What Your Tax Return Reveals About Your Financial Health

Your completed tax return can reveal a wealth of data about your financial health, yet many taxpayers send their tax professional a pile of tax documents and do not read much of their tax return before signing. Most tax software, including that used by professionals, provides a year-over-year comparison worksheet, which can be helpful.

With that year-over-year comparison in mind, here are a few key areas of your federal tax return that can highlight opportunities to strengthen your financial plan:

Income

Reviewing your Form W-2 income, take a look at how much you contributed to your work retirement account. Can you contribute a little bit more next year if you are not at the maximum contribution? Did you save more than the prior year? Have you evaluated whether traditional (pre-tax) or Roth (after-tax) contributions make more sense for you?

Did you declare any taxable interest? If not, that is an easy item you can correct for next year — instead of keeping your savings in a low‑rate account, consider a high‑yield savings account with a competitive APY.

Do you have non-retirement investment accounts? That might look like some index funds or active mutual funds from a parent or grandparent, or stock from a current or former employer. If you sold stock in these accounts, did you sell primarily short- or long-term held investments? Long-term held shares, which means they were held for more than a year, receive capital‑gains rates compared with ordinary income – the exact rates depend on your income and filing status.

If you own a rental property and/or a business, compare the income versus expenses. Is it profitable? Has the profit been growing year over year? Are you comfortable with the expenses you have had? If your business is profitable, are you making retirement contributions?

Income Adjustments and Deductions

Some taxpayers make contributions to a Health Savings Account (HSA)  outside of payroll, and those contributions can be deducted on your tax return (learn more in our Tax Planning guide). Consider how you use your HSA: Are you treating your HSA like a debit card and distributing it regularly? Or are you using regular cash flow to pay for medical expenses now and investing this account for medical expenses in retirement? If you are making distributions from the account, are they only for qualified medical expenses? If you and/or your spouse are age 55 or older, did you make catch-up contributions?

If you made charitable contributions, did you include them on your return? For some perspective, take your charitable contributions total and divide it by your income. What percentage is that? I suggest a target of giving at least 1% of gross income. Are you donating appreciated stock or cash?

Did you make deductible IRA or self-employed retirement plan contributions? If you made IRA contributions, are they represented on your tax return? There are income limits to contribute to a Roth IRA  or to deduct Traditional IRA contributions, but there are no income limits to contribute to a Traditional IRA (annual dollar limits still apply). If you can’t deduct your Traditional IRA contributions, they need to be documented on your tax return (typically on IRS Form 8606) or you will end up paying taxes on the money twice when you distribute the money out of the IRA. And if you haven’t made IRA contributions yet, you can typically contribute until the tax‑filing deadline for the prior year. If you are married filing jointly, spousal IRA rules allow a non‑earning spouse to contribute, as long as the couple’s combined earned income covers both contributions.

While 529 contributions are not deductible on the federal tax return, you need to include them on your state tax return, if your state offers a tax benefit for 529 contributions. Some states even allow you to make contributions for the prior tax year up until April 15.

Working with a CFP® professional can help you interpret what your tax return is really telling you about your financial life. They can identify overlooked deductions, connect tax insights to your broader financial plan and help you make informed decisions about saving, investing and planning for the year ahead.