With Tax Season Over Here Are a Few Things to Consider

August 19, 2020
With Tax Season Over Here Are A Few Things to Consider

For most families, ‘doing your taxes’ is probably synonymous with a stressful scramble to assemble documents, coordinate with their accountant, or answer a multitude of questions using some kind of software program. While this may be the common approach employed by many, it doesn’t have to be. Instead, tax planning and preparation can employ a much more methodical approach; something that can be done throughout the year to compliment whatever returns you may have in your various accounts.

Remember, cumulative returns aren’t just about gains and yield, it’s really how much money you keep at the end of the day. Tax savings can be a huge component of that overall return. There are many considerations that can go into the tax planning process, but now that your return has been filed, here are a few important things to keep in mind.

If you received a refund, evaluate the size and determine what caused it; adjust accordingly.

If you’re an employee of a company, chances are a portion of your paycheck every month is being withheld by your employer for tax purposes. A tax refund is basically the government giving you back tax dollars you overpaid throughout the year. If you received an especially large tax refund after filing your return, it may be because you’re directing your employer to withhold too much in taxes. By reviewing last year’s tax return, you may be able to determine which deductions you could continue to use in the new year, project what your taxable income may be, and from there determine whether a reduced monthly withholding makes sense for you. By appropriately reducing your withholdings, you can effectively put more money to work throughout the year whether through saving or investing.

Determine what tax bracket you were in last year, then use that to plan for the rest of the year.

Now that your taxes are filed, your accountant, tax preparer or the software you used to complete your return should be able to tell you your marginal tax bracket. Knowing your marginal tax bracket is important, especially if you’re retired, because it dictates the rate at which your highest earned dollar is taxed.

Knowing your marginal tax bracket on an ongoing basis allows you plan around income events, or if you’re retired and living off of savings, track the amount of income you’re receiving to make your withdrawals from various investment accounts more tax efficient. In doing so, you can effectively begin to implement a much more detailed tax planning strategy by projecting what your marginal tax rate will be over the next several years to ‘fill up’ tax brackets. The end result can be a much more efficient and cost-effective approach to both tax filing and the ultimate amount owed each year.

How can I improve my tax filing process?

Filing your tax return every year may typically be associated with stress, scrambling to find documents and getting dozens of questions answered to meet a filing deadline. It doesn’t have to be that way. Per the IRS, the average American in 2018 spent roughly 11 hours per year working on and filing their tax return. If your tax filing process is something you dread every year, review what you’re doing currently to determine if there’s a better way. Organizing documents like W2s, receipts, or payroll documents can have a hugely positive impact on both the time and stress involved in completing a return.

Perhaps most importantly, hiring a professional to help can also be a really positive step towards ensuring your tax filing and planning process is not only less stressful, but more accurate. Working with a wealth advisor knowledgeable in tax can streamline the process of compiling documents, double checking tax forms, and ensuring that all items are timely filed.

This article is limited to the dissemination of general information pertaining to Mariner Wealth Advisors’ investment advisory services and general economic market conditions. The views expressed in general and regarding IRA rollovers are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. Before initiating a rollover, please consult with a financial or tax professional. As such, the information contained herein is not intended to be personal legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. Any opinions and forecasts contained herein are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information that this opinion and forecast is based upon. You should note that the materials are provided “as is” without any express or implied warranties. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

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