There can be some confusion about the differences between tax planning vs tax preparation. While both are valuable services, they have their own unique purposes. Let’s go over both of them to help you understand the differences.
To put it simply, tax preparation is the process of preparing and filing a tax return. When tax time approaches, you assemble your documents, file your taxes, and find out whether you owe the IRS money or will be receiving a refund.
Tax preparation can be done with or without help. For simple returns, some individuals prepare their tax returns themselves. Others might use an accountant or tax preparer who doesn’t necessarily have professional credentials to file their taxes.
If you’re an individual or business with a more complicated return, a tax advisor firm can lend a hand. Doing tax preparation with an expert will ensure you file your tax returns correctly. Most services will include filing federal and state taxes. They can also make sure you take advantage of any credits or deductions that you’re eligible for, especially if any tax laws have recently changed.
Tax planning, unlike tax preparation, isn’t a seasonal event. It’s a separate, year-round process that both individuals and business owners can take advantage of. The keyword in all of this is planning.
Tax planning is about forward-thinking, so you can be proactive and minimize your tax burden in the future. This service is typically performed by an accounting firm or tax specialist with in-depth experience and knowledge of tax law rather than a tax preparer. The importance of tax planning may be larger if you have retirement accounts, investments, charitable contributions, or businesses that could affect your tax situation.
Some examples of tax planning include:
- Looking at overall business growth goals and finding tax-saving strategies
- Bunching expenses to maximize deductions
- Tax-loss harvesting to offset investment gains
This service is something many taxpayers do not take advantage of but should to help minimize their tax liability on next year’s tax return. While it may mean you spend more time with a tax specialist throughout the year, the benefits are well worth it.
Who Should be Using Tax Planning vs Tax Preparation?
Even if your tax situation is even a little bit complicated, tax preparation services may be worth it. A tax professional will be able to make sure you are reporting correctly and find all the credits and deductions you are eligible for. You don’t want to be audited for a small mistake, and tax preparation services will make sure your tax return is in tip-top shape.
Again, tax planning isn’t taken advantage of as often as it should be. Most financial decisions have a large effect on your taxes for years later. Knowing what impact these financial decisions may have can help you make better choices. Also, no matter if it’s personal or business, if you wait until the end of the year to think about your taxes, you’ll be missing out on ways to save money if only you had thought a bit ahead. By the time next year’s tax season rolls around, it’s too late to fix things.
Planning or Preparation: Why You Need Professional Tax Assistance
Whether it’s for planning or preparation, professional tax assistance is the way to go. With professional tax assistance, you can rest assured that they are knowledgeable in the field of taxes and finances. It’s hard for the average person to know everything about this system. A professional dedicates time and effort to studying and staying on top of all the rules so you don’t have to.
You’ll also have peace of mind. You won’t need to worry about your tax returns as a professional is less likely to file your returns with errors. And you can be assured your financial plans are being optimized.
At Gaylor Tax Services, we can provide you professional tax assistance with tax planning and tax preparation. Our experts are here to answer your questions and guide you in the right direction for financial success. No matter what, don’t hesitate to contact us. We are located in Phoenix, Arizona but can assist you anywhere in the state.