Tax returns are never given enough credit. Most people dread having to deal with them. And, they are often viewed as a commodity – by taxpayers and tax preparers alike.
I see tax returns as a tremendous tool because this is what “seals the deal” on tax savings that have been identified as part of a tax strategy.
For the average taxpayer, their tax return is something they focus on only once a year.
In order to leverage the benefits of a tax return, it needs to be a part of your everyday activities. Here are just a few ways to integrate your tax return into your everyday activities.
#1: Remember that what you do in your business and investing always impacts your tax return
Think about the recent business or investment activities you've had.
Have you bought anything?
Have you received any money?
Have you entered any agreements?
Have you sold anything?
All of these activities are routine activities in business or investing, and every single one has an impact on your taxes – particularly how your tax return will be filed.
Make it a point to work with your tax advisor to gain a basic understanding of how these activities will be reported on your tax return.
Discuss your specific activities with your tax advisor to come up with a plan to ensure your activities work with your tax strategy to minimize your taxes.
For example, if you learned, prior to having your tax return prepared, how to change your activities slightly that resulted in a better tax result, this would be valuable information to apply during the time you are engaging in the activities.
#2: Keep your documentation up to date
Nothing good comes from scrambling to get tax return information together in order to file a tax return. When information is gathered in this manner, it is often incomplete and inaccurate.
Once you understand how your activities impact your taxes and your tax return, you can then develop systems to keep the documentation you will need for your tax return.
With this approach, you can leverage the benefits of your tax return into your everyday activities.
Keeping your documentation up to date is one of the most effective ways to monitor your tax strategy. It makes the tax preparation process much smoother and more accurate.
Plus, you can easily review your documentation regularly to make sure your tax strategy is on track and if it's not, you have time to make changes before it's time to report it on your tax return.
#3: Always know where you stand
You've probably heard some tax preparation firms brag about how many of their customers receive refunds, or the average size of their customers' refunds.
Isn't this great news? Well, I'm not sure. A refund can seem like great news, especially if it isn't expected, but it usually indicates a lack of strategy.
With proper planning, that refund can be received a whole lot earlier. While most people don't want to owe tax when they file their return, they also don't like to part with their money any earlier than they have to and that is exactly what a refund reflects.
Where do you stand – are you going to owe with your tax return or are you going to get a refund? This is important information to know throughout the year.
Never underestimate the value of your tax return
Your tax return is a huge part of the success of your tax strategy. It is the final step of making the tax savings a reality.