Are You Surprised With Your Tax Return?

While it is common for people to be surprised with their tax return results, ideally, you should not be surprised with your tax return results. There are several things you can do to help minimize surprises and ensure that you have a good understanding of your tax liability:

Tax Planning

  1. Keep Track of Your Income and Expenses: Throughout the year, keep track of your income and expenses, including any deductions or credits that you may be eligible for. This will help you estimate your tax liability and ensure that you are taking advantage of all available tax breaks.
    2. Review Your Withholdings: Review your W4 form and make sure that you are withholding the appropriate amount of taxes from your paycheck. If you have had any significant changes in your income or family status, it may be wise to adjust your withholding allowances accordingly.

    3. Know where you land in the tax brackets. How much income do you make? Use that number and subtract the standard deduction for your filing status to get an estimate of your taxable income. Then google tax brackets for that year. Observe where you land and see if it makes sense.

    4. Do you have other income, such as investment income, retirement account distributions, selfemployment income, rental income? Do you know how that income is taxed?

    5. Stay Informed of Tax Law Changes: Keep up to date with any changes to tax laws or regulations that may impact your tax liability. This will help you make informed decisions when it comes to tax planning.

    6. Work with a Tax Professional: If you have a complex tax situation, it may be beneficial to work with a tax professional who can help you understand your tax liability and ensure that you are taking advantage of all available tax breaks.

By taking these steps, you can help minimize surprises and have a better understanding of your tax liability when it comes time to file your tax return.

Personal Income Tax Course

We are developing a selfstudy course that teaches you the basics of a personal income tax return so there are no surprises. If you want to be notified when it is available, please enter your email address here.

 

Financial Journey LLC is a registered investment advisor offering advisory services in the states of Alabama, Florida, Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.

Tax Planning at Different Stages

It’s February and now you are receiving all of your tax forms because it’s tax time again. Completing your tax return each year is essentially a trueup to make sure you paid your share of income taxes. Because you are accounting for the previous calendar year, there are not too many things you can do to change your tax situation when it’s time to prepare your taxes. That is why it is important to understand your tax return once it is complete so that if there are any slight changes that you can make, you can do so during the tax year when it counts.

Ultimately, you have to know a little bit about taxes in order to notice where these changes may occur (or know enough to ask for help!)

What are we working with? Age, stage of life, current income, current assets, location of assets, tax thresholds in many different areas and tax law updates, just to name a few.

Working/Accumulation Phase of Life

While you are earning money and building your wealth, you want to be mindful of several things. Understanding the mechanics of the different things going on in your tax return can give you planning ideas for what you invest in, the different account registrations that you may or may not be able to utilize and look at the big picture to decide what could be more beneficial in the future. For example, you could be paying huge capital gains taxes in your individual accounts with mutual funds that are out of your control. A couple of things to look at would be reviewing what the estimated capital gains are and potentially moving out of that position (also reviewing that tax consequence) and into an ETF where taxes can be more controlled. Another planning item is making sure you are investing in different account types with different taxation. For example, if you only invest in your traditional IRA and traditional 401k, when you take the money out later on, it will all be 100% taxable versus maybe investing some in a ROTH IRA or ROTH 401k. Again, depending on your situation, this could be beneficial or not.

Retirement/Decumulation Phase of Life

Even if you are in the retirement/decumulation stage of life there are many things that are going on with your income. For example, your Medicare premiums are based on your AGI from 2 years ago. This means that you can jump Medicare premium surcharges every year even if you are $1 over the limit. If you are budding up close to one of these brackets, then you may be able to sacrifice a slightly lower distribution from an IRA in order to save yourself hundreds of dollars in Medicare premiums.

The Bottom Line

Every situation is different and should be looked at from different angles. If you do not understand your taxes, ask someone who does. Also, make sure you look at your tax return once it’s done and see if there is anything to do DURING the year that can help your situation.

5 Questions You Should Ask When Hiring a Financial Advisor

Finding the right Financial Advisor for the job is so important! You need someone who is trustworthy, competent, and affordable. 

Questions To Ask Yourself

Before you interview a financial advisor, you need to ask YOURSELF a few questions: 

  • What are you looking for in a financial advisor?
  • What services do you need?
  • What are you willing to pay for them?
  • How often do you want communication (frequent in-person, occasional call, or email)?

Knowing your goals and communication style will help you to quickly determine which financial advisor is the right one for you.

Questions To Ask a Financial Advisor

  1. Are You a Fiduciary?

You want your financial advisor to say yes! Fiduciaries are financial advisors who are required to:

  • Put the client’s interests first
  • Disclose important information, including their fees
  • Reveal any conflicts of interest
  1. How Do You Get Paid?

Financial advisors can make their money in several different ways:

  • Hourly
  • A fee based on a specific service
  • A percentage of the managed assets
  • A sales commission on investment products

To avoid any conflicts of interest, look for an advisor who is “fee-only.” 

  1. What Services Do You Provide?

Different advisors may only support you in certain financial areas, such as:

  • financial plans
  • managing assets
  • investment advice
  • retirement
  • insurance
  • tax planning

Before you hire a financial advisor, know what services are offered and if there are any extra costs for additional services. 

  1. What’s Your Philosophy on Investing?

A good financial advisor should fit your needs. You want someone whose investment philosophy matches yours and uses strategies that you understand. This will help you feel more secure through the ups and downs of the market. 

  1. Who Are Your Typical Clients?

You want to work with a financial advisor who has experience working with people in your situation. 

Conclusion

A good financial advisor should expect questions like these. They understand how important the relationship is between the advisor and the client and want a good fit for both parties which is why you should interview more than one. 

Your financial advisor is an important person in your life. Take your time to consider all the candidates and choose the one who’s best for you.

If you are looking for a trusted partner to help you navigate financial decisions, we are here to help. Schedule a meeting with us today to see how we can help you with your own financial journey. 

 

Financial Journey LLC is a registered investment advisor offering advisory services in the state of Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.

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