Tax Day – A Checkpoint, Not a Finish Line

While tax legislation may be complex, filing your own income tax return shouldn’t be - if you plan appropriately!

Streamlining Your Process

Each year, before filing my personal return, I create a checklist (or use the spreadsheet I created the year prior if my personal situation remained unchanged) and follow that as a guide to ensure that I not only capture all forms and documents I expect to receive but also consider applying time-sensitive and ongoing tax strategies.

It also ensures I account for any and all credits and deductions I'm eligible for in a given year. It seems basic, but it is essential for my planning. We all have our processes, but the main premise here is…be proactive and have a plan.

What to Look For

First, ensure you have all the required forms. It sounds simple enough, and you are likely aware of the need for your W-2s and 1099s, but don't forget to pay attention to your investments.

If you're invested in private equity (PE) positions or alternative investments outside of retirement accounts like an IRA or 401 (k), you will receive a K1. You'll also receive a K1 if you are the beneficiary of a trust. A K-1 tax form reports an individual's share of income, losses, deductions, and credits. Unfortunately, these may not be issued until after the tax filing deadline.

If you expect a K-1 after the deadline, you may consider filing for an extension. The extension provides you with additional time to file - not time to pay - and helps avoid unnecessary amended returns.

Another item of note is that if you are over 70.5 years old and made qualified charitable distributions (QCDs), you'll need to track them, as your IRA custodian(s) will only report total withdrawals on the 1099. They won't track whether a distribution is a QCD, and you will want to be sure those don't get included in income.

Once you have the items needed to complete the return, the next step is reviewing what can still be managed.

Last-Minute and Forward-Looking Strategies

Filing your return is the final step, not the first. Before submitting anything, evaluate what planning opportunities still exist. Working through all of your income and deductions (to the point of what you can confirm) will offer insight into what sort of possible savings and tax reduction strategies you can implement before the tax deadline.

• IRA contributions. Since you have until the tax filing deadline to make IRA contributions for the prior year, making a deductible IRA contribution can reduce your taxable income if you are eligible (determined by income limits and work retirement plan coverage; nondeductible contributions can also be made).
  
  
• HSA contributions. Though not constrained by income limits, you are subject to the tax filing deadline. Now is a good time to determine if you are eligible to contribute to an HSA plan.
• Eligibility is restricted to those in a high-deductible health plan, and contributions are pre-tax, thus reducing taxable income.
  
  
• 529 contributions. Also consider saving to a 529 plan, as many states offer tax credits.
• For Indiana residents, the Indiana Direct Savings plan offers a credit of up to 20% of your contribution or a maximum of $1,500 (a $7,500 contribution maximizes your credit).
• Similar to IRAs and HSAs, these college savings plans allow contributions up until the deadline. In these instances, you will not receive any form indicating a contribution was made. To ensure you accurately report the contributions, using the applicable 529 website or statements is good practice to ensure your reporting matches that of the 529 sponsor.

One Final Check

Once you've completed your tax return, comparing it to last year's is a good final step to ensure nothing is missed. If your tax situation doesn't change much from year to year, the two should contain similar incomes, deductions, and credits.

Depending on the amount you owe or the refund you're expecting to receive, now is also a good time to consider modifying your form W4. Via the W4, you can make the appropriate changes to your tax withholding through your employer. This will prevent you from receiving a larger-than-anticipated refund or owing more than expected on next year’s return.

Adjustments to your quarterly estimates should also be made at this point. Your tax return should serve as a blueprint for the upcoming year.

Conclusion

April 15th isn't the finish line; it's a checkpoint. Every year, you will encounter activities and events that require ongoing planning and adjustments.

Whether it is a major life event like a marriage or job change, or something comparably more minor like a charitable gift or retirement contribution, planning ahead allows for a seamless, stress-free tax season.

Utilizing the experience and expertise of your financial planner is also important in this process. The most successful filers don't just prepare their returns; they plan for them.

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