BETTENDORF, Iowa — Tax Day is Tuesday, April 18, and as you are filing your taxes there are things you should consider so you can save yourself money and time. News 8's David Bohlman was joined by Dave Elizondo, a certified financial planner with True Financial Partners in Bettendorf to learn more.
BOHLMAN: What is the difference between tax preparation and tax planning?
ELIZONDO: Well, tax preparation is what we do every year, when we're gathering our documents, like our W-2s or 1099s, charitable contributions and other things in an attempt to file our taxes no later than April 15. So we're preparing to do our taxes.
Tax planning is where we're looking forward and we're trying to figure out some strategies or learn strategies of things we can do to try and reduce our taxes over the long term.
BOHLMAN: Why do people tend to focus more on the past than the future in terms of taxes? What does that mean and what else should we be doing?
ELIZONDO: Well, a great analogy is you're driving down the road, you're driving in your car. And when you look in the rearview mirror, you're looking backwards, you're looking at things that have already happened things in the past. That's the tax preparation, where we're putting things together, and we're doing our taxes for things that have happened in the last year.
Tax planning is where we're looking out the front windshield, and we're looking forward. And we're looking to try and figure out ways where we can, you know, a better plan for taxes over the long term. So one is looking backwards, and one is looking forward.
BOHLMAN: What do you find is the biggest problem when it comes to our taxes?
ELIZONDO: People have what I call "short-term thinking," or "short-sighted thinking" when it comes to taxes. People are often more concerned about what their tax consequences are for this year, and how doing something is going to affect their taxes this year, and they lose sight of looking forward, down the road and figuring out, you know, how can I help my taxes going forward?
So I want to try to get people to stop thinking so much about how it's going to affect their taxes this year. And look, you know, maybe consider both, because one of the things on that is is that, you know, people say, "Well, I don't want to do this year, because it's going to increase my taxes."
Well, the thought that the decision of whether to do something or not to pay no taxes versus paying taxes is not an option, there's going to be tax consequences down the road. So I want to change people's thinking to say, maybe, "How can I get a lower tax bracket down the road instead of paying a higher tax today?"
BOHLMAN: What are some things people can do to improve their tax situations and maybe save some cash in the future?
ELIZONDO: One of the biggest things I would recommend is a Roth IRA. For most of us, our IRAs, our 401Ks, our retirement funds, are going to be the greatest part of our net worth. And that's what we're planning on using in retirement.
Roth IRAs grow tax-free. So the more money that people can put into a Roth IRA, the more tax-free money they're going to have down the road. And tax-free means you don't have to worry about taxes.
Now, the other thing is for IRAs and 401Ks, none of those dollars have ever been taxed. So when we get older, after age 59 and a half, and we start to withdraw that money from those accounts, if we can be more efficient and figure out a plan to withdraw money at a lower tax rate instead of just withdrawing money whenever you might need it or want it. If you actually create a plan, you're going to probably reduce the taxes that you're going to pay on the largest amount of money that you're going to have.
Do you have a money question that you want True Financial Partners and WQAD to answer? Send your question to David Bohlman at dbohlman@tegna.com.
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