When it comes to making financial decisions, you want to arm yourself with as much information as possible. One often overlooked source is your Form 1040, advises CNBC in “Use your tax return for more than paying taxes.” Sharing this document with your Houston estate planning attorney will allow them to get a clearer picture of your situation as well.
Lines 1-5 (Filing status). If you need to check a different box for your filing status, you should review your estate plan. If you get married or divorced, you'll need to update your will and the beneficiaries for life insurance and retirement plans.
Line 6c (Dependents). An increase in the number of dependents is a good reason to update your estate plan. This might mean a change to your cash flow for college savings and insurance needs.
Line 7 (Wages, salaries, tips, etc.). Take a look at your W-2s to see if you're making the most of workplace benefits. For instance, employees can benefit from boosting pre-tax retirement contributions, and those with children may be missing the opportunity to contribute to a pre-tax account for dependent care expenses.
Line 11 (Alimony). This is considered earned income, so consider using some of it to bolster retirement savings by contributing to an IRA.
Line 12 (Business income). If your business has become more profitable, look at whether a sole proprietorship is still the best business structure. There may be significant tax and liability considerations that suit your growing company.
Line 13 (Capital gains). Your capital gains and the details on your Schedule D can say a lot about how you are investing. If the numbers are too high or too low, it could mean you need to reexamine whether the investments and diversification are appropriate for your age and acceptable risk levels. You may have some missed opportunities to offset capital gains with capital losses.
Line 17 (Rental real estate). If you're buying property, think about the best way to hold ownership.
Line 28 (Self-employed SEP, SIMPLE and more). If you're a Schedule C or F worker, a zero on line 28 may be a missed opportunity to increase your retirement savings.
Line 40 (Itemized deductions). By bunching deductible expenses, you may be able to alternate years of claiming the standard deduction and itemized deductions. This is used in some instances to avoid the alternative minimum tax every other year. There are also trends in charitable giving that may yield planning opportunities.
A Houston estate planning attorney can help you identify further tax-savings opportunities.
Reference: CNBC (September 28, 2016) “Use your tax return for more than paying taxes”