HOW WELL DID YOU REVIEW YOUR TAX RETURN?
There is much value in reviewing your tax returns after you file. The earlier you do so increases the opportunity to achieve a better outcome next tax year.
Now that you have filed your tax returns, you ended up in one of three categories:
- You took in a nice size refund
- You barely broke even – nothing owed and little or nothing refunded
- Worse case of all three scenarios, you resulted in owing taxes.
If you used a reliable tax professional, in addition to preparing your tax returns, they oftentimes offer advisory services. Access to valuable tax-planning strategies is closer than you think. There is much to learn from the completed tax returns. It will reveal whether or not you have paid sufficient or too much taxes throughout the year.
If you took a poll asking how many tax-filers review their tax returns after they file, the response may surprise you. The tendency to skip the review is most common among filers who receive a refund. Additionally, there is, oftentimes, heavy reliance on the trust built when the same provider is used every year.
WHAT CAN YOU LEARN FROM YOUR FILED TAX RETURN?
- Withholdings: Having sufficient taxes withheld for your filing status during the tax year is key. A contributing factor is the accuracy of your Form W-4. When incorrectly filled out, it will also result in underpayment of withholdings. For high-income earners, consider adjusting the exemptions you are claiming. (Single zero, for example)
- Self-Employment and the Gig Economy: Take a look at your Schedule C for instance and do an analysis to see if you maximized your deductions. Good bookkeeping is of great importance when you operate a business. Entrepreneurs including those who work in the ‘gig economy most likely need to make quarterly estimated tax payments.
- Pre-tax Contributions: If your employer offers tax-deferred benefits, did you opt in or contribute sufficient to lower your taxes? Passing up on these or just contributing the bare minimum will not result in enough tax savings. Plans such as flex spending accounts (FSA), health savings accounts (HSA) or retirement accounts, (401k, 403b, 457) yields huge tax deductions
- 529 Education Plan: Although there is no tax deduction on the federal return, there is on the state return. Contributing to the education of a child or relative is a great way to accomplish two purposes. The student gets tax-free dollars when spent on qualified educational expenses and you get a nice tax deduction.
These are just some of key areas to cover and consider during the review with your tax advisor. There are some specific strategies to be applied to your unique situation as you plan. The IRS make changes yearly to the standard deduction and the tax rates; therefore, your tax-planning should incorporate all of that.
If you prepare your own tax returns, it is still recommended that you consult a tax expert for a review. Enrolled Agents, Certified Financial Planners (CPPs) and Certified Public Accountants (CPAs) are among the list of professionals to consult. They are most qualified to provide you with optimal tax-planning advice.
The goal of the tax return analysis, is to evaluate all elements of your tax situation. This will ensure that you are not paying more taxes than you should. Review and ask questions on areas you need more clarity on. Early and wise tax-planning can yield to greater benefits overall.
As an Enrolled Agent, I help individuals and business owners to resolve their tax issues with the IRS. From assisting with the filing of back taxes to negotiating the best tax resolution option for your situation, I will deal with the IRS on your behalf.
