Tax returns are underrated financial planning tools

May 10, 2021

By Megan Hart, Journal of Accountancy

Almost a quarter of American taxpayers don’t have a financial plan, according to a recent survey from the AICPA. However, tax time provides an excellent opportunity to create or update a financial strategy.

“One of the biggest challenges with doing a financial plan is probably why so few do it: It requires a lot of information,” said Matt Rosenberg, CPA/PFS, a member of the AICPA’s National CPA Financial Literacy Commission. “You might as well turn and use that information from your taxes for planning.”

AICPA survey data gathered in fall 2020 shows 55% of American taxpayers have gleaned valuable financial insights from their tax returns, but only about half that number assess their returns annually. It’s a step everyone should take, Rosenberg said.

Almost everything on your tax return is relevant for financial planning, he said. Look at your dependents and filing status, as well as your income items, to see how they’ve changed or might change in the future. Consider whether income changes are recurring or nonrecurring and examine your deductions to identify major expenses. These totals, he said, can help form the basis of your financial strategy by allowing you to determine how much of your income is left after expenses.

“Then once you have that number, that’s when you can start figuring out how you want to go about achieving your financial goals,” Rosenberg said.

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