Michael on February 22nd, 2008
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Even with our extra leap day this year, next Saturday brings — and this may surprise you — March.

For most of us, New Year’s resolutions are long gone and the countdown to spring has begun. But before April showers turn into May sneezing fits, there is at least one more important financial task to do: your income tax return.

As a Certified Public Accountant and a Certified Financial Planer professional, I find people’s treatment of their tax returns somewhat ironic. While there is a proud minority of folks who have their 401(k)s rebalanced, their credit cards paid off, and their income taxes filed already, most of us are wishing we’d done all three and would be proud of ourselves if we had accomplished just one.

But, come April 15, only one important financial task MUST be complete. And it isn’t increasing your 401(k) savings rate. It isn’t even paying off your credit card bills or finally getting private life insurance now that you have children. Nope. The one thing you’re sure to have done by mid-April is your tax return.

Because the law requires you to do so.

So, where’s the irony? A tax return is the perfect opportunity to evaluate your total financial situation. After all, this necessary evil comes annually, and your return precisely summarizes your income for the previous year. Yet, too few people take the golden opportunity to comprehensively assess where they are financially. By focusing exclusively on their income taxes, they miss the chance to analyze and improve their fiscal situation with respect to their ultimate goal: to create wealth.

For example, review your tax return and note the following:

  • Did you complete Schedules B or D?

If not, that’s fairly good evidence that your current saving and investing is either non-existent or limited to retirement plans. While the latter case is preferable to the former, the ideal is a balance – saving and investing for both the near future and your long-term goals.

  • Did you have a taxable retirement plan distribution?

If you’re retired, this is expected. If you’re not, something went awry. As a result, you paid income taxes, probably early distribution penalties, and lost a key source of your future wealth. Determine why. Study what happened and how could you avoid a repeat next year.

These are just two of the many relevant data points you and your tax preparer should note and discuss as part of the tax return preparation process. This tax season, don’t miss your opportunity to take a holistic review of your personal financial situation. After all, it will be February again before you know it. And next year . . . it’ll be a day shorter.

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