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How to Use Your Tax Return to Fix Your Retirement Plan

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If ever you wanted to create a financial plan but didn't know where to start, your 1040 tax return is as good a place as any. Every single line tells a story about your financial life. And every single line can help you build a sound financial/retirement plan. Here are three lines, among many, to consider:

What's your filing status?

It's the very first line on your 1040 tax return. Are you single? Married filing jointly? Married filing separately? Head of household? Or a qualifying widow(er)? If you're single, for instance, check whether you own a disability insurance policy outside of your workplace? You should. The probability of becoming disabled is greater than the probability of death. Disability insurance protects you against the loss of income due to a disability.

Are you collecting Social Security?

If you're collecting Social Security (line 5a), it's possible that your benefit is being taxed and it all depends on your combined income. What's that? It's the result of adding together your adjusted gross income (line 7), tax-exempt interest (line 2a) and one-half your Social Security. So, if you're married filing jointly and your combined income is more than $44,000 then up to 85% of your Social Security benefit will be taxed. What to do? Look for ways to lower your combined income. Maybe reduce your muni bond holdings?

Are you self-employed?

If you're self-employed, you might be able to take advantage of something called the qualified business income deduction (line 9). The deduction allows eligible taxpayers to deduct up to 20 percent of their qualified business income (QBI) to lower your taxable income. Ask your tax preparer if you qualify for this tax-saving opportunity.

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