Filing an income tax return is often accompanied by a plethora of questions. “Have I gathered all important documents?” “Did I miss any credits or deductions?” “Will I get a refund or owe more money?”
These, however, are not the most important questions to ask when evaluating whether you are properly stewarding your wealth. In fact, your income tax return brings many important realities into view, and a lot of truth can be found in the line items of a Form 1040.
Your tax return is an annual opportunity to assess whether you’re aligning your wealth with your values. Regardless of whether you receive a refund or owe additional taxes, ask yourself these five questions to determine if you’re truly prioritizing what you say matters most.
Am I using my income well? The income tax return gives you a clear summary of total household income. Combining all sources of income, such as wages, dividends, interest and other earnings, highlights just how much money is available to build the life experiences and long-term impact you desire. However, if you find that wealth is not adding to your enjoyment of life, it’s time to revisit your spending plan to ensure you’re not merely budgeting to save but also budgeting to live and give.
Are my expenses higher than they need to be? Many people see the total income summarized on their tax return and wonder where it all went. As the cost of living and life circumstances change, your household budget should be reevaluated at least once a year to ensure you’re not overspending or carrying excess debt. To properly steward your wealth, it’s important to regularly reflect on whether you’re spending money on the right things or if ‘lifestyle creep’ keeps moving the goal line and increasing your expenses.
Am I saving too much or not enough for retirement? Your income tax return will identify contributions to retirement accounts, allowing you to track savings progress toward your retirement goal. Based on the age at which you plan to retire and your vision for what will constitute a fulfilling retirement, you should know how much to save annually to live comfortably in your golden years. If you’re saving more or less than your financial plan projects as necessary, reallocate those resources to another purpose.
Am I following through on the commitments I made? Many of our clients are committed to charitable giving to support causes close to their heart. However, it’s common for a tax return to highlight that you weren’t giving as much as you thought. If generosity is one of your core values and you’ve set an annual giving goal, the tax return will uncover how close you came to meeting it.
Am I paying more taxes than I need to? Your income tax return reveals key areas to optimize your tax efficiency: dividends, interest and capital gains from investments as well as your total taxable income. By working with a financial advisor who understands taxes and completing proactive tax planning, you can take advantage of opportunities to reduce your taxable income and ensure you aren’t paying more than your fair share.
As you review your completed tax return this year, look closely at the insights it reveals and use this opportunity to ensure reality matches the stewardship goals you intended.