How to Read Your Tax Return: A Practical Guide to Making Smarter Financial Moves

Your tax return is more than just a record of what you owe—it’s a powerful tool for assessing your financial health and uncovering opportunities to improve it. From reducing taxes to boosting savings and planning for life’s milestones, understanding how to read your tax return can lead to better financial outcomes.

Unfortunately, many people miss these opportunities by focusing only on the numbers. When you know how to interpret important (but often overlooked) details in your tax return, you can connect them to a comprehensive financial plan that works year-round, adapting to your life changes and helping you make smarter, well-aligned decisions along the way.

Using Your Tax Return to Drive Smarter Financial Decisions

When paired with guidance from both your tax professional and financial advisor, a tax return review can reveal new ways to strengthen your overall financial strategy. Here are six critical areas to examine:

1) Are You Paying More Taxes Than Necessary?

If you owe taxes year after year without improvement, you may be missing tax-saving opportunities, such as unused deductions or untapped tax-advantaged accounts.

Ask Yourself:

• Are you consistently paying high taxes with little change?
• Have you maximized contributions to accounts like 401(k)s, IRAs, or HSAs?

Why It Matters: Smart tax planning can reduce your taxable income and keep more money in your pocket.

Discussion Points for Your Professional Team:

• Maximize retirement plan contributions and/or health savings accounts
• Review deductions for mortgage interest or energy-efficient home improvements
• Explore charitable giving options, like donor-advised funds (DAFs)

Action Tip: Review deductions, credits and contributions with your tax professional. Your financial advisor can help ensure tax-saving strategies fit seamlessly into your broader financial plan.

2) Are You Planning to Sell Investments or Property Soon?

Selling major assets, like property or investments, can trigger significant taxes if you don’t plan ahead. Reviewing how your sale will be taxed—and exploring strategies to minimize the impact—can help you protect your profits.

Ask Yourself:

• Do you intend to sell a major asset—like investments or property—soon?
• Are you prepared to reinvest the sale proceeds strategically?

Why It Matters: Without proper planning, taxes on large sales can reduce your returns and limit future financial opportunities.

Discussion Points for Your Professional Team:

• Determine whether short- or long-term capital gains apply
• Identify ways to offset gains with tax-loss harvesting
• Explore tax deferral options, such as installment plans or 1031 exchanges for real estate

Action Tip: Engage your tax professional early to review the sale’s tax implications and identify strategies to reduce your tax liability. Your financial advisor can help you reinvest proceeds in tax-efficient options that align with your long-term financial goals.

3) Are You Navigating a Financial Gift or Inheritance?

A large gift or inheritance can be more than a financial windfall—it can be a source of tax complications if not properly planned. Evaluating how it’s reported and incorporated into your financial strategy is key to protecting its value.

Ask Yourself:

• Have you received or are you expecting a large gift or inheritance?
• Are you unsure how to prudently manage it while minimizing taxes?

Why It Matters: Poor planning can diminish the long-term value of financial gifts and introduce unnecessary tax burdens and complexities.

Discussion Points for Your Professional Team:

• Report gifts and understand exemptions
• Consider trusts to help protect and manage wealth
• Coordinate gifting strategies within your financial plan

Action Tip: Review gift-related reporting requirements, such as Form 709, with your tax professional; they can also advise you on maximizing exemptions relating to the gift or inheritance. Your financial advisor can help you develop a strategy to protect and grow these assets.

4) Are You a Business Owner?

Business ownership comes with distinct challenges and opportunities. From optimizing deductions to income planning, business owners’ financial and tax needs are highly specific—and often complex.

Ask Yourself:

• Do you own a business but lack a clear plan for retirement, succession, or sale?
• Are you balancing business growth with personal financial needs?

Why It Matters: Business owners can leverage various tax-efficient strategies, from offering retirement plans to structuring income distributions.

Discussion Points for Your Professional Team:

• Maximize deductions, like Section 179 expensing or home office costs
• Set up retirement plans for yourself and/or your employees
• Explore income deferral or splitting options

Action Tip: Select a team of professionals who focus on serving business owners. Collaborate with your tax professional to identify potential deductions, depreciation, and other tax advantages. Your financial advisor can help you with growth, valuation, succession planning, exit strategy, and retirement plan design to reduce your current tax liabilities while helping you and your employees build long-term savings.

5) Is Estate Planning on Your Radar?

Your tax return can highlight potential future estate tax liabilities—and opportunities to minimize them. Early planning is essential to help protect your legacy.

Ask Yourself:

• Do you have a plan for passing on assets to charitable causes or loved ones?
• Are you worried about estate taxes affecting what they will inherit?

Why It Matters: An effective estate plan can help protect your assets from unnecessary taxes and ensure your legacy is preserved for future generations.  

Discussion Points for Your Professional Team:

• Gifting strategies to reduce taxable estate value
• Maximize exemptions while available
• Consider charitable trusts or giving mechanisms

Action Tip: Your tax professional can help you identify tax-reducing strategies related to your estate. Your financial advisor can help you build a basic estate plan to protect your legacy and reduce tax burdens. Ask them if they are equipped to provide you with more extensive estate planning tools and resources as needed.

6) Have You Recently Experienced Major Life Changes or Events?

Significant life events—such as getting married, having children, or receiving a raise—can create new financial responsibilities, goals, and opportunities.

Ask Yourself:

• Have you experienced recent life changes—like marriage, divorce, loss, or a new child?
• Did you receive or are you expecting a raise or bonus?

Why it Matters: Major life events often require updates to both your financial and tax plans.

Discussion Points for Your Team:

• Update your filing status and tax documents
• Adjust retirement contributions based on income changes
• Review eligibility for credits like the Child Tax Credit

Action Tip: Consult your tax professional to update tax documents, withholdings, and/or deductions. Work with your financial advisor to align your financial plan, needs, and goals with your new reality.

Final Thoughts

Understanding how to read your tax return is only the beginning—what you do with this knowledge is what drives meaningful change. By partnering with both your tax professional and financial advisor, you can build a coordinated plan that connects tax savings with long-term financial success.

Need a Little Extra Help?

We offer a 20-Minute Tax & Financial Check-In—a complimentary session designed to help you uncover opportunities and practical steps toward improving your financial outlook.

Here’s what you can expect:

• A Quick Tax Return Review: We’ll highlight key areas where a coordinated approach to financial planning—in collaboration with your tax professional—could help you reduce taxes and boost savings.
• Immediate Action Steps: We’ll provide you with a short list of  simple tasks you can act on right away to start improving your financial health.
• A Personalized Checklist: You’ll take away tailored recommendations and follow up items to help keep you on track.

Schedule your complimentary check-in today and start connecting your tax return to a long-term financial plan.