We're going to be starting a new series of articles that have to do with the anatomy of a tax return. These will be at a fairly high level and meant to provide insight and fundamentals and not teach how to actually do your own return.
As most of you know I am both a CPA and a Financial Advisor and strongly believe that both a tax return and a proper financial plan require tax planning since the taxes you pay are one of the largest expenses you will pay in your lifetime of payments including your retirement years.
If your tax return preparer is only focusing on the current year tax return and not talking to you about longer term tax strategy ask them why not.
If your financial planner is not asking to see your annual tax return I encourage you to ask them why not and how are they helping you minimize your taxes.
If you are not comfortable with the answers from both the tax preparer and the financial planner consider other alternatives.
Many people look at the amount of tax they owe or the refund they get at April 15 and don’t dig deeper into how they got to that amount. The actual tax you owe in any given year could be far more than the result at April 15 and this series of upcoming articles on the various parts of a tax return and where you can control to some extent the tax you owe hopefully will prove helpful.
At its simplest, a tax return is nothing more than adding up income subject to tax, making adjustments to that income, calculating the tax owed on that total taxable income and then comparing that total tax owed to payments made during the year and the resulting shortage or overpayment of tax.
The individual steps may be simple or complicated depending on what's involved in your tax financial life for the year. But in essence, it's income, adjustments to income, calculate tax, compare tax owed against tax paid in and see what the result is.
In future articles, we'll dive into some of those parts hopefully in enough detail to help somebody be able to understand what they can do and sometimes when they can do it to control their income and by controlling income they can control the taxes that they owe at year end or control the amount that they might get back.
The information in this and other articles is intended to be educational in nature only. Not tax, legal or investment guidance for you specifically. Each person’s situation is unique and you must seek appropriate professional guidance that can address your unique situation.