The Free Financial Report Card in Your Tax Return

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Any one of us works on this thought clouding the back of our minds at any given time – are we doing well enough with our financial plans that we might one day get where we want to? Is the plan we use the best one possible for our children’s college fund, for our retirement? Are we somehow sadly out of the loop, and missing out on something great? If you always wanted magical expert insight into your financial life – an expert financial report card if you will that told you how well you were doing, wouldn’t you pay a lot for it? There is such a thing actually. And don’t be too surprised when I tell you, that it’s just your lowly tax return that’s going to do this for you.

What you needs to do, is you need to go through your tax return with a tooth comb; you need to know what questions to ask, and this could be half your battle won. Let’s start off with the investments you keep. On your 1040 form, look closely at lines 8 and 9 to see if you have more than $1500 in interest or dividends on schedule B. All the trades you made, you’ll see detailed on Schedule D; line 13 on the 1040 will show if you have net gains or losses. If there are only gains to be seen there, you aren’t exploiting your losses well enough. People don’t usually want to sell off the investments they are losing money on. They’ll wait indefinitely to see if things will get better. You need to sell those though; because a capital loss you show there could cancel out a capital gain, and make your profits tax-free. And also, the money you would get out of selling your loss-making stock, you could invest somewhere better. You actually save up to $3000 this way. How’s that for an informative financial report in your tax return?

Let’s look at your retirement savings; your main aim with your retirement savings should be to sock away as much as possible in a tax-deferred way. Your W-2 should tell you how much you have left in your 401(k) or other allowance. The income you see on line 7 on your 1040 is what you get after you’ve made your retirement contribution. State taxes in general are heading upwards. If you plan to head to another state for your retirement, you probably want to check for state taxes there. If you have two homes, you owe taxes in two states. And if you don’t have to pay an alternative minimum tax, you certainly do need to pay state taxes. Look at your tax return; if there is a deduction you are making for mortgage interest, consider if you would like to refinance. It may be a bit of a delicate matter to pull off, but what you gain could be well worth it. Your tax return does function well as a financial report this way, telling you where you could save a bit. Also, look to see if you would prefer to make your donations in appreciated securities. You’d make much better savings that way.

Look at your Schedule C; if you are filing your return in the capacity of a sole practitioner, consider if you’d get a better deal turning yourself into a limited liability company. You could even save money hiring family members, and paying them well. Moving your income to them makes them eligible for health plans too. Just think of you get all this information for free in your tax return; you’d have to pay for a financial report for this kind of information usually.


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