize employer-sponsored retirement plans such as 401(k)s or IRAs to lower your taxable income. If you’re earning substantial interest or dividends, consider reallocating investments into tax-advantaged accounts like municipal bonds or Roth IRAs to reduce taxes.
3. Retirement Contributions and Distributions
Why it matters: Lines related to IRA contributions or distributions (Lines 4a–4b) provide clues about whether you’re saving enough for retirement or withdrawing money efficiently.
Actionable tip: If you’re not maxing out contributions to a traditional IRA, aim to catch up before the next tax deadline. For retirees, being strategic about IRA withdrawals can help avoid triggering higher taxes on Social Security benefits.
4. Refunds or Overpayments
Why it matters: A large refund (Line 34) is a likely sign you’ve been providing the government with an interest-free loan throughout the year.
Actionable tip: Adjust your withholding so more money stays in your paycheck. Use the extra cash flow to pay down debt or invest in savings.
5. Deductions and Credits
Why it matters: Itemized deductions on Schedule A of Form 1040 (e.g., mortgage interest, charitable contributions) and credits on Schedule 8812 (e.g., child tax credit) show where you’re saving—and where you might be missing opportunities.
Actionable tip: Bundle charitable donations within a single year if it potentially helps you exceed the standard deduction threshold. If you're planning renovations, explore energy-efficient home improvement credits.
4 Ways Your Tax Return Can Guide Planning:
Spot spending patterns. Analyze deductions for medical expenses or state taxes—these may highlight areas where budgeting adjustments are needed.
Plan for significant life events. Your tax return can provide a snapshot of what's ahead, whether it’s funding college tuition or preparing for retirement distributions.
Enhance investment strategies. Capital gains and losses (Schedule D of Form 1040) can help you evaluate your portfolio's tax efficiency. If needed, consider rebalancing your investments to reduce future liabilities.
Minimize future tax liabilities. Making Roth conversions in low-income years can lead to significant tax savings in the future. Likewise, postponing Social Security benefits while using other accounts can lower overall tax burdens.
Additional tips
Resist the urge to splurge if you receive a sizeable refund; instead, allocate the funds toward paying off high-interest debt or building an emergency fund. Tax situations vary and should be reviewed individually. A Bridger advisor can help you understand the complex aspects of your return, compare them with previous years to identify trends, and recommend strategies tailored to your goals.
Securities and investment advisory services offered through Hornor, Townsend & Kent, LLC. Registered Investment Adviser. Member FINRA/SIPC. 800-873-7637, www.htk.com. Bridger Financial Group and other listed entities are independent of HTK. HTK does not provide legal and tax advice. Always consult a qualified tax advisor regarding your personal tax situation and a qualified legal professional for your personal estate planning situation.7864410RG_Apr27