Investor's Column: Using your Form 1040 to save money

May 7, 2013 

With April 15th in the rear view mirror, many of us can breathe a sigh of relief until we start on our 2013 taxes. Before you file away that copy of your 2012 tax form, spend a few minutes to see what it can tell you about your finances.

You can quickly get an idea on how much you are spending, paying in taxes and saving for the future. This is valuable information to help you move closer to your financial goals. Here is how to do it:

Start with your total income by looking at line 22 of your 1040. This is all the income you had to work with in 2012. First, let's see how much you saved. If any of the income from wages, interest, dividends, rents, IRA, pensions, Social Security or other income was reinvested, move that to your "savings" bucket. Don't forget to include capital gains from Schedule D. Add to "savings" anything automatically deducted from your paycheck that went to retirement accounts such as a 401k or 403b.

Let's check to make sure this balances. Take the total value of all your savings, checking, investment and retirement accounts on Jan. 1, 2012 and subtract it from the value of the accounts on Dec. 31, 2012.

The difference is how much you added plus any gains, or losses. If these totals don't match up, do some snooping to find out where the money went.

Maybe you took somemoney out of a savings account to pay for a vacation.

You need to add that amount to the "spending" bucket.

The next category is taxes. The federal total is on line 61. Don't forget to add state, local, sales and property taxes from Schedule A, line 9. You should also take a look at your W-2 or Self Employment tax calculation to see how much you paid toward Social Security and Medicare.

With this, we can calculate our savings ratio (savings divided by the sum of total income plus taxes). If this is not at least 10 percent, you might not be on track to save enough for your future.

This is a starting point to figure out if you are spending more than you should.

You will need to look into the spending bucket to see if your spending matches up with what you feel is important.

You can also see if you are paying more in investment taxes because of where investments are held.

You might be able to reduce your taxes by putting investments like bonds, which generate interest, in tax-sheltered accounts.

You can put investments such as stocks, with qualified dividends or controllable capital gains in taxable accounts.

Finally, if you are getting a large refund or owe a lot, you might want to adjust your withholding or estimated payments to avoid this in 2013.

Taking a few minutesto do some simple taxplanning now can pay big benefits at the end of the year.

Tom Roberts, CFP®, the owner of A New Approach Financial Planning in Lakewood Ranch and Sarasota, can be reached at (941) 927-9590 or

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