Learn­ing From This Year’s Tax Re­turn


You sur­vived fil­ing your tax re­turn for 2015. But don’t rest. Now is the best time to re­view your re­turn so as to un­der­stand how you can take bet­ter ad­van­tage of cred­its and de­duc­tions when you file next year.

Too, the in­for­ma­tion on your re­turn can of­fer new in­sights into your fi­nan­cial sit­u­a­tion, help you iden­tify changes that could help save you money and make some de­ci­sion mak­ing eas­ier over the com­ing year. The Cal­i­for­nia So­ci­ety of CPAs (CalCPA.org) 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 when you don’t take ad­van­tage of the match­ing re­tire­ment ac­count con­tri­bu­tion pro­grams your em­ployer may of­fer, which match a per­cent­age of the dol­lars you put away in your re­tire­ment ac­count.

You also lose out on all the div­i­dends and in­ter­est that your re­tire­ment sav­ings can earn each year. And you put your fu­ture at risk when you fail to cre­ate a nest egg that you’ll be able to count on once you’re ready to stop work­ing. Ad­di­tion­ally, your re­tire­ment con­tri­bu­tions are typ­i­cally made with pre-tax dol­lars, and you won’t pay taxes un­til you de­cide to with­draw money. There­fore, any in­vest­ments are tax-free un­til with­drawal, which is some­thing to take ad­van­tage of.

You’re Keep­ing Too Much Money in Your Bank 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. That’s not sur­pris­ing, since sav­ings ac­count in­ter­est rates have been hov­er­ing well below 1 per­cent in many cases. If your in­ter­est dol­lars are low, you might want to con­sider mov­ing your sav­ings to another bank with bet­ter rates. As part of your re­search, be sure to check out on­line banks, which of­ten pay higher in­ter­est.

If your in­ter­est dol­lars are high, de­pend­ing on your short­and long-term goals and your risk tol­er­ance, it may also 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 as 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 May Not Be Keep­ing Track of Do­na­tions

Does your re­turn show that your char­i­ta­ble de­duc­tions were pretty sparse this year? Ac­cord­ing to In­ter­nal Rev­enue Ser­vice data, 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, be sure to doc­u­ment 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

Did your re­turn show you get­ting a sur­pris­ingly large re­fund this year? Con­grat­u­la­tions, but you may still want to re­view your with­hold­ing so that your money goes di­rectly into your pocket as you earn it and you don’t have to wait un­til tax time to get it back.

On the other hand, did you get hit with a penalty for un­der­pay­ment of taxes be­cause of in­suf­fi­cient with­hold­ing? Now is a good op­por­tu­nity to spot and cor­rect th­ese er­rors.

The Money Man­age­ment col­umns are a joint ef­fort of the AICPA and the Cal­i­for­nia So­ci­ety of CPAs as part of the pro­fes­sion’s na­tion­wide 360 De­grees of Fi­nan­cial Lit­er­acy pro­gram.

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