Tax Planning vs. Tax Preparation
When we hear of tax planning and tax preparation, we often confuse one for the other or think that both terms mean the same thing. In reality, however, hardly anything could be farther from the truth.
Tax planning, according to Investopedia, is “the analysis of a financial situation from a tax perspective, the purpose of which is to ensure the maximum possible tax efficiency.” Put in simpler terms, tax planning is the process of organizing your finances for taxation. It helps you arrange and optimize your tax situation before you file your tax returns.
Tax preparation, on the other hand, is the process of getting tax returns (often income tax returns) ready for filing with the IRS or any other appropriate tax authority. Since tax planning happens before tax preparation, you could say that tax preparation is the implementation of the strategies for tax reduction uncovered during the process of tax planning. The main aim of tax preparation is to minimize your tax liability and to ensure that your tax return is compliant with both federal and state tax laws.
Most taxpayers think that by effectively preparing their tax returns for filing, they will be able to save hundreds (or perhaps even thousands) in the amount they pay as taxes. What many of these taxpayers fail to recognize is that they would probably be saving a lot more money in taxes if they didn’t skip the process of tax planning.
Many tax advisors will give you generic advice about tax compliance and tax return filing based on your tax situation and your tax returns in the last couple of years. What they may fail to tell you is how to adequately plan for your tax preparation through efficient strategies like using tax-loss harvesting to offset your investment gains, managing your tax bracket, what to do with a Roth conversion, and maximizing your charitable deductions in a tax-efficient way.
You may not be receiving this information from your current tax advisor because tax planning and tax preparation are two (although interrelated) entirely different fields. Tax planning requires additional knowledge and expertise on the part of the tax advisor, and you will be surprised to see just how much money you can save in taxes simply by implementing an effective tax planning strategy.
Below are a few tips to help you start reaping the benefits of implementing an effective tax planning strategy.
How to implement an effective Tax Planning strategy
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Find a knowledgeable tax professional:
Finding a knowledgeable professional who knows the difference between tax preparation and tax planning makes all the difference.
Although tax preparers are trained to be knowledgeable about the taxation process and compliant with tax laws, it requires a deeper understanding of other financial areas (such as retirement planning, insurance planning, and investment planning) to be able to come up with an effective tax planning strategy.
If you think that your current tax preparer does not possess adequate knowledge to help you come up with an effective tax planning strategy, then we advise you to find a new team of professionals. Souri, Gazda, and Co. is a firm dedicated to providing you with everything you need to gain tax reduction and become tax compliant. Call us now at 888-585-8629 or 617-430-4674 .
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Be sure to request a tax planning service separately:
Most tax consultants do not offer tax preparation and tax planning as one service, so it is important to ensure that you request for tax planning services separately. The complexities involved in tax planning (such as the gathering of certain data, analysis of such data, and research) are usually not necessary during the tax preparation process. This is why it is necessary to request tax planning services separately.
Do you need help with implementing an effective tax planning strategy? We are a tax relief firm dedicated to giving you the best results regarding resolving your tax debts. Our team of qualified professionals is available round the clock to provide you with the assistance you need. Contact us now at 888-585-8629 or 617-430-4674 or send us an email at help@newstarttaxconsulting.com.
For more information, email info@newstarttaxconsulting.com
