What You Can Learn from Your Tax Return

Posted on: April 15th, 2010 by

Tax Preparer - Financial Adviser - Rockville, MDWhether you completed your return months ago or are just getting it in at 11:59pm on April 15, you are still relieved to have your return in Uncle Sam’s hands on time.  But before you file away your 1040 for good, make a copy of it for your financial adviser.  Some careful scanning of this document can help you plan for the future.  And that doesn’t just mean adjusting your withholdings or estimated payments or catching missed deductions; it can be a valuable tool to help you determine the best usage of your money, what types of investments might work best for you, and what types of portfolio changes you may want to make.

One thing to look for on  your return is if you have more than $1000 in taxable interest or unqualified dividends, you may want to think about relocating some of those holdings into tax deferred accounts.  Another option, if you need to keep those funds readily available, is to look into a stock index fund that covers the total US or international markets.  These funds don’t trade holdings often, so they don’t generate many capital gains.  You should discuss the tax implications of these funds with your tax adviser first, as the rates are soon to be changing.

You should also look for capital losses that you are able to carry forward to future years.  You can use your capital losses to offset your capital gains, so you may be able to make some investment changes without incurring a tax bill.  Talking with your financial adviser about your portfolio may help you to determine if you have some investments you want to sell to re-balance the taxable portion of your portfolio or get rid of some high fee mutual funds.  But, you shouldn’t just make the changes just for the sake of using up the losses because you can use $3000 each year to reduce your taxable income.



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