Analyzing tax return and creating budget on computer screen

Your Numbers Tell a Story.

What You Can Learn from Analyzing Your Tax Return

Now that your taxes are prepared and ready to file, consider one more valuable step… analyzing your tax return. It’s a good opportunity to let its numbers tell your story.

While you’re most likely focused on receiving a refund or making a payment, analyzing the impact of your prior year’s financial behavior can help guide your financial decisions going forward.

Unfolding Our Clients’ Stories

When we start working with new clients, we look at their past tax returns to get an overarching understanding of their financial situation. Analyzing tax returns helps us identify issues that need attention.

With all our clients’ scenarios, the information gleaned from their tax returns should be interpreted in collaboration with their accountants and shared with their investment managers.

We often help our clients by serving as a liaison with their long-standing advisors. This allows us to help our clients implement any recommended changes in their financial strategies.

Client Stories Revealed by the Numbers

In using what we find from analyzing clients’ tax returns, we can help them steer their financial behavior toward positive outcomes or away from otherwise unforeseen tax obligations.

In some instances, they can shift from owing taxes to having no tax liability because their deductions for medical expenses completely offset their taxable income.

In other instances, their tax liability can grow if they are liquidating investments to fund their expenses.

Medical Expenses

Our senior clients often have expenses for home health care or specific spending habits that exceed their routine incomes from Social Security, pensions, and annuities. And, if they need to draw on savings or sell off investments to pay their bills, their tax profile will change… not for the better.

In a scenario with a positive outcome, a client was careful not to take more than the required minimum distribution (RMD) from her IRA. And, because her medical expenses exceeded her taxable income, she received a full refund of the taxes that were withheld from her RMD and her pension.

What the Numbers Revealed
If you have high medical expense deductions, you can draw more heavily from your retirement accounts, which may be significantly larger than your after-tax investments, without incurring a tax liability.

Non-Cash Income

A moderate-income client is a beneficiary of a trust which holds a family-owned country house. The grantor recently died.

Because the house is rented out for part of the year, our client was allocated a portion of the net rental income, which was reported via a K-1. He did not receive any cash because the funds were put in reserve for future capital improvements, but he was still liable for the taxes on his share of the rental proceeds.

What the Numbers Revealed
With knowledge of the tax cost of partial home ownership, we encouraged our client to reflect upon his ability to bear the annual tax expense vs. the longer-term benefit of ownership of an appreciating asset.

High Spending

Two of our clients stand in stark contrast to each other, from a tax perspective. They have comparable wealth yet vastly different incomes.

Both clients inherited a considerable amount of money, but the difference in their tax liability is dramatic.

One of these clients has a large tax liability due to her excessive spending – well beyond the income of her portfolio’s dividends and interest. She often sells stock holdings to cover her expenses and her family is concerned that she might outlive her money.

Liquidating her investments generates large taxable capital gains. So, the more she spends, the more she pays in taxes. Her adjusted gross income (AGI) for one tax year was approximately $435K.

Our other client, who spends in accordance with the income she earns from her investments, had an AGI of approximately $151K for that same tax year. Because she spends much less, her income and, hence, her taxes are lower.

What the Numbers Revealed
Analyzing the tax return of our spendthrift client has led us to monitor her spending activities and encourage her to curb her shopping which will, in turn, limit her investment sales and hence her tax payments.

If you want to know more about your financial story, give Eddy & Schein Group a call, and we’ll have a look at your tax returns together. There’s a lot to be learned there.

Eddy & Schein Group helps:

Tell us what you need.

Call for a free phone consultation.

Serving the Tri-State Area

Eddy & Schein Group helps:

Seniors and their Families
People Facing Life Transitions
High-Net-Worth Individuals
Young Adults and Families
Legal & Tax Professionals
and their Clients
Tell us what you need.
Call for a free phone consultation.

Serving the Tri-State Area

Scroll to Top
Skip to content