Your Tax Return: A Powerful Financial Tool
Your tax return isn’t just a yearly obligation—it’s a powerful tool for understanding and improving your financial picture. Here are seven valuable lessons your tax return can teach you:
1. Keep Good Records for Itemizing Your Deductions
Did you take the standard deduction last year just because it was easy? The process of tax preparation can teach you a lot about how well you’re set up to take advantage of the tax code. If you aren’t keeping your tax-related records up to date throughout the year, itemizing your deductions can feel overwhelming.
Either way, be conscious of how you’re using your categories throughout the year. For example, donations to tax-exempt charities are deductible, but if you receive something in return for that donation, you can’t claim the entire amount. Ask for a receipt that shows the deductible amount, and split those transactions so only the deductible amount goes into your tax-related category.
If you check on your new transactions every day, keeping those records in shape is quick and easy—especially if you make QuickBooks or any accounting software a small part of your daily routine. You’ll reap the rewards on your taxes and be prepared to file well before the tax deadline.
2. Don’t Forget Those Business Deductions
Are you claiming business deductions on your federal tax return? Could you have claimed more if you had a better record-keeping system? If you have a home business or manage real estate investments, keeping updated records of your business expenses is key.
3. Take Stock of Your Retirement Plan & Contributions
Preparing your tax return is a great time to review your retirement strategy. Are you taking full advantage of employer 401(k) matching? Are you maxing out your contribution limits for 401(k)s and IRAs?
Use your return as a checkpoint. Consider a retirement calculator to assess whether you’re on track.
4. Evaluate Your Withholding to Improve Your Finances
If you’re receiving large refunds each year, reconsider your withholding. The IRS isn’t a savings account—it doesn’t pay interest and you can’t access those funds during an emergency.
Adjust your withholding to keep more in each paycheck. Then, direct those extra funds into savings or debt repayment to boost your financial resilience.
5. Evaluate Your Interest Payments and Prioritize Debt Reduction
Student loan and mortgage interest are tax-deductible—but credit card interest is not. If you’re carrying high-interest debt, focus on paying that off first.
Use QuickBooks or Xero to connect all your accounts and evaluate your debt in one place. Our loan and debt-reduction planners let you run what-if scenarios and see where your payments will make the most impact.
6. Rebalance Your Savings and Investments
Your tax return requires reporting interest, dividends, and capital gains, making it the perfect time to review your asset allocation.
Is too much of your money sitting in low-interest savings? Could more be working for you in investments? Don’t leave potential gains on the table—rebalance with intention.
7. Evaluate Your Investments for Tax Efficiency
If your investments are generating capital gains taxes, it might be time to rethink your asset placement. Speak with a financial advisor about ways to structure your portfolio for tax efficiency.
Final Thoughts
Your tax return is more than a form—it’s a window into your financial health. From deductions to retirement contributions and investment strategy, take what you learn each year and use it to make smarter money moves.
If you’re supporting others with your income, consider life insurance as part of your planning. And if you ever feel overwhelmed, remember: Accavallo & Company is here to help you navigate the numbers with confidence.
