VIDEO: Financial Planning and Tax Returns: A Powerful Partnership
By Joe Dowdall, CFP®, RICP®, CRPC®, CCFC
Did you know there’s more to your tax return than meets the eye? It’s actually a goldmine of information that can unlock hidden insights to a successful financial future.
Watch this video from Joe Dowdall at Worth Asset Management to learn about the powerful connection between financial planning and your tax return.
Transcript
Introduction: The Connection Between Your Tax Return and Financial Planning
Hi, I’m Joe Dowdall, a financial advisor at Worth Asset Management. At Worth Asset Management, we offer a broad range of wealth management services. Today, I want to talk about something that often goes unnoticed in many financial plans. It’s a critical aspect that forms the foundation of holistic financial planning: the powerful relationship between your tax return and your financial plan.
Your tax return holds more value than just being a record of your annual taxes. For financial advisors like me, it’s a treasure trove of insights that can significantly impact your retirement and financial strategies. Let’s explore how reviewing your tax return can improve your financial planning, especially in areas like retirement and Medicare surcharges.
Understanding the Impact of Income on Medicare Premiums
One key area where your tax return provides valuable insights is in managing Medicare costs. Your income level directly affects your Medicare Part B and Part D premiums. If your income is high enough, you may be subject to what’s known as the Income-Related Monthly Adjustment Amount (IRMAA), which can result in surcharges that are up to five times the standard premium.
By reviewing your tax return, you can pinpoint your current IRMAA bracket and discover ways to lower your income bracket in the future. This can potentially save you thousands of dollars in healthcare costs during retirement.
Avoiding the Social Security Tax Torpedo
Another crucial aspect that your tax return highlights is your Social Security taxes. Many people are aware that they pay Social Security taxes while working, but what many don’t realize is that up to 85% of their Social Security benefits can be taxed in retirement. The amount of Social Security taxes you owe is based on what’s called your “provisional income.” This includes taxable income, tax-exempt income, and half of your Social Security benefits.
By analyzing your tax return, you can develop strategies to avoid what’s known as the “Social Security tax torpedo.” This can involve lowering your taxable income or diversifying income sources to lessen the tax burden on your benefits.
Using Qualified Charitable Distributions (QCDs) to Lower Your Tax Bill
Another valuable strategy revealed through a tax return review is the Qualified Charitable Distribution (QCD). If you’re 70½ years old or older, you can donate directly from your IRA to a qualified charity, which can lower your tax bill. This is a fantastic way to support a cause you care about while reducing your taxable income. The best way to figure out if this strategy is right for you is by reviewing your tax return.
Uncovering Tax Deductions and Credits
Your tax return also provides insights into other areas where financial planning can be optimized. By reviewing your return, you may identify deductions and credits that you’ve missed, which could help increase your refund or reduce your tax liability. This is crucial when looking to enhance your overall financial situation.
Analyzing Investment Income and Portfolio Composition
Additionally, reviewing your tax return allows you to gain a deeper understanding of your investment income and portfolio composition. This information can help you make adjustments to ensure your portfolio aligns with your risk tolerance and retirement goals. If you notice an imbalance, this might be the perfect time to rebalance your investments.
Cash Flow Patterns and Retirement Budgeting
Lastly, your tax return provides insight into your cash flow patterns, which can be essential for budgeting effectively in retirement. Knowing how much you can expect to withdraw and how much you can safely spend is key to having sufficient resources for your retirement years.
The Importance of Considering Taxes in Holistic Financial Planning
While I’m not an accountant and this isn’t specific tax advice, I do believe that holistic financial planning cannot be complete without considering taxes. Your tax return acts as a bridge between your financial plan and tax efficiency. By reviewing your tax return with a professional, you can uncover opportunities that will better align your tax strategy with your long-term financial goals.
Get Professional Help with Your Tax and Financial Planning Strategy
If you’re ready to take a more professional approach to connecting your tax return with your financial planning, reach out to us at Worth Asset Management. Our team can review your tax returns and help you translate that information into actionable strategies for your financial success.
You can contact us at 469-423-1989 or email me directly at joe@worthassetmgmt.com. I look forward to helping you create a comprehensive financial strategy that works for you.