1040 Financial Planning Checklist



I recently read that I could use my tax return as a financial planning checklist, but I don’t recall how.  Can you fill me in?


Use my “1040 Financial Planning Checklist” below. You might find ways to increase your income and/or save money in taxes.

My 1040 Financial Planning Checklist

Form 1040 Line 8a – Taxable Interest:

Compare your current taxable interest rates to tax-free rates that are available from municipal bond mutual funds.  A federal tax rate of 35% means that a municipal bond fund yielding 3% is equivalent to a taxable interest rate of 4.6.

Form 1040 Line 9a and 9b – Ordinary and Qualified Dividends:

Ordinary dividends are taxed as ordinary income at federal rates as high as 43.4%.  Qualified dividends are taxed at rates up to 23.8%.  A qualified dividend is defined as an amount that is paid by a U.S. corporation or qualified foreign corporation; is not a disqualified dividend; and meets a holding period of more than 61 days during the 121-day period that begins 60 days before the ex-dividend date. 

Form 1040 Line 13 – Capital gain or (loss):

The tax rate on long-term capital gains is capped at 23.8%.  In order to qualify as long-term, the asset must have been held for more than one year.  If you have a net capital loss, you can deduct up to $3,000 of that loss for the current tax year and carry the rest forward to next year.

Form 1040 Lines 15a and 15b – IRA distributions:

Many taxpayers give extra money to the IRS by not paying attention here.  When you take a distribution from your IRA account, you get a Form 1099R at the end of the year with the amount of the distribution, which you are required to report on line 15a.  Many taxpayers are inclined to put the same amount on line 15b and be done with it.  But the amount on line 15b is the taxable portion of the dollar amount on line 15a, and it may be less, sometimes considerably less, than the full amount. For example, if the amount you are reporting is from a contributory IRA, and you could not deduct all your contributions when you made them, then you don’t have to pay tax on the full amount you entered on line 15a because part of the distribution is not taxable. If you withdrew money from an IRA and then put it back within 60 days you may be eligible for rollover treatment.  If so, then the distribution amount shown on your Form 1099-R may not be taxable.

Form 1040 Lines 16a and 16b – Pensions and Annuities:

Distributions from pensions and annuities (similar to IRA distributions) are sometimes only partially taxable.  Make sure you only pay the tax you owe.

Form 1040 Lines 28 and 32 – IRA, SEP, SIMPLE, and qualified plan deductions:

Hear is your chance to save for retirement and maybe get a tax deduction along the way.  Make sure you take advantage of retirement savings accounts.  And if you are self-employed, maximize the contribution to your retirement plan.

Form 1040 Lines 23 through 37 – Adjustments to Income:

Look here to report deductions for health savings accounts, moving expenses, self-employed health insurance, alimony you paid ,student loan interest, and tuition and fees. 

Kenneth B. Petersen CFP®, EA, MBA, AIFA® is an investment manager and Principal of Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey.   He welcomes questions that you may have concerning investing, taxes, retirement, or estate planning.  Send your questions to: Ken Petersen, 2340 Garden Road Suite 202, Monterey, CA93940 or email them to ken@montereypw.com.