After Filing Taxes: How to Interpret Your Tax Return and Next Steps Ahead

Did you file your tax return this year but wish you had done something differently? If tax season brought up feelings of stress or anxiety for you, let’s chat 

My name is Gina DiGirolamo. I’m here with Scott Foret. Scott, thanks for joining me today. Thank you for having me. Absolutely. Let’s jump right into it. Like I said, we’re going to be talking about what some of the emotions that are brought up from when people are filing their tax return and what that looks like. 

Yeah. Oh, how do you feel? Right. Yeah. It’s a bit of an unknown for a lot of people. Yeah. So, you know, you’re in this heightened sense of gathering documents and forwarding them to your financial advisor and your CPA. And then there’s this little silent period where they’re processing it all, and you’re trying to think, hey, my overpaid, am I underpaid? 

It’s kind of like getting a lottery ticket and you’re never really sure where you scratch is like, is this going to be me paying the government or me getting your return? Yeah. And everyone’s kind of thinking, well, if I get a return, here’s how I’m going to spend it or here’s what I’m going to do with it. But if I owe, you know, all the angst that comes with that. 

So it’s, it’s a heightened emotional time and, everyone kind of just gets through it like a term paper. They wait till the last minute, and then all of a sudden it’s like, here upon them and they have to do it. And then once it’s done, they just put it away and don’t think about it. And as folks are going through this process and they’re really sitting down and looking at their financial situation, what are some regrets or missed opportunities that you may come across while you’re sitting down with someone looking at their tax return? 

Yeah, as you know, you know, so much of these decisions are time sensitive. So if someone is looking at their tax return and saying, wow, you’re in review, I could have done this. I should have done this. I could have started at least during this process. It’s a time to look back and go, what should I or could I have done? 

What did I do? What might I change next time? The problem with that, though, is once people are through it, as I mentioned, it’s just kind of shelved and they put it away. And then another year goes by and all of a sudden when you start thinking about it, you know, five years have gone by and you may have missed an opportunity. 

So how can someone who’s feeling emotional that they maybe miss something or they don’t like how that year went? How can they reframe that into something productive financially? Yeah. Great question. I’d say, you know, what’s done is done. And so when you’re looking at the return, it’s just kind of this is what happened this year. But instead of shelving, it really used it as a milestone or a benchmark for what you might be able to do. 

 I understand the tax code is very complex. But learning a little bit about your return itself. Go through it. Look at what numbers are where what means this? There’s a lot of schedules attached to it. It doesn’t mean you need to know the whole tax code, because so much of that is detail that would just never apply to you. 

But there are things that you can investigate. You know, what is a schedule? Should I itemize? And it’s important because tax laws change every year. So you really have to keep up to speed on, you know, what is the state and local tax deduction this year. What are other changes. Senior deduction. You know, the $6,000, credit for people over 65. 

So just kind of informing yourself helps you to plan for that next year. So a lot of times when someone is going from being, let’s say, a W-2 employee for most of their career, then they shift into retirement. Their tax environment is going to look a lot different in retirement. Can you just give a couple specifics or key things in that for that type of person, someone that’s retired. 

They’re kind of transitioning from that that corporate environment into retirement. What are the key things when it comes to the tax planning? Yeah. Great question. It’s a monumental change. And don’t underestimate that. I in another video that I did, I talked about the emotions that come with, you know, being retired. It’s the same around taxes and in particular with income. 

So your income, profile has changed dramatically. You’re usually not receiving funds. You’re drawing on your own investments. And so really understanding what, efficiencies you can use with some of those, it might be decisions on, gifting. It could be decisions on when or if, to take Social Security. There are so many different techniques that come that are dependent on income. 

And when the income profile changes for someone, you really have to appreciate all the other things that come with that. Having a good planner financial planner really kind of helps people, distill down those things that are most important in that stage. Let’s go a little bit further. You mentioned gifting and legacy planning. If that is someone’s goal right there in their in retirement and eventually they want to gift, whether it’s to family members or charitably talk about some things when it comes to the tax perspective, that might be important if that’s the goal. 

Yeah. And gifting has so many different forms, right. You can do, direct gifting maybe to your children. And there are limits, you know, that you want to, adhere to before you go into your lifetime maximums. There could be, charitable distributions, qualified charitable distributions or CD’s that you can use to actually, relieve yourself of the required minimum distribution burdens. 

Also, you know, just setting up something like a donor advised fund, where you’re making, you know, your irrevocable gift, to a fund and you’re able to claim that on your tax return. Other strategies that come in depending on income might be Roth conversion. So taking those monies that are in an IRA, when your income drops, you’re in a lower tax bracket. 

And so one of the techniques we often recommend is pay some of the tax to convert from an IRA to a Roth. We’ll pay the tax now but let all those funds grow tax free. Just to name a few. 

Great explanation. Scott. We’ve gone through a lot of different areas here. What would you recommend for someone? They’re seeing their return. They’ve gone through tax season. What do they do next? What’s the next steps? 

Yeah. You know, when you look at it, you could be disappointed. Maybe. Oh, I didn’t do this or I didn’t do that. Instead, I’d say change your frame, use it as an opportunity to say, what am I going to do? This year as a kind of a New Year’s tax resolution? Look through the return again. 

Talk with a financial planner to arrange some of the strategies. You don’t have to do all or nothing, really. You know, small moves are perfectly fine, but, understanding the tax code is also important. Brief yourself on some of the tax law changes in that year. It could have affected what you did the year prior. Just to name a few. 

I think the important thing there is being intentional when it comes to your financial plan and tax environment. Right? There’s a lot of intentionality and proactive planning that comes into play here. Yeah. You know, another one I’ll mention is, with income and being able to manage your income in certain years can be important for things like Medicare premiums. 

So there are ways, even in the decision to retire, where you might say, it makes more sense for me to retire in October of this year versus January of the next. Things like required minimum distributions. It could also be, if you’re lucky enough to have a pension with your employer. There are often calendar year, interest rate determinations that can really affect your value and could prompt you to take a different decision in that year. 

So it’s not just a once a year term paper, you know, wait till the last minute kind of process check in. Think about this. Set your a reminder for yourself quarterly. But really with some intention thinking about what can I be doing? What should I be doing. Absolutely. So to just tie a bow on this, if you were to give maybe three key tips and takeaways for anyone listening, what would those be. 

First and foremost an unbiased talk to an advisor. Yeah they’re really in the best position to help you. A CFP will understand the tax landscape. They can offer coordination to with the CPA and talk with them and look at the tax return. We have specialized software here that we can run a tax return through and look for those new opportunities. 

 So that’s an important part. Start small. Don’t feel like you have to do all or nothing. And what you do in one year isn’t necessarily what you have to do in another year. And really, you know, the third thing I’d say is use it as a check point for yourself and just say, this is my one year and it’s done. 

What do I have a plan for the next 4 or 5 and start with that next year, the one you’re currently in, and just think about some of the moves you can make. It could be something as simple is upping your 401 K at your workplace. It could be, you know, like I said, decision on Social Security. 

You know, am I going to work or am I not going to work, or am I going to volunteer, or am I going to make some money? What does that extra income do to my tax situation? Absolutely. And I think you said it very well that the importance of having a team that will be able to coordinate all of these efforts, whether it’s from managing your income in retirement, meaning during managing your tax environment, planning and planning for those legacy goals, it’s all important to make sure that that that consolidated approach and that team approach is kind of working together. 

So if any of this applies to your situation, we’d be happy to have a conversation. Reach out to our team at blue Chip partners. 

It was a great conversation. Scott, thanks so much for joining me. Thanks for having me, Gina. Absolutely. And thanks for watching. Can’t wait to chat again soon.