In today’s episode, you’ll learn more about:
- How dividends and capital gains impact your tax bill (and what to do about it)
- Why your Adjusted Gross Income (AGI) drives decisions like IRMAA, IRA eligibility, and Roth strategies
- When it makes sense to itemize vs. take the standard deduction
- How to use your taxable income to identify Roth conversion opportunities and manage tax brackets
Listen Now:
The Smart Take:
Most people get their tax return back, sign it, and move on.
But your 2025 tax return is more than a summary of last year — it’s a roadmap for smarter tax planning going forward.
In this episode, Tyler Emrick, CFA, CFP®, walks line-by-line through the key parts of your return and shows you exactly what to look for. Whether you’re approaching retirement or already there, this episode will help you turn your tax return into a planning tool — not just paperwork.
If you have your return handy, follow along and see how these strategies apply to your situation.
Go Inside the Episode:
0:00 – Intro
3:12 – Interest Income (Line 2b)
4:34 – Dividends
5:40 – Capital Gains
9:13 – Adjusted Gross Income
12:05 – Standard deduction vs Itemizing
16:19 – Taxable Income
Learn more about the Retire Smarter Solution ™: https://www.truewealthdesign.com/ep-45-retire-smarter-solution/
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The Hosts:
Kevin Kroskey, CFP®, MBA – About – Contact
Tyler Emrick, CFA®, CFP® – About – Contact
Episode Transcript:
Tyler Emrick:
Most people get their tax return back, sign it, and that’s it. But your tax return is actually one of the best planning tools that you have, if you know what you’re looking for. So for this episode, we’re going to go ahead and grab your tax return because I’m going to walk you through the key sections to review from a planning standpoint. As we go, I’ll point to where you might be overpaying and where you may have some opportunities for your return going forward.
Walter Storholt:
Hey, welcome to another edition of Retire Smarter. I’m Walter Storholt as always joined by Tyler Emrick, chartered financial analyst, certified financial, and one of the wealth advisors at True Wealth Design. Got a great show today. Although Tyler, I just finished filing my taxes. Now you got to tell me I got to pull that thing back out and we’re going to look at it today.
Tyler Emrick:
Almost. Hey, you’re coming down on the wire, April 15th. Although if you’re going on extension, you can go until October, but it is the time of year. Almost through the busy season. So we figured we’d wrap up and at least get one more tax-focused podcast, YouTube video in here for everybody. So reviewing that good old return.
Walter Storholt:
I guess most people are like me, Tyler. We finish it and we want to get it out of sight and out of mind. Woo, done for another year. But you’re saying, let’s hold on. Let’s not move on exactly yet.
Tyler Emrick:
Oh, absolutely. I think it’s just a good one check of like, hey, how did the return shake out and what are some of the key line items that we should just be looking at that can better prepare us for 2026? Because hey, we’ve got all year here. We certainly can make some adjustments if need be. Obviously one of the big points, Walt, is when you have a big bill that you might not have expected to owe. I know that’s a big trigger to look at the tax return and see what happened. But I figured today we’ll just go through and share a little bit about what I look at and what the team here at True Wealth looks at when we look at a tax return and some of the key planning opportunities that you might face when you do it.
Walter Storholt:
Yeah. Can’t wait to dive in. Let’s jump right to it.
Tyler Emrick:
Absolutely.
Walter Storholt:
You do make a great point though. A couple of years ago we owed and then I remember saying, “Hmm. Okay, so an adjustment we should make is withholding a little bit extra each paycheck and we can avoid quarterly estimated payments” and boom, it fixed the problem. The next year, I think we got like $8 back. It was like so close to the trying to hit the zero.
Tyler Emrick:
No, absolutely. Well, a couple of years back too, there were some changes with W4s and tax withholding. I don’t know if that’s one you were talking about, but it was extremely common-
Walter Storholt:
Threw some things off.
Tyler Emrick:
… for individuals to have some … Yeah, absolutely. But the first spot that I think is good to take a look at is you look at your tax return. And we’re going to be talking about federal here because that’s the most applicable for most of our listeners, of course. And then I group these lines into one big category. Think of them as like, this is how your investments are impacting your tax return. Those accounts that are not in retirement accounts, typically they’re in taxable brokerage accounts, they’re in savings, they’re in CDs, things like that. Where each year you’re going to have some tax consequences that are going to come down and trickle down to the return from those returns. So all three of these can be lumped into them. And the first one would be essentially almost the first line item on your tax return. It’s not number one, but it’s number two. So if you’ve got that 1040 pulled out, line 2B, this is going to be your interest income. So this Walt is going to be things interest that hits from CDs, from money markets, or anything that’s paying you taxable interest throughout the year.
A lot of families think, “Hey, I put my money in a CD. I can forget about it until it matures.” And then of course you get that good on 1099 from the bank or whatnot. And then you have to file that and report that on your taxes. So this is taxable interest. And this has been a big deal for the last handful of years now. Interest rates have been pretty high for a period of time. I say relatively high.
Walter Storholt:
Yeah. It’s no big deal when you were getting 0.07 or something like that, right?
Tyler Emrick:
Correct. Correct. Yeah. Now we’re in the … Prevailing rates are probably in the mid 3% range, 4% range. So if you’re at that, you’re probably getting right at where market rates are for CDs and money markets and things like that right now. But if you have a big chunk of money in those, that’s going to hit your tax return. And all that interest is taxed at what we call your ordinary income tax rate. So the more of it you have, you could bump yourself into higher tax brackets and pay more. So interest income, line 2B is the first one to look at.
The second one is right below that. That’s going to be line 3A. This is going to be your dividends. This was maybe a little less intuitive because this might come from a multitude of investments that you have inside of your brokerage accounts. Dividend paying stocks, dividend paying mutual funds, ETFs, things like that, that these trickle down. There are two categories here, Walt, to pay attention to. There’s line 3B, which is your total dividends, and then there’s line 3A, which is the portion of those dividends that are actually at preferential tax rates. So we call them at long-term capital gains rates. So long-term capital gains rates generally for most individuals can be zero, 15, 20. You could add a little bit of NIIT on there too, but generally they’re going to be a lot lower than your ordinary income rate. So we generally want more of our dividends to be on that qualified piece of the pie at the lower gains. So if you’ve got a big number in line 3A, that’s good, That means you’re being pretty efficient with those dividends that are coming through.
Walter Storholt:
Okay. Makes sense.
Tyler Emrick:
Yep. Final line item as we’re wrapping up here from a, “Hey, what are my investments kicking off and hitting my return,” would be on your 1040 line seven. Now these would be your capital gains. These are the gains that you might’ve had from buying and selling mutual funds throughout the year. This is also where lines hit for those big mutual fund capital gains distributions that a lot of people get that surprise and can certainly add to that tax bill. This is also where you can potentially harvest losses. We talk a lot about harvesting, tax loss harvesting. There’s been a multitude of podcasts that we’ve done on that. Our tax wear long short strategy harvests losses in these types of accounts. But this line here, you can check to say, “Hey, did I have investments that added to my tax liability or did I actually have investments that lowered my tax liability?” Because we can write off up to $3,000 of losses in this line item here and actually lower our taxes. Right?
Walter Storholt:
Yep.
Tyler Emrick:
So as we’re looking at all three of these, I bunched them in together because what I think it really just … All three of them fit into, well, what is your overall investment strategy and how does it impact your taxes? We want to be very mindful of these line items and how big they are and saying, “Hey, can I be a little bit more deliberate about the investments that I’m picking that maybe minimize these line items?” We don’t want to give up return, but can we get them more line items in that preferential tax treatment, like the qualified dividends, for example, that line 3A. Or can we get investments that pay in the form of capital appreciation versus dividends and interest, and that way we can have more control over when they hit your tax return. So that’s what we’re really looking at when we’re looking at all these line items together.
And then you can zero in and say, “Well, which one really hit my taxes this year?” And then you can have a very in depth and good conversation with your investment professional, your financial planner and saying, “Hey, are we being smart about the investments that we’re using because look, I got hit with this this year. Can we reposition into something else that’s going to give me a similar return, but not have that big tax hit?”
Walter Storholt:
It’s like if you … Let’s say you just had a ton of dividend income showing up here, but you weren’t taking advantage of the $3,000 potential write-off in the capital gains category, that’d be an opportunity where you guys at True Wealth Design would say, “Hey, what can we do inside of this portfolio to show $3,000 in losses, but not actually feel that in our returns?”, and use those strategies that you were talking about without going down that rabbit hole of the tax-aware long/short and tax loss harvesting. But that would be one of those green flags or red flags depending on how you look at it where you would say, “Hmm, area of opportunity here.”
Tyler Emrick:
Are we looking at it? Yes. Because that capital gains line there, that line seven on the 1040, you’re absolutely correct. Did we realize a bunch of gains? Well, hey, the market’s been pretty volatile here to start out the year. Has there been some investments that maybe have turned negative where we can swoop in, sell them, reinvest and realize that loss to offset future gains down the road? So absolutely. They all work in conjunction together. Certainly there are certain rules to where maybe realizing losses can’t offset dividends or interest, but maybe we need to look at other investment positionings or whatnot. But it all goes into that full picture of your investment strategy and how it’s hitting your tax return.
Walter Storholt:
It’s a picture of how … The conversation should be sparked in these ways.
Tyler Emrick:
Nailed it. Absolutely. 100%. So the next line … So we’re moving away from investment and how the investments are impacting return. And now we’re going to really focus on, hey, like, what’s your total income for the year? And we’d look at that as like adjusted gross income. So this is line 11 on your 1040, line 11. And this does include all those investments that hit that we talked about before, but it also includes things like social security, pensions, wages if you’re working, are all included into this number here. And that line is extremely important for a lot of the other savings options or other tax considerations that you need to be aware of. For example … Especially if individuals that are 63 and above AGI align here, this adjusted gross income line is very important for IRMAA planning. So IRMAA uses what’s called your modified adjusted gross income. Modified adjusted gross income is not a line on your 1040. So you’re not going to find it there, Walt. But it does use this line, you add back in some things and that’s what the IRS is going to use to determine, “Hey, are you going to pay more for your part B premium for Medicare?” It’s a two-year look back. So understanding what that AGI number’s going to look like is going to be extremely important for our retirees that are on IRMAA or heading into IRMAA and are 63 above.
AGI also is at the forefront or at the crux of, “Hey, can we make IRA contributions that are tax-deductible? Can we make Roth contributions or do we have to do that back door Roth?” I think we just did an episode on those backdoor Roth, So then question becomes is like, “Hey, where were we last year? How are we looking to change that? Do we need to lower it? Do we need to maybe make it higher for a few different reasons why we might want to do that?” We’ll talk more about that here a little bit later on in the podcast. But “Hey, what can we do to control it?” A lot of that control happens in the tax year, Walt. So for 2026, you’re in the year, you can change that. There’s only a handful of things you can do once we turn the corner into the following year to change that.
Certainly you can maybe adjust to make some HSA contributions, maybe some income’s low enough to where you can make IRA contributions and have them deductible. Those are a couple of things you can do after we turn the page into the next calendar year, but most of this stuff has to happen throughout the year. Adjustments to 401k contributions would be a good example of things that we can do now to adjust it for the upcoming year. So that AGI number is important while you’re working. It becomes even more important when you think about retirees, where you’re getting your money from and what we want to target.
Walter Storholt:
Yeah. Lot to consider with that one, it sounds like.
Tyler Emrick:
It’s probably one of the biggest ones, right?
Walter Storholt:
Yeah.
Tyler Emrick:
That one and then taxable income, which we’ll get to and we’ll finish up with that one.
Walter Storholt:
Okay.
Tyler Emrick:
So one more before we get to taxable income though, and this is going to be your standard deduction or are you itemizing. So this would be on your 1040 line 12. And this is going to say, “Hey, the IRS is going to give you a multitude of ways to lower your adjusted gross income to get you down to taxable income.” Taxable income, that’s the number we’ll talk about at the end here, but that’s what you’re actually paying taxes on. You’re not paying taxes on your adjusted gross income. So what we want to do is we want to find as many deductions as we can and lower that adjustable gross income down to get that taxable income down to a very low and reasonable number.
So some individuals listening here might not ever have to worry about itemizing. Currently, standard deduction in 2025 … Because we are looking at the 2025 return, married finally jointly starts a little over $31,000 and then can be a little higher if you’re over 65 or you have some other circumstances. If you’re single, that number is just below 16,000. So you take those two numbers and say, “Well, hey, do I have enough of itemized deductions to get above that?” If you do, you’ll actually itemize. If you don’t, you’ll just take the standard deduction and you’ll go on and go from there.
One key caveat that I think is important to know though is how close were you to itemizing if you did end up taking the standard deduction? Did you get pretty close? Because with the One Big Beautiful Bill that was passed last year, there was some changes to these itemized deductions that we can take. One of the big ones was the cap on state and local taxes. This would be state and local taxes that you pay on your income, wages, it’d be your property taxes. It used to be capped at $10,000. For individuals that are in a high income or state where they tax you quite a bit or you pay a lot in property taxes, that new limit’s up to $40,000. So right there, if you’re paying a lot in state and local taxes, you could go from taking the standard deduction to actually itemizing or getting pretty darn close to it.
The other deductions you want to look at would be the old mortgage interest deduction would be an itemized deduction, and then your charitable gifting as well, which Walt, we’ve done a whole host of podcasts on, charitable contributions. Maximizing.
So if individual, if you’re getting close to the standard deduction and maybe you’re doing a little bit of gifting, the other question becomes is maybe do you gift a little bit more to get above it and be a little bit more deliberate about your deductions so you can take the itemized deductions one year and maybe take a standard deduction to next. So definitely a line to pay attention to. If you’re not close to the standard deduction, hey, that makes things a little more simple for you for sure.
Speaker 3:
What would your life look like if you designed it around your true wealth? It’s a powerful question, and one that True Wealth Design helps individuals, families, and business owners answer every day. With a fully integrated approach to financial planning, tax strategy, investments, and business advisory, their team can bring clarity and confidence to every part of your financial life. Take the first step toward a stronger financial future with a no cost, no obligation discovery meeting. Just click the link in today’s show description to get started.
Walter Storholt:
Do you find that folks who are normally, let’s say, straightforward W2 and maybe don’t have a lot of other assets and other areas where they’re going to be pulling your deductions from, those are folks who are usually standard deduction easy enough. And is it a more complicated the situation tends to do the itemizing or not always that line thinking?
Tyler Emrick:
Not always the case. I think it used to be that maybe a little bit before the last tax legislation that passed. Now with that change to the SALT deduction, a lot of individuals are picking up quite a bit more in itemized deductions than what they did traditionally. Property taxes start to add up, state and local taxes out up, especially here in Ohio. So those numbers aren’t insignificant. You find yourself having a little bit of a mortgage and doing a little bit of gifting, you might see yourself starting to creep up into some of those numbers for sure. So it really just depends. But those are the big itemized deductions to be paying attention to, be thinking about, make sure you have a decent handle on them so you can just say, “Hey, how close are we to that standard deduction and do we have a little bit of an opportunity?”
Walter Storholt:
Makes sense.
Tyler Emrick:
Yeah.
Walter Storholt:
Good deal.
Tyler Emrick:
All right, we get to the last big number.
Last one, right. Yep. And this is your taxable income. This is the line that determines how much in taxes that you truly are going to pay. This is line 15 on your 1040. So we’re just going down and … Well, technically we’re increasing in numbers, but we’re going down the 1040 and we’re getting down toward the bottom end here when we get down to your taxable income here. And from a planning standpoint, this is one of the more impactful numbers to pay attention to as you’re thinking about, especially retiree planning and when you have a little bit of flexibility on where your money comes from and what you’re going to live off of in retirement. And really what you want to do is you want to take a look at that taxable income number and see, well, where are we falling? What tax bracket are we in and do we have room to take our income up a little higher before we jump to the next tax bracket? Because of course, when we think about taxable income and the taxes that you pay on it, when you jump up into the next tax bracket, not all your taxable income is going to be taxed at that higher bracket, Walt. Just the income that reaches up into that next bracket.
So if we take a step back and if you look at that taxable income number and it says, “Well, hey, we were in the middle of the 22% tax bracket, we could have taken maybe another 30 or $40,000 of income and not bumped out of that 22% tax bracket.” Well, then the question you got to ask yourself is saying, “Well, hey, well, what’s my tax bracket down the road? Is it going to change? Is it going to go up? Is it going to go down? When my required minimum distributions starts in my mid 70s, is that going to ratchet me up and I’m going to be above that 22% bracket?” Because if that’s the case and you can answer that question, well, then you might want to go and say, this is when we look at those Roth conversions to say, “Hey, maybe we want to take our income up a little higher and maybe do a Roth conversion, pay taxes at 22% because in our scenario, in our situation, that’s a pretty good deal because down the road, maybe we’ll be paying 24% or something a little bit higher.”
So that’s how you can really look at that taxable income number Walt, and say, “Hey, how much wiggle room do we have?” Now you do need to be cautious because those long-term capital gains that we talked about there at the very beginning of the podcast, those are going to be included in this number too, and not all of them are going to be taxed at ordinary income.
So you do need to be a little bit weary of a kind of, “Hey, what’s those numbers at the top? What are some of those other numbers that we had talked about? How is that impacting this number?” But when it’s all said and done, that taxable income number is a wonderful guide for individuals to take a step back and say, “Well, hey, if you’re still working and you’re not retired, you should use this guide to help you determine should you save Roth? Should you save pre-tax in your 401k?” There’s all sorts of information that we can glean from that taxable income number to help put us in a better situation as you think about 2026 and how that’s going to shake out.
Walter Storholt:
Seems like, especially the closer you get to retirement, the more you want to look at this and see where those opportunities are, especially for any sort of conversions or anything like that that you might want to do and see all the headroom that you either have or don’t have.
Tyler Emrick:
Or don’t have.
Walter Storholt:
And then that influences all your decisions. So that’s pretty cool.
Tyler Emrick:
You got it.
Walter Storholt:
I have one follow up. Line 24 says, “This is your total tax.” So if I divide that number by the taxable income one, the last one that you mentioned, does that give me what my effective tax rate is?
Tyler Emrick:
It does.
Walter Storholt:
Okay.
Tyler Emrick:
Yep. Across all income. So portfolio income, which was that bucket we talked about first, remember it can have some preferential tax treatment there and then your ordinary income as well. So exactly.
Walter Storholt:
I like to track that number year to year just to see what that percentage looks like because it’s interesting to see it either shift in either direction from year to year based on where income came from and what bracket you’re in, all those kinds of thing.
Tyler Emrick:
Absolutely. It can. Yeah. And having a handle on that and having a handle on what does that number look like down the road really helps you in the here and now.
Walter Storholt:
It can also make you feel a little better if you’re in a high tax bracket and you’re like, okay, it’s a reminder that not everything was taxed at that. So that number should come out less than …
Tyler Emrick:
It should come out less.
Walter Storholt:
And that’s another warning sign. If that number’s coming out more than your tax bracket, we got problems. We need to look at something, right?
Tyler Emrick:
Yes. Come talk to us.
Walter Storholt:
If that number’s 25 or 30 or something like that, we’re in trouble.
Tyler Emrick:
But no, you got it, Walt.
Walter Storholt:
All right. Awesome. Well, hey, great breakdown. Thank you, Tyler, for walking us through. I followed along on my own tax return as we were just chatting there. Here off-screen, obviously. I’m not going to put that public out there. But enjoyed walking through with you. Hopefully other folks did the same. And if you didn’t, go back, watch the episode again and truly follow along with your tax return. I imagine this is just a small sampling of what you do with clients, right, Tyler? You go probably even more in depth than this when you’re reviewing tax returns and looking for these opportunities, you’re spending some time in this document.
Tyler Emrick:
Oh, you got it. Yeah. And we’re prepping it beforehand right at the end of the year. That’s what we’re doing in that fall, winter timeframe here in Q3 and Q4 is saying, “Hey, what’s it shaking out for this year and what’s the next year look like and how can we plan for that and anything we need to get in?” So absolutely.
Walter Storholt:
Excellent. Well, if you’re watching today’s show or listening on your favorite podcasting app, thanks so much for joining us. If you’d like to talk with Tyler and the great team at True Wealth Design about your specific plan and your situation, it’s very easy to get in touch. All you have to do is go to truewealthdesign.com, look for the Let’s Talk button and you can schedule a time to meet. It’s a 20-minute discovery call to see if you’re a good fit to work with the team, and then you can move forward from there. But easy to get in touch and have that initial conversation. Again, that’s at truewealthdesign.com. We’ve got that and more contact information linked in the description of today’s show, so you can also find it easily there and a link directly to the calendar to go book that conversation. Tyler, thanks for all the help and we’ll turn the page to another good conversation next week.
Tyler Emrick:
You got it.
Walter Storholt:
All right. Take care. That’s Tyler. I’m Walter. We’ll see you next time right back here on Retire Smarter.
Speaker 4:
Information provided is for informational purposes only and does not constitute investment tax or legal advice. Information is obtained from sources that are deemed to be reliable, but their accurateness and completeness cannot be guaranteed. All performance reference is historical and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.