TIP: Use Your 1040 To Help Cut Next Year’s Tax Bill

Tip of the Month

May 2008

TIP: Use Your 1040 To Help Cut Next Year’s Tax Bill

Whether or not you are breathing a sigh of relief now that tax time is over, it might be worthwhile taking another look at your 1040 before consigning it to your filing cabinet. Why? Well for starters, your federal tax return probably provides the best “snap shot” of your overall financial situation. If you are like most small business owners you may face a lot of financial planning issues in the coming year. A slower economy and recessionary pressures may require some shifts in savings and investment strategies, and a timely analysis of 2007’s return may help you put steps in place now to cut your tax bill next year.

Sitting down with your tax professional and your financial advisor now might help you discover potential concerns before they become major issues. Looking over a 1040 with an eye to the future can help prompt some important questions and considerations. Here are some of the areas you might wish to consider—and some points to ponder that may save you money:

Education needs
If you have younger children at home, this may be a good time to figure out what their education may cost (hint: education costs have been increasing rapidly of late). Financing your children’s education can be a very complicated matter and new tax strategies may help fund future college plans. With kids already enrolled in college, it may be to your advantage tax-wise to see if having the student pay his/her own tuition might be the smart choice.

Retirement Planning
Small business owners and the self-employed often fail to fully leverage tax-friendly savings options that help boost a retirement nest egg. It may be time to look again at the various plan options— including Roth IRAs and target-date or life-cycle funds –that are available.

Investment Planning
With the possibility of a Democrat in the White House, there is a real chance that taxes on capital gains and other investment revenue may be slated for revision. It may not be too early to consider the possible impact of tax changes and recessionary pressures on your investment plans. An analysis of your taxable income –as shown on Schedule B—may provide some important indicators. Perhaps it's time to gather information on various options including municipal bonds, exchange-traded funds and other investment vehicles to help hone a new investment strategy.

New Small Business Ventures
A look at your annual cash flow may suggest that it’s time to spin-off an area of interest or a hobby into a separate new business venture with appropriate tax write-offs for business expenses.

Perhaps pouring over your recent filing doesn’t sound like a fun way to spend a few hours, but it may be the ready-made planning tool that will help keep more money in your pocket in the year ahead.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.