July 8, 2016 9:32 am

5 Lessons from Your Tax Return

Now that you’ve completed your 2015 tax return, take time to review the experience so you can improve your tax filing next year. Actions you take now can reduce your stress, minimize your tax payments, and improve your financial picture. Here are 5 lessons to learn.

1. Address tax payments

Did you wind up owing taxes to the government? Did you receive a fat refund? Erring in either direction isn’t great. If you owed money, you had to come up with it by April 18 to avoid late payment penalties and interest. If the government owed you money, it means you made an interest-free loan and did not have the use of your own funds during the year; you had to wait for a tax refund.

What to do.Adjust your withholding from your pay check. If you’re married, make sure both spouses coordinate their withholding. No wages from which to take withholding? Consider other options:

  • Opt for voluntary withholding from Social Security benefits. File Form W-4V.
  • Pay estimated taxes. Make four payments targeted to cover your entire tax bill, or the portion not covered by withholding.

2. Optimize retirement savings opportunities

If you work at a job or self-employment and you let April 18 go by without adding to an IRA or contributing to a company’s qualified retirement plan, you wasted a big opportunity to cut your taxes while saving for retirement. You may even have qualified for a double tax benefit: a deduction for IRA contributions or income exclusion for 401(k) contributions, plus a tax credit for making the contributions.

What to do.Check your eligibility for IRA contributions well before the filing deadline. Then decide what to do: a traditional IRA? A Roth IRA? Even if you have only modest amount to contribute, there will still be tax savings.

Determine retirement savings opportunities at work. If you contribute to your employer’s 401(k) plan, do you earn matching contributions? Does your employer offer payroll withholding to facilitate MyRA contributions?

3. Keep good records

Recordkeeping can be tedious and no fun. But as you see when you prepare your return (or provide paperwork for a tax professional who is preparing it), you need certain information. Examples of areas in which documentation is vital:

  • Charitable contributions. Retain records of all contributions you make, along with written acknowledgments from the charity for donations of $250 or more.
  • Securities transactions. While brokerage firms and mutual funds are now required to track the tax basis of securities for you, the burden to show basis for older securities is on you.
  • Property sales. It’s up to you to know your tax basis so you can accurately compute gain or loss. Your tax basis may be more than just what you paid for property. Various expenditures may be added to basis (e.g., settlement costs for realty acquisitions) or subtracted from basis (e.g., energy improvements claimed as a tax credit).
  • Work-related expenses. If you have unreimbursed employee expenses, such as work clothes, driving your vehicle on company business, or dues to unions or professional organizations, it’s up to you to keep receipts, canceled checks, or credit card statements showing your payments.

What to do.Get organized so you can easily retrieve tax information next year. Use apps to help you.

4. Pay attention to state income taxes

If you live in a state with income taxes, you may have some tax rules for state income tax purposes that are different from federal income tax rules. Many states offer specific tax breaks. Examples:

  • Deductions or tax credits for contributions to 529 plans
  • Deductions or tax credits for long-term care premiums greater than allowed for federal tax purposes
  • Tax-free treatment for Social Security benefits and certain pension income

What to do.Review the instructions to your state income tax return to see what adjustments to federal items or what additional write-offs may apply to you if you take action in 2016. Also monitor any changes in state income tax rules that may be enacted this year.

5. Work with a tax professional

If you handled your tax return yourself, perhaps you’d prefer to let a pro do it next year. Start early to find the right professional for your situation.

Working with a pro does not mean you can ignore taxes. Using J.K. Lasser’s Your Income Tax can help you take actions throughout the year that will pay off at tax time. The 2017 edition for 2016 returns will be available in late October 2016.

What to do.Start early to find a tax professional for next year. The IRS has a registry of tax return preparers. You can search by credentials and your location. Make sure that the preparer you select has a professional tax identification number (PTIN) valid for 2017 (these PTINs won’t be issued until starting in October 2016).


If you found tax time challenging this year, take steps to improve your experience next year. The sooner you begin to think about ways to be more effective at tax time, the less stressed and the more financially rewarded you’ll be.

Tax Glossary

Capital gain distribution

A mutual-fund distribution allocated to gains realized on the sale of fund portfolio assets. You report the distribution as long-term capital gain even if you held the fund shares short term.

More terms