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Tax season can be stressful, but approached thoughtfully, it can help create a solid foundation for your financial future.

Use Your Tax Return to Boost Financial Health

  • Michael Prinzo
  • 3/16/2021

Key insights

  • Tax season is the perfect time to review your overall financial plan and look for tools to diminish your tax burden.
  • Consider leveraging vehicles such as HSAs, 529 plans, or IRA accounts to more efficiently save for medical expenses, education, and retirement.
  • An integrated approach to financial and tax planning can create a solid foundation for growing wealth.

Can your financial plan take you where you want to go?

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Many individuals consider tax returns an indicator of their financial performance over the past year, but with the right approach, tax returns can be a proactive tool for kickstarting savings and boosting your financial future.

At CLA, our team helps clients organize and implement tax strategies within a broader financial plan. Understand how you can use your tax returns to create a solid financial foundation for you and your family.

Build a stable financial plan for the future

Tax season is a smart time to reflect on life changes and align finances with your personal goals. Whether you are getting married, having a child or grandchild, or starting a new business, many milestones affect more than your personal income taxes and can be supported with sound financial planning. No matter your stage of life, you can benefit from saving and financial planning — it’s never too early or late to begin.

Consider financial tools in your life plan

It pays to take advantage of financial tools that offer tax incentives. There are several vehicles that minimize taxes while helping you save for specific goals. For instance, 529 plans are a common option that allow you to save for education expenses. Health savings accounts provide an avenue to prepare for qualified medical expenses. Dependent care flexible spending accounts can help fund after-school care or day camps that allow you to work when your kids are not in school.

Depending on your specific goals and time horizon, there are several other strategies that incentivize saving and investing for retirement, education, housing, economic development, and philanthropy.

For example, you may want to:

  • Maximize contributions (including catch-up contributions) to retirement savings accounts, such as employer-sponsored plans or IRAs; income generated in these accounts is tax-deferred or tax-free
  • Consolidate several years’ worth of charitable contributions into one year to utilize the standard deduction in the other years
  • Invest in a qualified opportunity zone fund to defer paying taxes on large capital gains

Consider all of the income tax tools available to you. Minimizing taxes can help you achieve your financial goals sooner.

Get more: Explore opportunities to boost your financial future with our webinar series for individuals

Account for the unexpected with estate planning

Gift, estate, and trust planning is an essential element of financial planning for everyone. When utilized correctly, estate planning strategies help take care of loved ones while minimizing administrative, financial, and tax burdens in the future. Estate planning is not a one-time event you can set and forget. Major life events (including marriage, divorce, starting a new businesses, or having a child or grandchild) as well as federal and state legislative and regulatory changes can profoundly affect the strategies necessary to implement your goals.

With proper planning, you should understand not only how you will transfer your wealth (during your lifetime and at death) but also the potential cash-flow, probate, asset protection, and tax issues arising from the transfer.

If you currently have a plan, review how these pieces work together and whether it continues to meet your goals. For example, your will, trusts, and other estate documents should address the unexpected (incapacity, early death, future creditors, family discourse, tax changes) and take advantage of the current opportunity to make tax-free gifts within certain parameters. Keep in mind that proper execution is also an essential component. Consider utilizing tax season each year to reflect on the execution of your plan. At a minimum, review and update your beneficiary designations (including life insurance policies, investments, and retirement accounts) as well as titling of real property and other assets.

Integrate tax and financial planning

Because taxes have an impact on nearly every transaction in life, tax planning is a crucial component of wealth management. However, taxes are many times an after-thought.

Keep in mind that unintended tax consequences and missed opportunities are challenging, or sometimes impossible, to “fix” after financial decisions have been made. To that end, consider the tax implications of investment planning, asset allocation, cash-flow and liquidity needs, risk management, and wealth transfers prior to making financial decisions. Tax considerations should also factor into the execution of financial plans (including exercising stock options, investing in different types of assets in your tax-deferred accounts, or utilizing certain assets for gift and charitable transfers) in order to make fully informed decisions.

Your income tax return is annual “reminder” of the importance of taxes — but an integrated approach to tax and financial planning throughout the year increases your chances of realizing the goals that matter to you.

How we can help

Do you ever wonder if your financial strategies are “enough”? We can help you assess where you are today, determine where you want to go, and create a path that supports your personal goals.

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