How to Review Your Tax Return (Line-by-Line Guide)
Don’t leave money on the table. This step-by-step guide breaks down the IRS Form 1040 line by line so you can understand what every number means—and how to reduce your taxes in retirement and invest smarter.
🔍 What You’ll Learn:
🔹 Key lines on the 1040 every retiree needs to understand
🔹 What to watch out for with dividends, capital gains, and IRA income
🔹 How to spot tax traps in your investment accounts
By: William Hinder, EA | August 5th, 2025
Most people doing retirement planning know very little about their taxes. Every year, they hand over paperwork to their accountant, wait for the tax return to be filed, and never question what’s actually in it.
But here’s the truth: your tax return tells your financial story—and if you don’t understand it, you could be leaving money on the table or paying more than necessary.
As a retirement-focused IRS Enrolled Agent and financial planner, I’m here to walk you line-by-line through IRS Form 1040, explaining what each section means for your retirement planning.
✅ You’re legally responsible for everything on your return
✅ It affects how much you pay in taxes—now and in the future
✅ It reveals planning opportunities most people overlook
✅ It’s the key to smarter investing and income withdrawal strategies
Form 1040 is the U.S. Individual Income Tax Return, used by all U.S. resident taxpayers. If you’re 65 or older, you may also use Form 1040-SR, which is the same form with larger text.
This is the form your accountant files on your behalf—and the one you sign, making you legally responsible.
Let’s break it down into retirement-planning relevant sections:
🔹 Personal Info & Filing Status
Confirm your name, SSN, and address—mistakes cause delays.
Filing status impacts your tax brackets, deductions, and credits.
Most retirees file as Married Filing Jointly.
Widows/widowers can still file jointly the year their spouse passes.
Standard Deduction increases at age 65 or if you are blind.
🔹 Crypto Question
Did you sell any crypto? The IRS is watching. Check this box truthfully.
🔹 Income Section (Lines 1–8)
Line 1 – W-2 Income: If retired, this is likely zero—but if you have part-time work, it appears here.
Line 2a/2b – Interest Income:
2a: Tax-exempt (e.g. municipal bonds)
2b: Taxable (CDs, bank interest)
Line 3a/3b – Dividends:
3a: Qualified dividends (lower tax rate)
3b: Ordinary dividends (higher tax rate)
Line 4a/4b – IRA Distributions:
If 4b is lower than 4a, you might have after-tax IRA contributions (see Form 8606).
Line 5 – Pensions & Annuities:
Gross and taxable amounts listed; may be partly tax-free.
Line 6 – Social Security:
Up to 85% can be taxable, depending on other income.
Line 7 – Capital Gains:
Long-term capital gains are taxed more favorably than short-term.
Check Schedule D for details.
Line 8 – Other Income:
Includes rental income, gambling winnings, and business income.
🔹 Adjusted Gross Income (AGI) – Line 11
Your AGI is a critical number. It determines:
Roth IRA eligibility
ACA health insurance subsidies (pre-Medicare)
Medicare IRMAA surcharges
Net Investment Income Tax exposure
🔹 Deductions – Line 12
Take the standard deduction (likely) or itemize if you have:
Large medical bills
High state/local taxes
Big mortgage interest
Charitable donations (QCDs at age 70½+ are best)
🔹 Taxable Income – Line 15
This is what your tax is based on. Remember, our system is progressive, so only income above thresholds is taxed at higher rates.
🔹 Tax, Credits, and Other Taxes (Lines 16–23)
Line 16: Your total federal income tax
Line 17: Alternative Minimum Tax (AMT), if applicable
Line 20: Energy-efficient home/EV credits
Line 23: Includes 3.8% Net Investment Income Tax if AGI > $250k (married)
✅ Planning Tip: Keeping AGI below certain thresholds can save thousands in Medicare and NIIT surcharges.
🔹 Total Tax Owed – Line 24
This is your true tax bill—before any withholdings or estimated payments.
Pro Tip: Want to avoid underpayment penalties? If your AGI is under $150k, divide this number by 4 for your safe harbor quarterly payment amount. If over $150k take your AGI, multiply by 110%, then divide by 4.
🔹 Payments & Refunds (Lines 25–37)
Line 25a: Withholding from jobs (unlikely in retirement)
Line 26: Estimated payments
Line 31: ACA tax credits
Line 33: Total taxes you’ve already paid
Compare Line 24 (Tax Owed) with Line 33 (Taxes Paid):
Line 34: Your refund
Line 37: Amount you still owe
Your tax return isn’t just compliance—it’s a roadmap for smarter retirement planning. When you understand what’s on your 1040, you can:
✅ Lower lifetime taxes
✅ Optimize income sources
✅ Make better investment decisions
✅ Maximize tax credits and deductions
I’m Will, a retirement-focused financial planner and Enrolled Agent. If you’re ready to take your retirement plan to the next level, book a call with me directly at the link below.
📊 Schedule a call with us today!
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