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Make Your Tax Return Work for You: Use it as a Financial Planning Roadmap

May 12, 2021

If you’ve already filed your taxes…congratulations! You can check one major “to-do” off your list for a while. Collecting and organizing all that information is time consuming and something we all dread every year – so why not make the most of it?

When you put everything together for your accountant (or for some of you brave people out there, to file yourself), you’re taking a look at your life in reverse; what you’ve spent, what you’ve saved, what you’ve invested, and where you could possibly do better. The good news is that by doing that…you’re able to use that information to plan better for the future.

Here’s how the information you’ve gathered can do double the work for you:

1099-DIV

This document shows dividends and capital gains. From this information you can answer the following questions:

  • Do you need income, or should those dividends be reinvested?
  • Are you paying too much in capital gains?
  • Do you need a strategy for selling investments or to find funds that have lower turnover of investments?

W2

  • Are you maxing out retirement contributions?
  • Do you even know how much you should be saving in a retirement account? (Come on, answer that honestly – do you?)
  • If you have a low tax burden, this is the perfect opportunity to look at pre-tax vs. after tax (traditional vs. Roth) contributions. This is also a good time to look at minimizing your taxes during the retirement/distribution phase.

Self Employed – 1099s

For my clients, the 1099 is where we start talking about their business structure; for example, are they a Sole Proprietor, LLC, or S-Corp? I find that some business owners aren’t always aware of all the retirement accounts available to them over and above an IRA. Things like Solo 401(k)s and SEP IRAs can help sock away a lot of money and make a client’s business much more attractive to potential employees. This is a great time to take a look at that.

Charitable Deductions

Many of us would love to be in a position to give back and some assume that will only happen after they’re gone. But looking at your tax return is a good time to answer these questions:

  • Would you benefit from gifting more during your lifetime vs. waiting until after you pass? 
  • Do you have many charitable deductions, and would a donor-advised fund be more appropriate?

The Big Picture

I’ve detailed some specific documents that can help you take a look at your current financial situation to see where improvements can be made, but this is also the perfect time to pull together your investment accounts and ensure they’re titled correctly and that your beneficiaries are in order. I realize this is not something many people like to think about, but in doing this your heirs can avoid major complications down the road – like assets ending up in probate. Many financial advisors work with estate planning attorneys as well who can advise you accordingly.

Another thing to keep in mind are all of the recent tax law changes, which can be addressed by a financial advisor as well. It’s important to stay informed throughout the year so you’re ready to file for 2021.

Ready to make your past documents work for your future planning? Let’s discuss your options! CLICK HERE to make an appointment.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

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Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through GPS Wealth Strategies Group LLC, a registered investment advisor. GPS Wealth Strategies Group LLC and Aspen Wealth Management are separate entities from LPL Financial.

The LPL Financial registered representative associated with this website may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.
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