Tax returns are underrated financial planning tools

By Megan Hart

Almost a quarter of American taxpayers don’t have a financial plan, according to a recent survey from the AICPA. However, tax time provides an excellent opportunity to create or update a financial strategy.

“One of the biggest challenges with doing a financial plan is probably why so few do it: It requires a lot of information,” said Matt Rosenberg, CPA/PFS, a member of the AICPA’s National CPA Financial Literacy Commission. “You might as well turn and use that information from your taxes for planning.”

AICPA survey data gathered in fall 2020 shows 55% of American taxpayers have gleaned valuable financial insights from their tax returns, but only about half that number assess their returns annually. It’s a step everyone should take, Rosenberg said.

Almost everything on your tax return is relevant for financial planning, he said. Look at your dependents and filing status, as well as your income items, to see how they’ve changed or might change in the future. Consider whether income changes are recurring or nonrecurring and examine your deductions to identify major expenses. These totals, he said, can help form the basis of your financial strategy by allowing you to determine how much of your income is left after expenses.

“Then once you have that number, that’s when you can start figuring out how you want to go about achieving your financial goals,” Rosenberg said.

Tax and financial planning should really go hand in hand, he noted. Because of the higher standard deduction put in place by the law known as the Tax Cuts and Jobs Act in 2017, P.L. 115-97, Rosenberg said, he regularly sees clients who are making charitable donations without benefiting from a charitable deduction at tax time. If that’s something you notice on your own tax return, consider making two years’ worth of donations in the same year, if that increases your itemized deductions over the standard deduction amount, he suggests.

By examining your tax return, you can also determine whether you’re making the appropriate contributions to any tax-advantaged accounts. For example, Rosenberg encourages clients to max out contributions to their health savings account, a valuable retirement tool for those who can cover health care costs out of pocket.

Your tax bill or refund can provide insight on whether you should update your withholding, too, Rosenberg said. If you withhold too little, you’ll have to pay a penalty. But if you get a huge refund, that’s not ideal either, he pointed out: You’re essentially giving the government an interest-free loan.

“The amount of taxes you owe will be the same either way, he noted. The difference is “who’s going to hold onto the money in the interim.”

Financial planning is important for people across tax brackets, Rosenberg said. It helps get you closer to your financial objectives, whether that’s building an emergency fund, saving for retirement, or putting money away for a major purchase. For people on tighter budgets, planning can be even more critical, because one speed bump can have a big impact, he said.

“I’m always amazed how people work hard for their money and then, once they’ve made it, don’t take the actions to protect it or to grow it,” he said.

Megan Hart is a freelance writer based in Wisconsin. To comment on this article or to suggest an idea for another article, contact Courtney Vien, a JofA senior editor, at

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