What To Do After You File Your Tax Return

August 17, 2023 | David Edmisten, CFP®

Taxes are done, what's next?

You filed your tax return for last year by the deadline.  No more worrying about taxes now, right?

Not exactly.   Tax planning doesn't end with filing your tax return!

What does your tax return tell you?

It's important to take time to review your tax filing to see what opportunities are available to you.

Here are a few key areas to consider:

- Review your withholding

Did you owe taxes this year? If the amount you owe is more than you can easily pay, it may be worthing reviewing if you need to increase your withholding during the year. Increasing your withholding now can help you have less to pay at tax time next year.

Are you receiving a refund? It may be worth considering decreasing your withholding this year.

Although a tax refund can seem like a benefit, it means that the government held your money interest-free for the bulk of the year before returning it to you. Setting your withholding for a smaller refund means more take home pay that can boost your financial plan.

Contact your employer to review your W-4 and make necessary adjustments or review your quarterly estimated tax payments if you are already retired.

- Standard or itemized deductions?

Under current tax law, the majority of taxpayers end up claiming the standard deduction rather than itemized deductions. This may indeed be the best outcome in many cases.

However, it can be helpful to identify which deduction you took and what may change in the coming year.

If you expect to have higher outlays for home mortgage interest, out of pocket medical expenses or charitable giving, you may want to review whether itemizing deductions could be more advantageous for the coming year.

- Captial gains or losses?

Take time to review your realized capital gains and losses and qualified versus non-qualified dividend income for the year.

If you had large amounts of realized capital gains for the year, take time to review the source. Did you sell a lot of appreciated assets? Are you heavily invested in mutual funds that pay out large capital gains distributions at the end of the year? Were there frequent trades in your accounts?

If you had net realized losses during the year, do you have amounts that can be carried forward to 2023 to offset realized gains this year?

Comparing qualified and non-qualified dividend income is important as well. If you have high non-qualified dividend income, which is taxed at ordinary income rates, determine if some portfolio repositioning to securities that produce qualified income would help your tax situation.

- Review your tax returns with a financial planner

For our clients, Next Phase Financial Planning always requests copies of our clients' tax returns so we can proactively identify tax planning opportunities for the people that work with us.

Once you've reviewed your tax return, it's important to review your and your planners' observations to set a strategy for saving on taxes in the new year.

Find out if it may help your financial outcome to reposition your portfolio. If you have carry-over capital losses, can they be used strategically to offset gains this year? Would it make sense to consider using ETFs rather than mutual funds to limit year-end capital gains distributions?

Are there charitable giving strategies that can help you support worthy causes in a more tax-efficient manner?

What are your distribution plans for the next year? Your financial planner should be helping to discuss whether distributions from pre-tax, taxable or tax-free accounts make the most sense based on your tax situation and needs.

Roth conversions and other strategies may need to be considered to help you optimize your tax situation now and in the future.

Not getting tax planning with your current financial planner?

Schedule your call with us today!

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About the Author:

David Edmisten, CFP®, is the Founder of Next Phase Financial Planning, LLC, a financial advisor in Prescott, AZ. Next Phase Financial Planning provides retirement, investment and tax planning that helps corporate employees retire with both financial and lifestyle security.