Tax Day has come and gone…What can you learn?

April 28th, 2017 by Anchor Bay Capital's Investment Team

The tax filing deadline was almost two weeks ago and I know it is probably a distant memory by now.  However, a quick review of your tax return could make a big difference for your money over the next year.  Let’s take a quick look at 5 things you can learn from your taxes and what to do about them.

Are you putting your refund to work?

If you are receiving a refund this year, congratulations!  Now I want you to think way back to April of last year.  Did you receive a refund?  If so, where did that money go?  Hopefully some of that money is still working hard for you!  Gobankingrates.com recently published a survey titled. “Here’s the No. 1 Thing Americans Do with Their Tax Refund.”  The winner? Putting the money in savings!  Paying off debt was a close second, while a vacation came in 3^rd.  What should you do?  Check out this link for some quick advice: https://www.anchorbaycapital.com/financial-planning-friday-follow-this-rule-when-spending-a-tax-refund/

Are your mutual funds costing you money?

If you have mutual funds in a brokerage account, take a look at your 1099-DIV form.  That market run at the end of the year last year may have generated some strong capital gains distributions for you that you paid taxes on.  Using mutual funds in a taxable account may not be the most tax-efficient way to invest because you lose some control over managing your gains and losses.  It may be time to re-evaluate and direct future investments to a more tax-efficient strategy.  Talk to us about a complimentary consultation on this process.

What has your cash done for you lately?

Did you get a 1099 from your bank? If so, it’s time to evaluate how much cash you have stashed in a traditional savings account.  I recently updated my financial planning system to use an inflation projection of 2.64%.  This is based on 30 years of data of the Consumer Price Index.  If you add taxes to that inflation number and consider that the average savings account yields less than 0.25%, you may be losing money!  Remember to evaluate your cash as part of your financial plan.  You need to have liquid savings, but there are several options for cash alternatives when you are paying too much tax on your safe money.

What is the best way for you to save for retirement?

Did you lower your taxable income with a retirement contribution?  Could you have done better in this area?  It is important to know the limits and work toward maximizing your contributions.  If you receive a company match, make sure you are taking the free money.  After this, look for how you can optimize your retirement savings for the future by asking yourself if it is better to pay taxes now or pay taxes later?  An evaluation of your current tax situation along with your retirement expectations can help you decide if a Roth IRA or some other type of account is appropriate.

Did you give all that you could?

Are you contributing to your causes in any way? Do you want to do more?  It feels good to help out and make a difference no matter how large or small your efforts are.  Your charitable contributions go a long way in lowering your tax bill, but remember it is not just your financial contributions.  Keep records of your volunteer work.  Did you buy supplies or goods for a project? Did you track the mileage to get to an event?  It is easier than ever to keep records now with technology.  Ask your tax advisor what applies and talk with us about how to set up a mobile financial dashboard to use for your records.

You don’t have to be an expert to evaluate things and improve your finances.  Remember that small changes can make a difference and you can utilize your financial team to know what is right for you.  We are happy to assist you and help you build that team.