Well, last year is behind us, and what is done, is done with respect to your annual income tax return. If you are retired, you should review these important line items on your 1040 tax return and make sure you understand how they impact your financial life. Get out your income tax return and circle the following:

Line 8a
Line 9a
Line 13
Line 20b
Line 40
Line 43

Someone once taught me, “it’s not about how much money you make, but rather how much money you keep.” I’ve also learned that retirement is all about cash flow, not net worth, and to make sure that your cash flow is as tax efficient as possible.

You may have income you receive, but don’t spend that could be costing you thousands of dollars every year in unnecessary taxation.

Now you are probably thinking, “We spend all of our income.” If so, then that’s great. But often many retirees have phantom income that causes them to pay more money in taxes,. They are not necessarily using the income for every day living expenses.   

Question #1: When looking at your tax return, is there a number listed in line 8a, line 9a or line 9b?

Question #2: Are you spending that income?

For example, if you have a certificate of deposit in a non-qualified acccount that  is paying you interest, and you are reinvesting the interest rather than spending it, then at the end of the year you would get a 1099 from your bank. You will pay taxes on the interest income you received regardless of whether or not you spent it.
But even more important than the tax you pay on your interest, is understanding how it impacts the rest of your tax return. The interest income will be used in the calculation for determing what percentage of your social security benefits will be taxed, which can be as little as 0% or as much as 85% of your social security benefits.
Theses additional income sources bleed through your return and as a result could impact how much of your itemized deductions can be captured.

If you come to one of our events, I will show you two 1040 tax returns where we make just a small adjustment to a hypothetical clients tax return, and the result reduces the clients overall annual tax bill by 48%.

If you could pay less money in tax every year would you want to?

If you are one of those big hearted people that would like to pay more money to our Government every year to help pay down our national debt, check out this website to learn how you can give a little extra of your hard earned money to Uncle Sam.  ;-)  Help pay down our National Debt.