Woman looking at paper and laptop in front of couch

7 Lessons You Can Learn from Your Tax Return

Time To Read 8 MIN READ

It’s always a relief once you've filed your tax return, but don’t be too quick to file it and forget it. The process of gathering your financial information and preparing that return, even if you didn’t prepare it yourself, provides an opportunity for new insights that can serve you well in your financial goals.

Seven lessons you can learn from your tax return

1. Keep good records for itemizing your deductions

Did you take the standard deduction last year just because it was easy? The process of tax preparation can teach you a lot about how well you're set up to take advantage of the tax code. If you aren't keeping your tax-related records up to date throughout the year, itemizing your deductions can feel overwhelming.

To make itemizing easier, set up your data to start tracking those deductions now. If you're using Quicken, make sure your categories are mapped to the right tax form line items so you can run automatic tax reports. In Simplifi, set up categories you can use exclusively for itemized deductions. That way, you can easily create a filtered tax report at year-end.

Either way, be conscious of how you're using your categories throughout the year. For example, donations to tax-exempt charities are deductible, but if you receive something in return for that donation, you can't claim the entire amount. Ask for a receipt that shows the deductible amount, and split those transactions so only the deductible amount goes into your tax-related category.

If you check on your new transactions every day, keeping those records in shape is quick and easy, especially if you make Quicken or Simplifi by Quicken a small part of your daily routine. You'll reap the rewards on your taxes, and you'll be prepared to file well before the tax deadline.

2. Don’t forget those business deductions

Are you claiming business deductions on your federal tax return? Could you have claimed more if you had a better record-keeping system? If you have a home business or if you manage real estate investments as part of saving for retirement, keep your records of those business expenses up to date.

If you're using Quicken Home & Business, the software is already set up to track those expenses. Use the Quicken mobile companion app to snap a photo of each receipt and save it with the transaction!

3. Take stock of your retirement plan & contributions

The process of preparing your tax return is a perfect opportunity to take stock of your retirement contributions and figure out whether you’re really on track in saving for retirement.

First, are you taking full advantage of employer contributions to your 401(k)? Most employers offer a matching program up to a certain limit. For example, your company might match your contributions at a rate of 50%, up to a monthly cap. That's extra money your employer is willing to give you for doing the same job you're already doing, so don't leave that money on the table.

Second, are you maxing out your contribution limits? There are annual contribution limits that apply to both 401(k)s and IRAs. Since you had to put together your contribution records for your most recent return, that return is a great way to make sure you're contributing as much to those plans as you can. For more information, read Can I Contribute to Both a 401(k) and IRA?

Finally, take stock of your retirement plan with the help of a retirement calculator. If your 401(k) isn't going to be enough, you need to know that sooner rather than later! Consider adding your own IRA and increasing your other personal investments if it looks like you might fall short of what you need.

If you're using Quicken Premier for Windows or Quicken Home & Business, use the built-in retirement planner to run what-if scenarios and plan in more detail.

4. Evaluate your withholding to improve your finances

If you tend to get large refunds from your taxes each year, re-evaluate your withholding choices. It might feel good to get a lot of money back, but using the IRS as a savings account isn't ideal. The IRS won't pay you interest on your money, and you can't get access to those funds if you run into an emergency.

This is especially true if you're using that refund every year to pay off personal loans or credit card debt to "start fresh." Those debts are costing you a lot in interest—fees you wouldn't have to pay if you didn't have to take the loan in the first place.

This year, consider adjusting your withholding to reduce the amount that’s taken out of each paycheck for taxes. Instead, save that extra cash for yourself throughout the year.

As each check comes in, take the extra cash out of your checking account and put it in a savings account. Now, you're earning some interest, and it's available as you need it to help you avoid credit card debt and interest fees.

Make tax season less taxing with Quicken
  • Keep your finances up to date
  • Track everything automatically
  • Built-in reports for home & business

5. Evaluate your interest payments and prioritize your debt reduction

Because student loan interest and mortgage interest are tax-deductible, you should always keep records of any interest you pay on these loans. Some students and homeowners find themselves tempted to pay these loans down aggressively, but that's not always the best use of your money.

Both of these kinds of loans usually come with a lower interest rate than other kinds of debt you might be carrying, such as credit card debt, and credit card interest isn't deductible. So if you get a stimulus check or free up other income, use it to pay down debt with higher interest rates first.

While you're thinking about debt reduction, evaluate your current position to see whether it might make sense to refinance any loans or consolidate your personal debt. Making progress in paying down your debt will also help increase your credit score.

If you're using either Quicken or Simplifi by Quicken, be sure to connect all your financial accounts, including your credit cards and loans, so you can see all your debt in one place. Use Quicken's what-if loan scenarios to see where you could save the most interest with that stimulus payment.

Quicken for Windows also features a debt-reduction planner. See the impact of paying down those higher-rate loans, and track your progress as you go.

6. Rebalance your savings and investments

Every year, preparing your tax return requires you to report savings interest, dividends, and capital gains. With those numbers at your fingertips, your tax return offers a perfect opportunity to make sure your money is well balanced between your checking account, savings account, and investments.

Make the most of your savings by shopping around for the best compound interest rate you can find. Then, evaluate how much you have in your savings and whether you need to keep that much available for emergencies. If you don't need it in the next 2–3 years, that money might do more for you in long-term investments.

7. Evaluate your investments for tax efficiency

Are your mutual fund investments resulting in capital gains taxes on your federal return? Are you making smart choices about which investments you're putting into taxable accounts? Consider using your return to start a conversation with a financial planner about optimizing your investments from a tax perspective.

"If you have a complex, diverse portfolio, that's a great problem to have," says business finance expert and CPA Cecilia Leung, a founding partner of The Entrepreneur CFO. "You're already ahead of the game. Now make sure you're doing what you can to take full advantage of it."

Special notes for 2022

  1. Deadline April 18, 2022: Because of Emancipation Day, recognized this year on Friday, April 15, the last day to file taxes will be April 18, giving most of the country a 3-day grace period beyond the usual deadline. However, for residents of Maine and Massachusetts, both of which celebrate Patriots’ Day on the 18th, the deadline will be April 19, 2022.
  2. Student loans: The pause on student loan payments and interest is currently set to end on May 1, 2022. Be ready to make those payments again if you haven’t been, and remember to track your interest payments. Still, keep an eye on the news as the student loan question is still developing.
  3. Business meals: The increased deduction for business meals has been extended through 2022. Cecilia adds: "Far too many business owners forget how much they talk about their business. If you eat with a friend and toss around marketing ideas for the business, that's a business meal."
  4. New small business paperwork: If you’re self-employed through a small business, even if it’s a side gig, be on the lookout for 1099-k forms. If you’re taking electronic payments through Venmo, PayPal, or the like, those providers will report those payments for transactions in 2022 that total more than $600. The good news: this is income you should be reporting anyway, so it really just amounts to a new form you’ll be receiving early in 2023. Just be sure to keep careful records of your income and expenses so your own reported income matches what’s reported to the IRS.

Final thoughts

Using your tax return to gain financial insights is a great way to improve your financial situation.

Some tax credits—such as the earned income tax credit, additional child tax credit, and recovery rebate credit—can give you a refund even beyond what you paid in. Setting yourself up to take itemized deductions "below the line" of your adjusted gross income may significantly reduce your tax liability, helping you maximize those refund credits.

Finally, as you evaluate your income, think about the people that money is supporting. "There has been a significant increase recently in the amount of support being shared among families," Cecilia notes. "If your income is the primary source of support for your loved ones, consider a life insurance policy as part of your overall financial plan."