#103 - How to Turn Your Tax Return into a Planning Tool

Eric Blake: Roth conversion, you also get a 1099-R form. But if it's not reported properly on what's called Form 8606, and basically all that form is, it tells the IRS, it verifies for Uncle Sam that yes, you've already paid tax on that money when you do the conversion, but if that's not handled correctly, you actually could end up paying tax twice on the same

Welcome to another episode of the Simply Retirement Podcast, where we want to educate and empower women to live your retirement on your terms. I'm your host, Eric Blake, practicing retirement planner for over 25 years, founder of Blake Wealth Management, and I would not be the man I am today without the women in my life.

Joining me again today is Wendy McConnell. I'm Wendy. How are you?

Wendy McConnell: I'm good. How are you?

Eric Blake: I am doing very well, very well. So hopefully you don't get offended by this, but I feel like in this episode, I'm going to be talking directly to you.

Wendy McConnell: Oh, okay.

Eric Blake: Is that okay?

Wendy McConnell: I like that. You know how self-absorbed I am, so of course I love that.

Eric Blake: I think you're hard to offend, I think. I hope anyway.

Wendy McConnell: Pretty much, yeah.

Eric Blake: Good. So what we're talking about today is taxes, once again. I know it's your favorite topic. But that's why I think it's going to speak directly to you this time. I'm going to take a little bit different approach.

As this episode is going to be released in May, many of the people listening have just wrapped up their tax return. They got everything together, they met with their CPA, they signed the return. And for most people, that's what they think is the finish line.

Wendy McConnell: Mm-hmm.

Eric Blake: And of course, what happens next, something most people could probably relate to, they put that return in a drawer, or in a file, or on their computer, whatever kind of files you might be using these days.

And that's probably the last time they ever take a look at that tax return again.

Wendy McConnell: Why would I want to look at it again?

Eric Blake: That's the purpose of today's episode. You walked right into that.

Wendy McConnell: Oh, gosh.

Eric Blake: So before you do that, what I want to do is slow things down. Just take a few minutes, because your tax return is not just something you file, it should be a tool.

And what this tool does, it shows you, of course, what happened last year, but if you take just a little bit of time to review that, it can actually help you make better decisions this year. It can even build what I call our base case for the current tax year, being 2026, as just kind of our starting point for planning.

Wendy McConnell: Okay?

Eric Blake: So for our audience, if you listened to episode 75, that was year-end tax planning checklist for 2025. In that episode, we talked about actions that you can take before the year was over, things that could still have a meaningful impact on your tax situation.

Today's going to be a little bit different because today we're going to be making sure that everything that should have happened actually makes it onto your tax return, and then how do you use that tax return as a starting point for what comes next?

For all the links and resources shared in this episode, you can visit thesimplyretirementpodcast.com.

So the first thing you want to do is pretty simple, but it is also really important. I want you to take just a few minutes and make sure everything on your tax return is correct. And I'm talking about the basics here.

Make sure your name is spelled correctly, your Social Security number is right, your address is correct. All these little small details, it sounds obvious, but you would be surprised how often we come across a tax return that has incorrect information on it.

Wendy McConnell: Even after it's filed.

Eric Blake: Even after it's filed. You'll see just, again, a wrong name. You think about CPAs and how busy they are during this time period. It's just natural, it's human, that sometimes a typo here or there can actually result in a wrong name or wrong address.

A wrong Social Security number, one number off, might cause a problem.

Wendy McConnell: Then it's going to be a problem for me to pay them.

Eric Blake: That's a whole other topic.

Wendy McConnell: Okay, sorry. Go ahead.

Eric Blake: Now from there, one of the best ways to make sure everything that should be on your return is actually there is to compare your 2025 tax return to your 2024 tax return.

And all you want to do is just put them side by side and ask yourself, what changed? Did my income go up or go down? Did my deductions change? Is there something this year that wasn't there before, or maybe something missing that used to be there?

Now, if you're working with a tax professional, or even some software packages, there's often a comparison that's already included, but it might not always be called to your attention, especially during this time of year when tax preparers are incredibly busy.

If you're doing it yourself, it might be pretty easy to look past that and not actually review the comparison between the two years.

And here's another important point. If you didn't provide a specific tax document, whether you forgot it, didn't realize it was needed, or just overlooked it, your tax preparer isn't going to know necessarily that it should be there, because they can only work on the information that's given.

So that's where we can find things that might have been missed, simply by comparing year to year.

And there's actually something that happened a couple of years ago where we uncovered a pretty big opportunity just because we slowed down and looked at the tax returns, the prior-year comparison.

The example was a client who had recently purchased a second home that ultimately is going to be their retirement home, but they had also paid off their primary residence not too long before that.

For the second home, they received a mortgage statement, as you would expect.

Wendy McConnell: Okay.

Eric Blake: For their primary residence, since they were now paying the property taxes directly instead of through escrow, they did not receive a tax document as they were used to. Because of that, they forgot to include the property tax statements for that home when they provided everything to their tax preparer.

So when the tax return was prepared, those property taxes weren't included. And here in Texas, that's not a small number.

So it wasn't about doing something new, it was simply catching something that should have already been there. By reviewing the return and comparing it to the year prior, we were able to identify a few thousand dollars in tax savings.

And that's not unusual. But how would you ever know if something was missing unless you sit down and do a basic side-by-side comparison?

Wendy McConnell: Eric, I need to ask you a question since this is directed at me.

Eric Blake: Please.

Wendy McConnell: I pay someone to do my taxes. I pay someone to take care of my finances. Can they do this for me? Because I don't want to look at my tax returns, I don't want to compare them, I don't want to do any of this stuff.

Eric Blake: I told you, that's why I asked. I figured I was probably talking to you.

Wendy McConnell: You're saying I need to anyway.

Eric Blake: Absolutely. And many CPAs may do this, but the question is when. The opportunities really start presenting themselves when this happens early in the year.

We do this for all of our clients. As soon as they send in their 2025 return, we plug it in and do that initial comparison. We look at 2025 next to 2024 and ask, what changed?

There might not be anything wrong. But there might be something that got missed. And the only way to find that out is to do the comparison.

Whether it's your advisor, your CPA, or you doing it, somebody needs to do this. Not just to make sure it's right, but to use it for planning.

Wendy McConnell: Got it.

Eric Blake: Now once you're confident everything is included, the next step is making sure everything was reported correctly.

Even when all the information is there, how it gets entered can make a big difference. We've seen IRA contributions get missed, or Roth conversions entered incorrectly.

A Roth conversion might just get entered as a distribution like any other. You get a 1099-R either way. But if it's not reported properly on Form 8606, you could end up paying tax twice on the same money.

Wendy McConnell: All right, keep that one. That's important.

Eric Blake: We've had situations where even the CPA didn't include the 8606. So whether you're doing your own return or working with a CPA, just be aware that this form needs to be included.

Another example is a qualified charitable distribution, or QCD. That's when you take money directly from your IRA and send it to a charity. The benefit is that it may not be included in your taxable income.

But the 1099-R doesn't typically identify QCDs separately. So unless it's reported properly, it may look like the full amount is taxable when it should not be.

We also see situations where a spouse passed away. In the year of death, you can still file jointly, which can have a meaningful impact.

So it's about asking the right questions. Not just is everything included, but was it handled correctly?

If something is not correct, it may make sense to file an amended return. That's not a bad thing. In many cases, it's exactly what should be done.

Wendy McConnell: Yeah.

Eric Blake: If there's an error, make sure you get it corrected.

Wendy McConnell: Yeah, and I've had that happen where someone did my taxes wrong, and they amended it, and we went from paying to getting a substantial amount back.

Eric Blake: It often works out that way. But it can go the other way too. If you owe more, you still want to file the amended return and get it cleaned up.

You don't want to wait and deal with penalties later.

Wendy McConnell: Oh no, yeah.

Eric Blake: Once you know your return is accurate, now you can start understanding what it's telling you.

You want to focus on key numbers like total income, taxable income, your marginal tax rate, and your average tax rate.

Your marginal rate is your tax bracket, the rate your next dollar is taxed at. Your average rate is the percentage of your total income that you pay in taxes.

Wendy McConnell: So we're not talking to me anymore.

Eric Blake: I was being general here.

Wendy McConnell: Okay.

Eric Blake: This is where strategy comes in. Are you close to a higher bracket? Did you leave room in a lower bracket?

Could you take more income now at a lower rate to avoid higher taxes later? Could you sell an asset now instead of later?

Then we look at deductions. Did you take the standard deduction or itemize? Could you bunch deductions?

We also look at carryforward losses, Social Security taxation, and whether you're eligible for the new senior deduction.

These details help you see how your tax return fits into your overall plan.

Wendy McConnell: Okay.

Eric Blake: Once everything comes together, this is where it becomes a planning tool. We call it building your base case.

For most people, things don't change dramatically year to year. So your return becomes a starting point.

Then we ask, what can we do proactively this year?

We start running projections and identifying strategies.

Wendy McConnell: May I interject? I have been wanting to start a Roth account. I was afraid to convert because I thought I'd owe a lot in taxes. But I did it this year, and it wasn't nearly as bad as I expected.

Eric Blake: That's where planning comes in. We look early in the year and identify opportunities.

We might say you have room in a tax bracket and consider a conversion. Then later in the year, we confirm whether it still makes sense.

If we wait until December, it's often too late to act.

This is where we have the advantage over the IRS. They care about whether you filed and paid. We get to look forward and plan.

Finally, if you're not sure what to look for, use a checklist.

Wendy McConnell: Okay.

Eric Blake: We've included two resources in the show notes to guide you. One for retirees and one for those still working.

This isn't about knowing everything. It's about asking better questions.

There's nothing that says you should pay more in taxes than you're supposed to.

Wendy McConnell: That's what we like.

Eric Blake: So before you put your return away, take a few minutes. Review it, verify it, understand it, and use it as a starting point.

Because a tax return is not just something you file away, it should be a tool.

Any other thoughts?

Wendy McConnell: For the most part, but I do have a question. A few years back, they raised the standard deduction. Has that stayed the same?

Eric Blake: Great question. About 90 percent of people stopped itemizing after the Tax Cuts and Jobs Act. The standard deduction is still high and increases each year.

What has changed is the SALT cap. It used to be $10,000. Now it's higher, which may allow more people to itemize.

You might also consider bunching deductions into one year to exceed the standard deduction.

Wendy McConnell: And have we said what the standard deduction was?

Eric Blake: It varies by filing status and age. It's roughly around $37,000 for a married couple over 65, give or take.

Wendy McConnell: See, I help.

Eric Blake: You do.

As always, thank you for tuning in. If you found today's episode helpful, take a few minutes and review your tax return before putting it away.

If you'd like help turning your tax return into a plan, you can visit GetMySimplyRetirementRoadmap.com to schedule a call.

That is it for today's episode. For all links and resources, visit thesimplyretirementpodcast.com.

Until next time, please remember, retirement is not the end of the road, it's the start of a new journey.