What You Can Learn From Your Tax Return

We hope everyone is excited for another tax season! At ELM3, we are prepared to make this season seamless and stress-free for our clients.

While you may be in the habit of dropping off your tax documents without a second thought, preparing and reviewing your tax return is a wonderful opportunity to learn about your organizational, spending, and saving habits. Indeed, your return can help you determine good habits that you should maintain and bad habits that you should consider breaking.

Did you have a difficult time finding documentation necessary to complete this year’s return? If so, consider making a list of the documents required to complete this year’s return and discerning a better organizational strategy for keeping track of these documents in 2015. For example, delegate a single drawer in your kitchen where you file these documents throughout the year. Preparing for tax season next year may be significantly less strenuous.

Were you surprised by the amount you paid in income taxes this year? If so, check to see if you are taking advantage of your retirement savings plan. For 2015, you can make a maximum annual contribution of $5,500 to an IRA and of $18,000 to a 401(k) – a $500 increase from the previous year. If you are over the age of 50, you can also make a catch-up contribution of $6,000 to a 401(k) and $1,000 to an IRA. Increasing the amount you contribute to a retirement savings account will reduce your taxable income, and depending on your income and marital status, you may qualify for a savers credit.

Were your mortgage deductions lower than you expected? You may be coming to the end of your mortgage, reducing the amount of tax deductions for which you qualify. If this is the case, determine if you are able to increase your monthly mortgage payments and pay off your mortgage more quickly. If you make this determination earlier in the year, you can modify your monthly budget to make increased mortgage payments more financially feasible.

If you’re a small business owner, how much are you spending on deductible expenses? Ask yourself this question if your profit-loss statement shows high revenues with few expenses. Then consider making deductible business investments in 2015 — investments that could help reduce the amount you pay in taxes next year.

Finally, were you financially unprepared to pay taxes this year? If so, take some time to evaluate your 2014 budget and determine where you could cut spending or increase savings. You can also better budget for tax payments by reviewing how much you withhold from your paycheck. Determine how much you could reasonably afford to withhold from each of your paychecks, and accordingly increase the amount withheld from your paycheck by adding money to the “additional withholding line”. Doing this will help save you from spending money you may eventually need to pay your taxes and could increase your tax refund in the following year.

By asking yourself these questions, you may find this year’s tax season to be more educational than stressful. Of course, if you have any questions throughout this process, the ELM3 team will be available to assist you. We hope to see you in our office soon!