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Connecticut Money: See what you can learn from your tax return

This article was published in the New Haven Register on March 29, 2020.

Perhaps you filed your tax return already and have moved on to other things. Or maybe you are waiting until the last minute to file and pay. Either way, your tax return documents can be a rich source of information for you regarding financial planning and estate planning.

The information you gather to pay your federal and state taxes provides a valuable snapshot of your current financial status and can give you insights into certain trends, as well. So keep your tax folder on top of your desk for review: It may help you makes changes that will pay dividends down the road. Here are some ways you can benefit:

Adjust your payments to Uncle Sam. Ideally, you should come out about even every year on your taxes. If you had to send checks to the federal and state governments this year, you did not have enough withheld from your paycheck, or you failed to pay enough in estimated quarterly taxes if self-employed. Having to send out a big check midyear can wreak havoc on your budget. On the other hand, if you received a substantial tax refund, you overpaid, meaning you gave the government an interest-free loan.You could have invested that money. Revisit your withholding elections and set them so that you are more likely to come out even. (See https://www.irs.gov/individuals/tax-withholding-estimatorfor a simple withholding calculator, or discuss the issue with your accountant.)

Seek clues to health of your portfolio. Look at the dividends and interest you earned on your investments last year: If a large percent was generated by one security, that could signal a need to add additional dividend payers to balance your income sources. You may think you have complementary investments, but a closer look can reveal risks you aren’t aware of. A financial planner can help you with this type of analysis.

Check your gains and losses. One investment goal should be to lessen the taxes you pay along the way. To steady your tax burden, make sure your investments are held in appropriate accounts, i.e. tax-deferred vehicles vs. taxable accounts. If you tend to trade regularly, you may be better off using a Roth or Traditional IRA account to reduce current taxation, as just one of many examples.

Add up your retirement contributions. How much money did you add to your 401(k) plan and your IRAs last year? Did you reach the maximum? This is money you are setting aside for your future, so it’s an important thing to know. Make sure you contributed the maximum amount possible to benefit the most from tax-deferred contributions and employer matches. If not, make the adjustment for next year.

Consider any major life changes. Did your filing status change? If you got married or divorced or suffered the death of a spouse, you will need to update your will, amend estate plans, and adjust beneficiary designations on various accounts and insurance policies.

Eric Tashlein is a Certified Financial Planner professional and founding Principal of Connecticut Capital Management Group LLC, 2 Schooner Lane, Suite 1-12, in Milford. He can be reached at 203-877-1520 or through www.connecticutcapital.com. This is for informational purposes only and should not be construed as personalized investment advice or legal/tax advice. Please consult your advisor/attorney/tax advisor. Investment Advisor Representative, Connecticut Capital Management Group LLC, a Registered Investment Advisor. Connecticut Capital Management Group LLC and Connecticut Benefits Group LLC are not affiliated.