Getting More From Your 2004 Return

The madness of April 15 is over, but don't be so quick to file away your tax return: It's actually your best planning tool for 2005.

Whether you got a big refund (shame on you for loaning Uncle Sam your money) or owed big, your 2004 tax return can help you prevent the same mistakes this year.

All you need to do is walk through your 2004 return line by line and determine where you can make some adjustments.

Keep Your Own Wages

Start with line 7 of your Form 1040, your W-2 wages. While your wages are fully taxable, the best way to minimize that tax hit is to max out your 401(k) contributions. Remember, those contributions come out of your paycheck before your tax bill is calculated. So getting that money out of your paycheck and into your 401(k) could help bring down your taxes due.

For 2005, you can contribute up to $14,000. And if you're 50 or older before Dec. 31, your contributions jump to $18,000. So step up your contributions.

Then look at your withholdings. If you got a big refund, maybe you were having too much withheld. And from an economic perspective, you don't want to give Uncle Sam your money.

"You are better off having a balance due or breaking even than getting a refund," says Martin Nissenbaum, national director of income tax planning at Ernst & Young.

Granted, from a psychological perspective, too, many folks think of it as a forced savings account. But if that's the case, then consider having an equivalent amount put into your own savings account each pay period.

So you may need to adjust your withholdings for the rest of 2005. You'll need to pull up Form W-4 -- "Employee's Withholding Allowance Certificate." You remember that form, don't you? You filled it out when you first started your job. You had to add up a bunch of "1s" and somehow your HR department then knew how much money to withhold from your paycheck for taxes.