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What You Can Learn From Your Tax Return

Find money-saving tricks from your tax return

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AARP (Source: IRS, Getty Images)

If you’re like most American taxpayers, by now you’ve likely filled out your 1040 tax form, held your nose and submitted your tax return with one thought in mind: good riddance.

But instead of simply holding your nose, maybe it’s time to hold that thought and dig a bit deeper.

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After all, your 1040 tax return is a lot more than your tax payment to Uncle Sam. It’s also a unique mirror into your personal finances. Few Americans have the emotional wherewithal to look closely into that mirror and learn from it. But your 2023 tax return gives you a special opportunity that could vastly improve the way you handle your personal finances into 2024 — and beyond.

“I had a client once tell me that every time he came to a meeting with me, he was reminded of when he went to the dentist for root canal,” says Marianela Collado, a certified public accountant and member of the personal financial planning committee of the American Institute of Certified Public Accountants (AICPA). "The value doesn’t come from the process but from reflecting on what the results are telling you.”

AARP reached out to AICPA, which provided three CPAs who are accustomed to dealing with the many complexities of tax returns. These three CPAs — two of whom are trade group executives and one of whom practices from Honolulu — helped to assemble this listing of the Top 10 things that you can learn from your completed tax return.

1. Your wages don’t all have to be taxed

When you look at your total taxable wages, that’s an opportunity to ask yourself, Am I taking advantage of all the benefits of my employer’s 401(k) plan and flexible spending account? says Collado.  What’s more, she adds, are you also taking advantage of your maximum IRA contributions annually that can further boost your retirement nest egg?  Or perhaps you have children with dependent care expenses? 

“Any opportunity to take your wages and chip away at them through this kind of low-hanging fruit that your company offers is a no-brainer,” she says.

2. Avoid large overpayments or underpayments

If you’ve made large overpayments and expect to get lots of money back, that’s not a good thing. You probably could use the extra money during the year, rather than sending to the Internal Revenue Service (IRS). “All that says is that you’ve given an interest-free loan for one year to the federal government,” she says. “You could have been earning 5 percent on that money in a money market fund.”

Underpayments are a bad idea, too. If you owe a lot of money — perhaps even with penalty charges — that’s a signal to proactively file a new W4 form and readjust your withholding, says Collado.

3. Get more bang for charitable contributions

Since most taxpayers no longer itemize, some have had to cut back on — or even stopped making — charitable contributions. But instead of eliminating these contributions, there are ways to “time” them better so you can also earn a possible tax benefit when you itemize, says Henry Grzes, CPA, a lead manager on the AICPA’s Tax Practice & Ethics team.

For taxpayers in a “borderline” tax situation, who are close to being able to itemize but not quite there, it might be savvy to “combine” two years of charitable contributions into the same tax year. This can be done, for example, by making one large charitable contribution in January and another large one in December.

4. Have taxes withheld on Social Security payments

Most retirees fail to do this, and the results often show up on their tax returns, says Darryl Nitta, a certified public accountant and tax partner with Accuity, in Honolulu, Hawaii.  A lot of retirees feel they’ve paid their Social Security for 40 or 50 years and, in their minds, they believe that their monthly Social Security payments arrive tax-free. “In most cases, they’re not,” says Nitta.

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The best time to request this withholding is when you first apply for Social Security, but most folks totally skip over that section and don’t ask for any withholdings, he says.  Even if you failed to do it then, it’s probably still worth a trip to the Social Security office to request the withholding, “so that you don’t have a big payment come tax time.”

5. Large amounts of taxable interest are not good

The Schedule B section of the tax form shows all your interest and dividend income. “If you see significant amounts of taxable interest income, something is probably off,” says Collado.

For example, suppose that you are retired but you purchased a CD that promised 5 percent interest. “How is that money in cash helping you to make your long-term retirement goals?” she poses.  After all, the high yield on the CD won’t last for long.  “You have to step back and ask yourself: What are my long-term goals and how much cash do I actually want on hand?”  In the end, she says, “You need a more robust retirement strategy than sitting in cash.”

Estimate Your 2023 Taxes

AARP’s tax calculator can help you predict what you’re likely to pay for the 2023 tax year.

6. Is your income going up or down?

Depending on the result and type of income, you may want to consider increasing or decreasing the taxes you have withheld, says Grzes. Or, he says, you may want to start making quarterly payments to cover your expected tax liability for the year. The IRS has a special tool for figuring how much to have withheld; use it.

Projecting out what your 2024 income and deductions will be is a good way of predicting your total tax liability so that you can plan smartly, he says.

7. Self-employed? You have lots of tax opportunities

Consultants and freelancers often fail to take advantage of tax opportunities.  “When I see a Schedule C, my eyes light up,” says Collado. This section of the tax return is often filled out by folks who are self-employed — such as consultants and freelancers. “This opens the door for you to do your own retirement planning depending on your age and income,” she says.

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Some have the opportunity to create their own 401(k) plan or a defined benefit plan — kind of like a pension that you create for yourself. “It can be like a retirement account on steroids,” she says. “This is truly a good way to chip away at taxable consulting income.”

8. Teachers: Don’t forget to claim free money

Some teachers still fail to claim free money on their tax forms.  Without itemizing, teachers can claim up to $300 in above-the-line deductions in purchasing supplies for classes they teach, says Grzes.

The so-called Educator Expense Deduction permits eligible educators to deduct up to $300 in “qualified” expenses from their income for 2023 and 2024.  What are qualified expenses? Well, these include books and classroom supplies, as well as technology and computer software that is specifically used in the classroom while you’re teaching.

9. Match capital gains and losses

If your tax return shows that you have significant capital gains, that’s a sign that there’s a lack of tax planning in your portfolio, says Collado. “It tells me there could be an opportunity to do loss harvesting that isn’t being done,”  she says. You can offset unlimited capital gains with capital losses, reducing your tax bill. If you have more losses than gains, you can deduct $3,000 per year, and carry forward those losses until they are gone.

10. Credit card debt can be a quiet killer

This one doesn’t directly show up on your tax return — nor is it tax deductible — but there’s probably nothing that most taxpayers waste more money on than paying high interest on their credit card debt, says Grzes.

“This is where you have to look holistically at your tax returns,” says Grzes. “Your tax return is just a starting point in understanding your spending habits,” he says. “It’s more common than you might think how many people are carrying high credit card debt.”


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