The Dala Group Analyzes Your Tax Returns, Here's Why It's Important

Tax season is over, or so you thought. Once you file your tax return, we ask you to upload it so we can review it. Why? Nope, it’s not just for fun! Reviewing a tax return can reveal hidden financial planning gems we can apply to your situation. Here’s what we’re looking for in your tax returns and why it matters.

What We Look for in Your Tax Return

When you upload your tax returns, what do we do with them? Step 1 is analyzing them for a few key pieces of information. 

1. The Basics

First, we want to check that your basic financial information matches, such as your address, filing status, dependents, and more. While that may seem straightforward, there could be various financial planning considerations if there’s a change. For example, reviewing your address(es) could reveal whether you moved or added an investment property. Your zip code can impact your finances in many ways, from property taxes to local taxes to income considerations and more. Suppose there is a change to your filing status (i.e., single, married, divorced, etc.). This could prompt essential action items like updating your income withholdings (from your employment or IRA withdrawals), estate planning, or beneficiaries. Did you have any kids in the last year? What if an elderly relative needed to move in with you? If so, you may be able to claim these people as dependents on your return, making you eligible for new deductions and tax credits.

2. Current And Projected Income

By reviewing your current income against the previous year’s numbers (W-2s, 1099s, investment income, etc.), we can obtain a much clearer picture of your total income. Doing so creates a baseline for strategic financial decisions, like when to realize capital gains, taking advantage of lower-income years with Roth conversions, reducing your taxable income by putting more money into tax-sheltered accounts, offsetting gains with tax-loss harvesting, amping up your charitable giving strategy, and more. It also helps bring context and color to upcoming financial goals. 

• Is retirement on the horizon?

• Do you want to make a career change?

• Is now a good time to include rental properties in your holdings?

When we review your income, we can make more informed projections for your readiness to take on specific goals. If you anticipate any small or significant financial changes in the next year, we want to be informed so that we can guide you to the best solution. Plus, we can see how those additions will impact your overall financial plan. 

3. Credits & Deductions

Taxes play a significant role in your financial picture, so a better understanding of what your household qualifies for opens up different financial considerations. 

• Does it make sense to itemize in specific years? How can we be strategic about itemizing and using the standard deduction?

• Do you own your own business or do some contract work on the side? In that case, there might be home office deductions available. 

• Do you qualify for new credits based on your income or family situation? 

Deductions are one of the most important elements to think about. When the Tax Cuts and Jobs Act went into effect in 2018, it nearly doubled the standard deduction, making it more difficult for households to take advantage of itemizing. And one of the most significant ways to get a deduction is via charitable giving. For example, if you donate to charity but take the standard deduction, you aren’t getting the full tax benefit of your charitable giving. By looking at your tax return, we can develop a strategy for your household that takes advantage of itemizing in some years and taking the standard deduction in other years. All of this information can help inform potential financial decisions and make us more attuned to future tax laws and other legislative changes that could impact you.

Why Our Analysis Matters

So now you have a better idea of what we’re looking for in your tax returns. At this point, you might be wondering why it matters to you. Let’s find out!

1. Obtain A Clear Overview of Your Financial Situation

Your tax return is like a tell-all about your financial life. It highlights how much money you make, if you have any children, your work situation (employee vs. self-employed), investment holdings, charitable giving habits, etc. Having all of this information in one place gives us a bird’s-eye view of your money and allows us to draw critical connections for future planning opportunities.

2. Encourages An Open Dialogue About Money

Tax planning is a prominent part of holistic financial planning. After reviewing your tax return, we always want to talk to you about what we see, encouraging an open dialogue about money. We can use the data to help further personalize your plan and focus on optimizing recommendations for your unique goals and lifestyle. Finally, we can explore various opportunities, strategies, and scenarios to ultimately lower your taxable income and help your money work harder for you.

3. Reveals Unique Tax Planning Opportunities

In analyzing your tax return, we can identify places where you might be leaving money on the table, including,

• Updating your W-4

• Roth conversions

• Tax-efficient investing

• Exercising company stock

• Donor-advised funds (DAFs)

• Qualified charitable distributions (QCDs)

• RMD strategies

• Bunching of charitable giving

• Consideration of after-tax contributions into a 401(k)

• College funding & 529 Plans

And so much more! All these ideas can help optimize your long-term tax picture. With the tax filing stress behind you, take the time to upload your returns so we can bring more intention to your financial strategy this year. Ready to learn more? Reach out today.