Use your tax forms to boost finances - 4/11/2017

With the 2016 federal tax return filing deadline of April 18 – yes, that is correct – rapidly approaching, let’s talk about how you can use your tax forms to improve your finances.

Before you file away your 2016 tax forms, spend a few minutes to see how it can help plan your finances and taxes for 2017.


Using tax forms, you quickly can get an idea on how much you are spending, paying in taxes and saving for the future. This is valuable information to help you move closer to your financial goals.

Here’s how:

Start with your total income on line 22 of your 1040 form. Add tax-exempt interest from line 8B, proceeds from sales of investments on Schedule D line 1a column (d) and line 8a column (d), and Social Security benefits line 20a. Don’t forget to subtract capital gains from line 13 and Social Security taxable amount line 20b, so you don’t count them twice.

This is the total income you had to work with in 2016.

Next, let’s see how much you saved. If any of the income listed in lines 7 to 21 was saved or invested, list that as savings. This includes contributions to IRAs, investment accounts, savings accounts or other investments. Also add anything automatically deducted from your paycheck such as contributions to a 401k or 403b.

Let’s check to make sure your savings amounts balance. You will need your account statements to do this. Take the total value of all your savings, investment and retirement accounts on Jan. 1, 2016, and subtract it from the value of the accounts on Dec. 31, 2016. Subtract any investment gains, or add losses, to determine how much you added in 2016.

If this doesn’t match up with what you had listed for savings, do some checking to find out where the money went. Maybe you took some money out of a savings account to pay for a vacation or something else. This needs to be deducted from savings and added to total income.

The last category is taxes. The federal income tax is on line 63. Don’t forget to add state, local, sales and property taxes from Schedule A, line 9. You should also look at your W-2 or self-employment tax calculation to see how much you paid toward Social Security and Medicare.

Now you have the information needed to check on your finances. Your total spending is your total income minus savings and taxes paid.

If you are in the wealth accumulation mode, your savings ratio is savings divided by the sum of total income minus taxes. If this is not at least 10 percent, preferably 15 percent, you might not be on track to save enough for your future. If you don’t feel you can save more, you may need to look to see if your discretionary spending matches up with what is most important to you.

You may also be paying more in investment taxes because of the type of investments, where they are held or how often they are traded. Look at taxable interest on line 8a and dividends on line 9a. If you don’t need this interest or dividends to pay your bills, you might be better served by having investments with more growth rather than income. You might also benefit by holding these investments in a retirement account instead of a taxable investment account.

To see if trading is generating a tax bill, look at Schedule D to see if you have short-term gains on line 7. These gains are taxed at your marginal income rate. Long-term gains on line 15 are usually taxed at a lower rate. If you have large taxable gains from sales, you might want to look at managing your investment sales to reduce the taxed gains.

Finally, if you are getting a larger refund than you want, or you owe a lot, you can adjust your withholding or estimated payments to avoid this in 2017.

Understanding where your money is going is key to making improvements. Take some time now to use your tax information to make your finances better and lower your taxes in 2017.

Tom Roberts, CFP® is president of A New Approach Financial Planning in Lakewood Ranch. He can be reached at 941-927-9590.  Article originally published in The Bradenton Herald on April 11, 2017.

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