When it comes to making financial decisions, you want to arm yourself with as much information as possible. One often overlooked source is your Form 1040, advises CNBC in “Use your tax return for more than paying taxes.” Sharing this document with your estate planning attorney will allow him or her to get a clearer picture of your financial situation, as well.
Lines 1-5 (Filing status). If you need to check a different box for your filing status, you should review your estate plan. If you’ve gotten married or divorced, you'll need to update your estate plan and the beneficiary designations for life insurance and retirement plans.
Line 6c (Dependents). An increase in the number of dependents is a good reason to update your estate plan! This might mean a change to your cash flow for college savings and insurance needs, too.
Line 7 (Wages, salaries, tips, etc.). Take a look at your W-2s to see if you're making the most of workplace benefits. For instance, employees can benefit from boosting pre-tax retirement contributions, and those with children may be missing the opportunity to contribute to a pre-tax account for dependent care expenses.
Line 11 (Alimony). This is considered earned income, so consider using some of it to bolster retirement savings by contributing to an IRA.
Line 12 (Business income). If your business has become more profitable, look at whether you’re utilizing the most efficient business structure. There may be significant tax and liability considerations for your growing company.
Line 13 (Capital gains). Your capital gains and the details on your Schedule D can say a lot about how you are investing. If the numbers are too high or too low, it could mean you need to reexamine whether the investments and diversification are appropriate for your age and risk level. You may have some missed opportunities to offset capital gains with capital losses.
Line 17 (Rental real estate). If you're buying property, think about the best way to hold ownership. Work with your estate planning attorney to ensure the owner of the property aligns with your estate plan. If you’ve purchased or sold property, you’ll want to update him or her on that, as well.
Line 28 (Self-employed SEP, SIMPLE and more). If you're a Schedule C or F worker, a zero on line 28 may be a missed opportunity to increase your retirement savings.
Line 40 (Itemized deductions). By bunching deductible expenses, you may be able to alternate years of claiming the standard deduction and itemized deductions. This is used in some instances to avoid the alternative minimum tax every other year. There are also trends in charitable giving that may yield planning opportunities.
Before making any gifts to charitable organizations, especially significant ones, speak with your estate planning attorney. He or she may be able to help you maximize that gift for estate tax purposes.
It’s important not only to regularly review your financial “big picture,” but to ensure you regularly communicate with your estate planning attorney about these goals, what assets you own, how they’re owned and who you want to be the beneficiary. Our lives can change quickly and if updating your estate plan isn’t on your radar, your estate plan may no longer reflect your financial goals, assets, family situation, values or the current laws. Make sure you work with an experienced estate planning attorney on an ongoing basis so changes in your life are incorporated into your estate plan.
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Reference: CNBC (September 28, 2016) “Use your tax return for more than paying taxes”