But love it or hate it, that Form 1040 can be as useful as a Swiss army knife in putting your own long range personal financial plan together. Best of all, you don't need sophisticated green eye shade skills to get started. Common sense, some online calculators, and knowing what's going on around your house will take you a long way.
Here are a few things I've learned from planners I've talked with for 20 years:
- Even your mailing address at the top of the form may flag some tax savings. You may qualify for additional tax deductions if you moved because of your job. And if you sold your old house, you may need to plan how best to use one-time shot income from the profits.
- Gross income on line 7 is one of the easiest numbers to calculate and one of the most important to look at. At a minimum, you need to be sure your living expenses are lower or that you can make them so. Gross income also is a good beginning to gauge how much retirement income you need.
- Look at your sources of income too, which are all the numbers you fill in between about lines 8 and 22. If you are relatively young and saving for a distant retirement, ask yourself if too much money from interest and dividends means you are too conservatively invested to hit long term goals. Check out any capital gains or losses you report, either on line 13 or a Schedule D. They may indicate a need to rebalance or streamline your investments if the numbers surprised you.
- Beware of big mortgage deductions. Getting potentially more money back is nice, but not if you overextended to get there.
- Look at any IRA or retirement plan withdrawals you report on lines 15 or 16. If those are bigger than you planned or you paid penalties on any of the money, fixing that needs attention immediately.