{"id":99,"date":"2010-04-27T17:45:00","date_gmt":"2010-04-27T17:45:00","guid":{"rendered":"http:\/\/stevendevtest.wordpress.com\/2010\/04\/27\/what-our-tax-return-can-teach-us"},"modified":"2010-04-27T17:45:00","modified_gmt":"2010-04-27T17:45:00","slug":"what-our-tax-return-can-teach-us","status":"publish","type":"post","link":"https:\/\/vhfinancialmanagement.com\/2010\/04\/27\/what-our-tax-return-can-teach-us","title":{"rendered":"What Our Tax Return Can Teach Us!"},"content":{"rendered":"
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Tax season is behind us, and it\u2019s time to move ahead with 2010. But we need to take a minute or two more with our 2009 return before we send it off into the black hole of all things stored. We can learn a great deal about the current year by reviewing last year\u2019s return. This is one reason why I strive for all my clients to file timely (by April 15th). <\/p>\n

First, look is at the bottom of your return. Did you have a balance due, or did you receive a refund? This will illustrate how well you planned. If you overshot the runway in either direction, a change may be needed. The easiest way to make this change, for most people, is by changing your W-4. This document tells your employer how much to withhold from your paycheck every pay period. If you are not an employee, but own your own business or work as contract labor, the change needs to come through quarterly estimated tax payments. Remember a large refund is not a high-five-your spouse experience. You just gave the government an interest free loan! Underfunding your tax liability and generating an underpayment penalty is not the answer either. I generally like to see clients get less than $1000 back at tax time. Anymore than that is just too much\u2026.but there are always exceptions. <\/p>\n

If you had an event in 2009 that will not occur in 2010, but you received a taxable benefit in 2009, you should make appropriate adjustments. Did you buy a car in 2009 and utilize the sales tax deduction? That may have saved you several hundred dollars or more in taxes. Unless you buy another car in 2010, that deduction will disappear. Did you have a college age child graduate or finish college. If so, you probably received some tax deduction. That tax savings will not be there in 2010 if you don\u2019t have a child in college. Be sure to understand where your refund or balance due came from. <\/p>\n

Some of this may sound a bit confusing, or maybe you don\u2019t care to understand the tax code. I\u2019m not suggesting you become a tax expert, but I am simply stating that it is important to understand, at least from the big picture view, your tax return. Your preparer needs to understand the details, but it\u2019s your job to understand how the details affect you. If you don\u2019t, you could be dinged. If it\u2019s confusing, ask your preparer for a little explanation. <\/p>\n

The next question to ask yourself is did you fund your retirement? Remember that most retirement contributions will reduce your taxable income, which means it saves you tax dollars. Taxes are the single largest recurring expense for most people, so we should do our best to manage that expense. If we contribute to our retirement and reduce our taxable income, an amazing thing happens\u2026.we create leverage. For example, a couple in the 25% tax bracket making a $10k 401k contribution will save a minimum of $2500 in taxes. That\u2019s a 25% return on investment before the money is ever invested in the market. Let\u2019s take it a step further. If that couple then plans accordingly and puts the $2500 tax savings into their 401k, another $625 tax savings is generated. It creates a positive snowball effect! <\/p>\n

Take some time and learn where your tax savings are generated. Look for the areas that create a tax liability. Speak with your preparer to seek methods to maximize your tax savings and minimize liabilities. Taking a proactive approach to managing your taxes can set the stage for financial freedom. Reviewing your 2009 return and learning from your tax successes and failures can help plan accordingly for a successful 2010.<\/p>\n

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