01 Dec Tax Preparation vs. Tax Planning
Many individual taxpayers and even small businesses assume that tax preparation and tax planning are synonymous. However, these are two types of services with distinct goals.
What is Tax Preparation?
Tax preparation involves the process of preparing and filing a tax return. A tax preparation service ensures your financial documents are in order and your tax reporting meets federal and state tax law compliance. Because it covers the tax year, tax preparation is essentially a one-time annual event. This is one of the key differences between tax preparation and tax planning, which is a year-round process with long-term goals.
Trusting a tax professional to help you prepare your taxes means you don’t have to spend time completing your tax return independently, which can burden those with many professional and personal responsibilities that keep them busy. With an in-depth understanding of tax laws, tax preparation ensures you maximize deductions and credits, so you save more money. Tax professionals also help you lower your risk of an audit by preparing your tax return accurately.
What is Tax Planning?
The tax code is over 4,000 pages, and most people will neither have the time nor desire to read it. This means that most taxpayers will have gaps in their understanding of tax laws. It also doesn’t help that tax codes are updated and changed constantly, leaving people either in the dark about new tax benefits that may benefit them or unaware that they no longer qualify. Therefore, these gaps in knowledge can mean you’re paying more than you should or accidentally filing your returns incorrectly.
A tax planning team knows the tax codes and stays updated on changes but leverages it in a way that helps the taxpayer strategize their tax filing and use the tax code to their advantage. Many taxpayers don’t realize that there are legal ways to offset investment gains or defer income. And that reaping the most tax benefits rely on optimal timing for certain expenditures. Because tax planning requires a long-term view, a tax planning expert can analyze your taxable income, future income, and investments to identify the highest marginal rates.
Therefore, tax preparation and tax planning are not only two different services, but they are complementary strategies. The problem with not including tax planning in your financial strategy year-round is that it’s too late to start planning if you wait until it’s time to file your taxes. Therefore, tax planning should start now, regardless of how far away the next tax return filing due date is. Waiting to take advantage of tax planning could already be impacting your future, particularly your retirement plan contributions, investment accounts, estate plans, and charitable contributions.
At Golden Tax Relief, we provide expert tax planning services to those who need help understanding the complexities of tax planning. With decades of experience and tax code knowledge, we can help ensure you’re not overpaying your taxes and rewarded with financial stability. For expert tax planning advice, click here for a consultation or call 844 229 8936.