Allworth Advice | Tax filing isn't tax planning

Every week, Allworth Financial’s Amy Wagner and Steve Hruby, CFP, answer your questions. If you, a friend, or someone in your family has a money issue or problem, feel free to send those questions to yourmoney@enquirer.com.

A.G. from Hamilton County: I hate the idea of paying more taxes than absolutely necessary. How can I make sure I’m not overpaying?

Answer: With Tax Day quicky approaching,we’re assuming your question is referring mostly to the act of preparing and filing a tax return and making sure you get every deduction possible. However, we want to shift your focus to the long-term act of tax planning – because this is often where we see people make the biggest (and most costly) mistakes.

For instance, we sometimes see retirees wait way too long to start taking Required Minimum Distributions (RMDs), potentially triggering a gigantic tax bill. While you now need to start taking these withdrawals from tax-deferred accounts at age 73 by law, that doesn’t mean you can’t start withdrawing sooner. Because if you’ve saved well and will have other retirement income sources, it can be prudent to systematically begin taking out money as early as age 59 ½. This will help lower the balance of those accounts, thereby reducing the tax hit when RMDs eventually kick in.

Then there’s also the strategic process of income distribution. This entails properly sequencing withdrawals from accounts with differing tax treatments so you can maximize tax efficiency. Otherwise, if you just haphazardly pull money out in retirement, you’ll likely pay more in taxes than you have to.

Additionally, tax-loss harvesting can be worthwhile if you have investments that have lost value; the ‘bunching’ strategy can help you maximize itemized deductions; and tax-efficient investments (like certain types of bonds) can help minimize your tax burden.

Here’s The Allworth Advice: Taxes shouldn’t be the only determining factor when making your financial decisions. But if you really want to save money, do a little forward thinking about your long-term tax planning strategy. Working with a credentialed advisor, a tax professional, and even an estate planning attorney can help.

Tyler in Morrow: I’m self-employed and want to buy my first house. But I’ve heard it can be hard to get a mortgage if I don’t have an actual employer. What should I do?

Answer: Yes, lenders like to see documentation of steady income. And this can be difficult if you’re a contractor, freelancer, or self-employed. However, this doesn’t mean you’re out of luck!

Make sure you have solid earnings documentation. This means having proof of a couple years’ worth of stable employment and income, and the overall trend should show an increase in income. Being able to show you have cash reserves is a good idea as well. A higher down payment also typically offers lenders more reassurance.

Also, be sure your credit score is in good shape – a score of 740 or higher usually unlocks access to the best available interest rates. And consider working with a smaller lender that keeps mortgages on their own books (such as a credit union); they’ll have more flexibility in who they approve.

The Allworth Advice is that if you do your homework in advance to prove you’ll be a responsible borrower, your odds of getting approved will likely increase. Best of luck!

Responses are for informational purposes only and individuals should consider whether any general recommendation in these responses are suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing, including a tax advisor and/or attorney. Retirement planning services offered through Allworth Financial a SEC Registered Investment Advisor. Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Visit allworthfinancial.com or call (513) 469-7500.

This article originally appeared on Cincinnati Enquirer: Allworth Advice | Tax filing isn't tax planning