Unlocking Tax Planning Insights with a Purpose Built Tax Return Review

5 Key Points

1. Beyond Filing – Proactive Tax Planning: Tax return reviews are about more than just the past; they're a tool for informed future financial decisions.
2. Mistakes Happen - Even for the Pros: Don't leave potential savings on the table. A review can catch errors, saving you penalties.
3. Deductions & Credits - The Power of Details: A thorough review uncovers overlooked deductions and credits, maximizing your returns.
4. Informed Decisions = Financial Power: Understanding your tax situation gives you control when making year-round financial choices.
5. Professional Help Yields Maximum Benefits: While a self-review is helpful, expert analysis with a focus on your overall financial picture is even better!

Introduction

Tax season can feel like a yearly sprint to the finish line. Gather receipts, fill out forms, hit submit – breathe a sigh of relief. But what if there's more to the story? What if that tax return you filed holds untapped potential for future savings and strategic planning?

The truth is, simply filing your taxes doesn't guarantee you're maximizing your benefits. Tax codes are intricate and ever-changing, and navigating them effectively takes a keen eye for detail. While mistakes can happen, the real opportunity lies in proactively reviewing your return to uncover missed deductions, overlooked credits, and areas where you can optimize your tax strategy for the coming year.

Think of it like this: your tax return is a financial snapshot of the past year. By taking the time to review it meticulously, you gain valuable insights into your income, expenses, and overall tax burden. Understanding your return empowers you to make informed decisions for the future. Did you miss out on a deduction for charitable contributions? Knowing this can inform your giving strategy next year. Did you qualify for a credit you didn't claim? This knowledge can help you adjust your withholding or deductions moving forward.

But how do you delve into this financial treasure trove without getting lost in the details? Fear not! This article will guide you through a 12-step self-review process, empowering you to unlock the hidden potential of your tax return. We'll break down each step, providing clear explanations, examples, and actionable tips for potential tax savings, laying the groundwork for a more strategic tax approach in the years to come.

The Power of Proactive Planning

Reviewing this information is about more than just the past year, which you probably can't do anything about. It's about empowering you with the information you need for informed future financial decisions. We'll highlight potential tax situations that can arise—such as the impact of expiring tax laws—and create strategies for tax-efficient income sources, retirement planning, and more.

Benefits of a Detailed Tax Review

• Catch costly errors: Mistakes happen even if you didn't prepare the return yourself. A thorough review can catch mistakes, potentially saving you significant penalties.
• Maximize savings: A review can pinpoint deductions and credits you may have missed and identify strategies to lower your tax liability overall.
• Informed decisions: Knowing your tax landscape gives you power when making financial choices throughout the year
• Peace of mind: Rest assured that professionals work for your best financial interests.

Purpose Built's 12-Step Tax Review Process

We've developed a comprehensive 12-step process to ensure we extract maximum value from your tax return. We review the following components of your tax return to gain deep insights into both your current financial situation and help plan for future years, but you can use this list to do the same:

1. Marginal Tax Rate: The highest tax bracket on your last dollar of income. Taxes are progressive, meaning rates increase as income does.
   • Example: If your marginal rate is 24%, every additional dollar you earn will be taxed at 24 cents on the dollar.
   • Why it matters: Knowing your margin tax rate helps estimate tax impact on:
     • Taking a bonus
     • Selling assets with gains
     • Timing charitable contributions for maximum deduction benefits
2. Average Tax Rate: Calculated by taking the total tax liability divided by total taxable income. This calculation provides the actual percentage of income paid in taxes.
   • Example: Total tax bill of $15,000 on a taxable income of $100,000 = 15% average tax rate.
   • Why it matters: It provides a great overall view of your tax burden and helps you compare it to historical rates to spot possible issues.
3. Carry Forward Losses: Unused investment losses from prior years that can offset future gains to reduce tax liability.
   • Example: $10,000 loss in Year 1, $5,000 gain in Year 2. You can apply prior losses, making only $5,000 taxable in Year 2 (additional $3,000/year deductions can be used thereafter until losses are exhausted).
   • Why it matters: Carry forward losses have significant tax-saving potential over time, especially if you have large investment fluctuations.
4. IRMAA Surcharges:  For higher income earners, Medicare Part B and Part D premiums can increase (IRMAA - Income-Related Monthly Adjustment Amount)
   • Example: Individuals with income over $97,000 (2023) pay higher premiums.
   • Why it matters: Knowing this helps plan withdrawals from traditional retirement accounts or Roth conversions to potentially stay in a lower surcharge bracket.
5. Capital Gains: Profit from selling capital assets (stocks, real estate, etc.). Tax rates depend on how long you held the asset.
   • • Short-term (under a year): Taxed at ordinary income rates
     • Long-term: Usually enjoy lower tax rates
   • Example: Sell stock for $20,000 you bought for $15,000 after 15 months = $5,000 long-term capital gain.
   • Why it matters: Timing asset sales strategically using long vs. short-term gains impacts tax liability significantly.
6. Qualified Dividends: Dividends on some stocks are taxed at lower capital gains rates rather than ordinary income rates.
   • Example: $1000 dividend, if qualified, may be taxed at 15% vs. ordinary income tax of 24%.
   • Why it matters: Increases portfolio tax efficiency and after-tax returns.
7. Roth Conversion Opportunities: Converting traditional retirement funds to Roth can be incredibly advantageous. We use specialized software to find your sweet spot, potentially shielding future income from taxes.
   • Example: Assume your marginal rate is low one year due to a job change. Converting $20,000 may make sense to avoid higher taxes on that money later.
   • Why it matters: Sophisticated strategy balancing current tax costs with future tax-free income, leaving a powerful tax-advantaged legacy, Requires complex analysis for optimal results.
8. Itemized vs. Standard Deduction: We ensure you're not leaving money on the table by making sure you get the biggest deduction possible.
   • Example: Standard deduction for single filer is $13,850 (2023). If your itemized deductions total $15,000, you'd get a bigger tax break by itemizing.
   • Why it matters: Maximizing your deduction reduces taxable income.
9. Net Investment Income Tax (NIIT): An additional 3.8% tax on investment income (interest, dividends, capital gains, etc.) for high-income taxpayers. This extra tax can be an unpleasant surprise for high earners. We flag it upfront, enabling proactive planning.
   • Example: Individuals with income above $200,000 ($250,000 married, filing jointly) may be subject to NIIT.
   • Why it matters: Can add up significantly, so proactive planning with investment types and income timing is crucial.
10. Qualified Business Income (QBI) Deduction: Small business owners, this is for you! If you own a pass-through business (sole proprietorship, partnership, S-corp), you may be eligible for up to a 20% deduction of your qualified business income. We'll check if you're eligible for this significant tax break.
    • Example: Business generates $150,000 in qualified income. The QBI deduction could potentially save you $30,000 in taxes.
    • Why it matters: This is a major tax reduction opportunity, but it has income limits, complex rules, and may vary based on your business type.
11. Phaseouts: Many valuable tax credits phase out at certain income levels. We identify these situations to optimize your benefits.
    • Example: Child Tax Credit starts phasing out at $200,000 in income for single filers, $400,000 for joint filers.
    • Why it matters: Understanding phaseouts prevents unpleasant surprises and helps optimize income-sensitive financial decisions to take maximum advantage of credits while avoiding phaseouts.
12. Review of Credits and Deductions: Gain a clear overview of your income sources and all the tax breaks you've utilized.
    • Example: Includes deductions for student loan interest, medical expenses exceeding a certain percentage of income, energy-efficient home improvements, and many others.
    • Why it matters: It highlights less-obvious tax breaks and ensures thorough optimization of your return. It also flags potential areas for further beneficial changes to your financial habits in upcoming years.

The Future of Your Financial Well-being

The tax review process we've outlined is far more than just checking boxes or ensuring you didn't make a simple calculation error. It's an opportunity to take the reins of your financial future. By taking the time to analyze your tax return with a critical eye, aided by the information provided here, you open the door to optimizing your tax strategy year after year and tailoring your financial choices for maximum efficiency.

Why stop at a tax return review?

While the steps above can empower you to find additional savings independently, engaging Purpose Built Financial Services takes this process to the next level. Purpose Built combines extensive tax knowledge with a comprehensive financial planning perspective, providing a holistic approach that maximizes your financial health. Here's what you can expect:

• Personalized Review and Analysis: We go beyond the checklist. Our experienced tax professionals will meticulously examine your return, uncovering every potential optimization while taking into account your individual financial goals.
• Future-focused Planning: Knowing where you stand with taxes is just the beginning. We'll analyze your tax return insights to create a roadmap for proactive tax planning strategies in areas like investment choices, retirement contributions, income planning, and more.
• Flat-Fee Approach: Our transparent, flat-fee pricing means you get objective, tailored advice without hidden costs or commissions. We work for you, not for product sales quotas.

Take Action for a Brighter Financial Future

Don't wait until next year's tax season to take control of your financial well-being. Whether you choose to embark on a self-review using these guidelines or work directly with our team for personalized analysis, now is the time! Take action and discover the power of maximizing your tax savings and planning strategically for years to come.

Contact Purpose Built Financial Services today to schedule your tax return review and comprehensive financial planning consultation.

Your financial well-being is too important to leave to chance. Choose wisely.

FAQ

Q: What makes a tax return review crucial beyond simple filing? 

A: Beyond compliance, a tax return review can unearth missed opportunities for savings and future tax planning, helping to minimize future liabilities and optimize financial strategies.

Q: What specific benefits does a detailed tax review provide? 

A: A detailed tax review identifies errors, uncovers overlooked deductions and credits, and empowers you with the knowledge to make informed financial decisions, ultimately providing peace of mind that your financial interests are well managed.

Q: How can a tax review help in optimizing my tax strategy? 

A: By understanding various elements like your marginal tax rate, potential deductions, and eligibility for certain tax credits, a tax review helps you plan for efficient tax payments and maximize potential returns.

Q: Why should I choose Purpose Built Financial Services for my tax review? 

A: Purpose Built Financial Services provides personalized, future-focused tax planning and financial analysis, using a flat-fee approach that ensures transparent and tailored advice aimed at maximizing your financial well-being.

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About the Author

Sean Lovison, CPA, CFP®, is a flat fee-only financial planner based in Moorestown, New Jersey, serving clients virtually nationwide. After spending 14 years as a corporate chief financial officer (CFO), receiving and designing compensation plans, he decided to help others navigate their plans.

All written content on this site is for information purposes only. Opinions expressed herein are solely those of Sean Lovison and Purpose Built (PB), unless otherwise specifically cited.  The material presented is believed to be from reliable sources, and no representations are made by our firm regarding other parties' informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant, or legal counsel prior to implementation.

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