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What is Tax Planning?

May 24, 2023

What is the difference between tax planning and tax preparation? 

Tax Planning vs. Tax Preparation

Tax planning and tax preparation sound similar, but there are many differences. You won't get the expertise you need for tax planning from a tax preparation business.

Tax planning by a qualified advisor may offer tax guidance or help you save money on your taxes. If you want to minimize your tax liability, you can work year-round to acquire and execute tax planning advice. Some tax saving efforts may be made at tax time, but best results require careful planning throughout the year.

The most common services offered by tax planners include:

  • Tax loss harvesting strategy: If you have taxable investment accounts, you could be on the hook for large liabilities at tax time. Figure out the best tax loss harvesting strategies to use in your investments. Using a tax loss harvesting strategy ensures your investment strategies align with your needs.
  • Managing your tax bracket: Determine how to plan your income to manage your tax bracket. Offsetting certain income helps minimize what you owe on your taxes. Offsetting may include making retirement plan contributions or using other tactics to save for the future and decrease what you owe on your taxes now.
  • Managing charitable contributions: In some cases, donating to charity can minimize how much you owe on your taxes. A tax planner can help you determine if and how charitable contributions benefit you.

The most common services offered by tax advisers/preparers include:

  • Filing your tax returns.
  • Ensuring adherence to state and federal tax laws.
  • Resolving tax disputes or audits.
  • Managing missed deadlines and the necessary resolution paperwork.
  • Addressing any tax-related questions or concerns clients may have.

In summary, tax planners typically work proactively, considering various tax-saving opportunities and creating plans to optimize tax outcomes, while tax advisers work reactively, often providing assistance when clients encounter specific tax issues or obligations. While there may be some overlap in their expertise and services, their primary emphasis and approach differ. Please give us a call to get your complimentary tax report with relevant observations by qualified specialists!