Get the Secret to Reading, and Learning from, Your Tax Return

Apr 11, 2016

MoneyLife100Did you know that analyzing your tax return can offer many advantages? It may not seem that way when you’re scrambling to finish it before the filing deadline, but the information on your return offers insight into your financial situation. It can help you identify changes that could save you money, and point you toward financially sound decisions for the coming year. The Pennsylvania Institute of Certified Public Accountants highlights some of the wake-up calls you might find on your return.

You Missed Out on Tax-Advantaged Retirement Savings

If your return shows that you set aside very little—or nothing at all—in your retirement account last year, you could be losing money and putting your future at risk. You lose out on free money if you don’t take full advantage of any retirement account contribution matching program your employer may offer. You will also lose out on all the dividends and interest that your retirement savings could have earned each year, putting your future at risk if you fail to create a nest egg that you’ll be able to count on once you’re ready to stop working. Additionally, retirement contributions are typically made with pretax dollars, so any investments are tax-free until withdrawal, which is something to take advantage of.

You Keep Too Much Money in Your Savings Account

If you earned less than $10 in interest on your interest-bearing bank accounts last year, the bank is not required to report it, so that section of your return may be blank. It would not be surprising. Many savings account interest rates have been hovering well below 1 percent for some time. If your interest dollars are low, you might want to consider moving your savings to another bank with better rates. If your interest dollars are high, depending on your short- and long-term goals and your risk tolerance, it may be time to move some of your savings into investments that offer a better yield. When doing research on different banks, make sure to check and see if there are any fees associated with the account, such a minimum balance or multiple transfers per month.

You May Need a Better Mix of Investments

When you listed your interest and dividends on your return, did you notice that a high percentage of your investment dollars (say 10 percent or more) were invested in one security? Every situation is different, but a diversified investment portfolio can help protect you against losses related to any one company or industry. Take the time to review your investments and consider whether a broader mix is called for based on your age, income, family situation, and other factors.

You Need to Keep Better Track of Donations

Does your return show that your charitable deductions were pretty sparse this year? According to the IRS, the average taxpayer who itemized deductions and had adjusted gross income between $50,000 and $100,000 gave around $3,000 to charity in 2015. If you think that some of your contributions have been forgotten in the past, get into the habit of documenting donations as you go along and get receipts to help you keep track of what you give. You may be surprised by what you’ll be able to deduct next year!

You’re Having Too Much (or Too Little) Withheld

Does your return show you will get a surprisingly large refund this year? Congratulations, but you may want to review your withholding. Have your money go directly into your pocket as you earn it. Don’t wait until tax time to get it back. On the other hand, did you get hit with a penalty for underpayment of taxes?  Avoid future fees by adjusting your withholding or by paying quarterly tax estimates. Tax filing time is a good opportunity to spot and correct these errors.

Your CPA Can Help

Need help decoding some of the mysteries of your tax return? Or are you seeking personalized tax or other financial planning advice? Be sure to turn to your local CPA. He or she can offer expert guidance that will help address all your financial questions. Don’t have a CPA? Friends and family are a good resource for finding a trusted adviser. You can also visit to access the free CPA locator tool.
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