What Your Tax Return Is Trying to Tell You

Most people see their tax return as a finished task—filed, signed, forgotten. I completed my business tax returns and personal returns last week. I fought the urge to move on to other tasks and sat down to slowly review the personal return. It was enlightening. Your personal tax return is one of the clearest financial snapshots you will get all year.

If you are willing to take a few minutes to review your 1040, here are some points of interest:

You may be more dependent on one income source than you think.

W-2, business income, or investments—concentration shows up clearly.

Your portfolio’s tax efficiency is either helping…or hurting.

Too much ordinary income via short term capital gains and qualified dividends can create unnecessary tax drag. Some ordinary income is inevitable, but realized stock sale gains are only taxed as ordinary income (short term) if the stock is sold within a year of purchase.

Your real tax rate is often lower (or higher) than expected.

The effective rate—not the bracket—is what matters for planning decisions. Your income is taxed in part under all brackets up to your highest bracket. So, your effective tax rate is much lower than your marginal tax rate. It’s helpful to know your effective tax rate because that is your “real” tax rate.

Retirement savings habits don’t hide here.

Retirement contributions—or the lack of them—are easy to spot if they are made to IRAs. If they are employer based—like a 401K or SIMPLE IRA, then they only show up on your W2.

How Michigan’s flat 4.25% income tax fits into the picture

Retirement income may be partially or fully exempt depending on your birth year.

Don’t forget about local tax.

No local income tax (outside a few cities if you are here in Michigan) keeps things simpler. My wife works at UD Mercy, so we must keep track of the City of Detroit income tax (1.2% for non-residents working in Detroit).

Surprises in April usually aren’t surprises.

Large tax balances due often point to missed withholding or planning gaps during the year. Likewise, a big refund might sound nice, but it means you withheld too much over the year and gave Uncle Sam an interest-free loan.

Your giving strategy may not be as efficient as it could be.

Many people give generously—but not always tax-smart. Check into the Qualified Charitable Distribution (QCD) that I touched upon a few weeks ago.

Opportunities are easier to see in hindsight.

Roth conversions, tax-loss harvesting, and timing decisions tend to stand out after the fact.

You may be closer to key thresholds than you realize.

IRMAA brackets (Medicare Part B and D premiums), NIIT(3.8% when applicable), and marginal tax rate jumps can be triggered by relatively small changes in income. Know how much wiggle room you have left.

Your tax return isn’t just a record of last year—it’s a guide for what to do next. Take some time to review it before you file it away.

 

Fun Fact: The NCAA Basketball Tournament is in full swing. The term “March Madness” was actually first used for high school basketball in Illinois—not the NCAA tournament. It wasn’t until the 1980s that broadcaster Brent Musburger popularized it during NCAA coverage, and it stuck. Good luck with your bracket!

During Times of Market Jitters, It Wouldn’t Hurt to Remember the Pyramids

Growing up, my family loved to travel, and I had the good fortune to visit Egypt in the early 1980s. There we toured the great pyramids in Giza just outside of Cairo. We had a wonderful tour guide who seemed to have almost infinite knowledge of the structures. But the most profound statement she slowly spoke with a fascinating Arabic accent was this: “Man fears time….but time fears the pyramids.” Ah yes, man-made structures that are over 4,000 years old will surely get the attention of Father Time.

At this moment of such turmoil in the Middle East, it seems to me that keeping the long-term time perspective is important. If you are still digesting the headlines about an “oil shock,” and now know more about the Strait of Hormuz than you ever expected, you’re not alone in feeling a bit uneasy. Sharp moves in oil prices tend to grab attention quickly because energy touches almost every part of the economy from transportation costs to inflation expectations. Markets often react fast to these headlines, and the first move is frequently downward. That initial reaction must be separated from the typical long-term result.

Historically, oil spikes create short-term volatility but mixed long-term market outcomes. Investors tend to assume that higher oil prices automatically lead to recession or prolonged stock declines. Sometimes they do contribute to economic slowdowns, but more often the market digests the shock over time as businesses adapt, supply adjusts, and policymakers respond. Markets are remarkably good at recalibrating once the initial uncertainty fades.

It’s also worth remembering that the stock market represents the entire economy, not just the cost of fuel. While higher oil prices hurt some sectors, they benefit others, particularly energy producers. Meanwhile, many companies today are less sensitive to oil than in past decades. Technology, healthcare, and service businesses make up a much larger portion of the modern market than they did during the oil crisis of the 1970s.

For long-term investors, episodes like this often feel worse than they ultimately turn out to be. Markets dislike surprises, and oil shocks certainly qualify. But volatility is not the same thing as permanent damage. More often than not, these moments become just another bump in the market’s long upward journey.

The key is perspective. If your investment horizon is measured in years rather than weeks, the most productive response is usually patience rather than reaction. Markets have climbed through wars, inflation spikes, recessions, and multiple energy crises. The lesson history tends to repeat is simple: uncertainty creates headlines, but time creates returns. A solid investment strategy will stand the test of time, just like the great man-made structures that have stood watch over Giza for thousands of years.

 

Fun Fact: Speaking of time. The Great Pyramid of Giza was the tallest structure on Earth for more than 3,800 years. Built around 2560 BC, it stood as the world’s tallest man-made structure until the Lincoln Cathedral in England surpassed it in 1311. That means the pyramid held the record longer than the entire span of the Roman Empire, the Middle Ages, and the early Renaissance combined.

The “Double Benefit” of Qualified Charitable Distributions

One of the less talked about tax strategies available to retirees is also one of the most effective: the Qualified Charitable Distribution, or QCD. While it doesn’t get as much attention as Roth conversions or tax-loss harvesting, it can be a remarkably efficient way to give to a charity, especially for retirees who are already charitably inclined.

A QCD allows individuals age 70½ or older to transfer money directly from an IRA to a qualified charity. The key word is directly. When the funds go straight from the IRA custodian to the charity, the distribution does not count as taxable income, even though it goes toward satisfying your Required Minimum Distribution (RMD) once you reach RMD age.

Why does this matter? Because reducing your Adjusted Gross Income (AGI) can have multiple effects across your tax return. A lower AGI may reduce the taxation of Social Security, help avoid certain Medicare premium surcharges (IRMAA), and limit exposure to other income-based phaseouts. In other words, the tax benefit often goes beyond the charitable gift itself.

There is another subtle advantage. Many retirees take the standard deduction and therefore receive no tax benefit from writing checks to charity. A QCD effectively restores that tax benefit because the donation is excluded from income in the first place. For charitably minded retirees with IRA assets, this can be one of the most tax-efficient ways to give.

If you are considering a QCD here are a few quick rules that are worth remembering. You must be at least age 70½, the funds must come from an IRA (not a 401(k) unless it is rolled into an IRA), and the distribution must go directly to a qualified charity. The annual limit is $111,000 per person in 2026 (indexed for inflation), and married couples with separate IRAs can each make their own QCD.

In a world where tax planning often involves complex strategies and projections, the QCD stands out for its simplicity. For retirees who regularly support charities, it is one of those rare planning opportunities where doing good and doing smart tax planning happen at the same time.

In words commonly attributed to Winston Churchill: “We make a living by what we get, but we make a life by what we give.”

Fun Fact: I hope you’ve adjusted to Daylight Savings Time. It’s nice to see the sun after work! Did you know that light has always been a factor? The general idea may have been started by Benjamin Franklin, who thought that if people got up earlier to use morning sunlight, they would save on candle wax.