Turn a completed return into planning questions. Separate recurring income from unusual transactions, project changes and review withholding with your advisors.
April 14, 2025 · Financial Forte Staff
Historical article: prepared retrospectively using information available as of April 14, 2025.
Finishing a tax return can feel like closing a demanding project. You gather the statements, answer the questions and finally find out whether you owe money or receive a refund. It is understandable to put the paperwork away and move on.
Before you do, use the completed return to identify the decisions that could affect the year ahead. The most useful question is not simply whether last year's tax bill was high. It is which parts of that bill are likely to repeat, which reflected a one-time event and which could change because your life is changing. A return describes a completed year; a planning projection looks forward.
Separate recurring income from unusual transactions
Start with the largest income items and write down what produced them. Wages, pensions, IRA distributions, interest, dividends and realized investment gains can enter the return in different ways. A bank deposit does not necessarily equal taxable income, and a transaction's gross proceeds do not necessarily equal its taxable gain. The 2024 Form 1040 instructions help distinguish the reported categories and supporting forms.[1]
Then label each item as recurring, temporary or uncertain. A large retirement withdrawal for a home repair may not happen again. A pension beginning this summer may appear only partially in the next return. An unusually large investment gain may reflect a deliberate sale rather than an ongoing income stream.
This exercise keeps a completed return from becoming an accidental forecast. It also gives your tax preparer and financial advisor a common starting point. Instead of asking broadly how to lower taxes, you can ask whether a particular income source, withdrawal or investment decision needs a different approach.
Build this year's picture from the actual changes
Marta and Dean provide a hypothetical example. Their simplified 2024 income summary includes $60,000 of recurring income and a $30,000 traditional IRA withdrawal used for a roof replacement. Assume the entire withdrawal was taxable. That produces $90,000 in the categories being compared, before deductions and other adjustments.
For 2025, the roof project is finished, and they do not expect another withdrawal for it. Their other income remains $60,000, but Dean expects $12,000 from a pension starting during the year. Their preliminary comparison is therefore $72,000, not $90,000: $60,000 of recurring income plus $12,000 of pension income.
The $18,000 difference does not mean their tax bill will fall by 20%. Taxable income, deductions, filing status, credits and the treatment of different income sources still matter. Some items outside this simplified example could change as well. The comparison identifies a reason to run a projection; it does not substitute for one.
Now suppose they are also considering a Roth conversion. They should not assume the entire $30,000 removed from last year's income is available for a conversion on identical tax terms. Of the $30,000 withdrawal that will not recur, $12,000 is replaced by the pension in this comparison. The new pension already changes the picture, and the conversion can affect other income-based calculations. If an IRA contains after-tax basis, the taxable portion also needs proper review.[2]
The useful outcome is a list of scenarios: no conversion, a smaller conversion and a larger one, each with estimated taxes and a realistic source of payment. That turns a backward-looking document into a decision tool without treating the 2024 return as a complete forecast for 2025.
Reconcile withholding with the projected obligation
A refund or balance due deserves an explanation, but neither figure by itself proves that the plan worked well or poorly. A refund can reflect withholding, estimated payments, refundable credits or a combination. A balance due can follow an unusual transaction even when routine withholding was reasonable.[1]
For Marta and Dean, continuing the same withholding arrangement used during the roof-withdrawal year might leave too much money prepaid. On the other hand, the new pension may begin with too little withholding. Those two effects should be considered together rather than changing one account in isolation.
Ask the preparer to compare projected payments with the projected obligation and applicable estimated-tax requirements. Federal and state calculations may differ. Update the relevant payroll or pension election only after deciding which source should carry the adjustment, then confirm that the change appears on an actual payment and schedule another projection if income changes again.[3]
Keep liquidity in view. Sending less to the government during the year is useful only if the money is available for the purpose you intended. Moving every additional dollar into spending could create a new problem if the estimate later changes.
Review the decisions behind the numbers
Investment gains may prompt a discussion about diversification, charitable intentions or how withdrawals are funded. They do not automatically mean that selling was a mistake. A gain may have been the cost of reducing an oversized position or meeting a necessary expense.
Retirement distributions raise a different set of questions. Was the withdrawal required, planned or unexpected? Did it come from the account best suited to the need? Would holding more accessible cash have helped, or would that simply have shifted money away from another priority? There is no single answer that fits every household.
Medical costs, caregiving expenses and changes in dependents can also point to planning work beyond the return. The tax result is one piece of that discussion. An expense may deserve attention even if it produces no deduction.
Choose the two or three items most likely to affect the coming year. Assign each a next step, such as obtaining a pension estimate, reviewing an IRA basis record or projecting a planned investment sale. Bring those questions to the professionals responsible for the relevant decisions.
The return has already done its reporting job. With a little more attention, it can also help you make the next decision with fewer assumptions and a clearer view of your cash flow.
Related reading
- Your Completed Tax Return Can Improve This Year's Plan
- What to Gather Before You File Your 2023 Tax Return
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Educational information, not personalized investment, tax, legal or benefits advice. Examples use hypothetical assumptions. Verify current rules and your circumstances before acting.
