Many people get tax planning and tax preparation mixed up. While both are vital services, they serve different functions. There are considerable differences between the two that you should be aware of.
Let’s examine the two in further detail.
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Preparing a tax return and filing it is known as tax preparation. This is generally a one-time event that culminates in signing your return and learning if your return is owed or if you will receive a refund.
Tax preparation generally involves one or two trips to your accountant (CPA), usually between January and April, to hand over financial documents and sign your return.
Your return will also comply with federal and state tax laws.
You can also file your taxes using an enrolled agent, attorney, or tax preparer without a professional credential.
Some individuals prepare their own tax returns and file them with the IRS.
Whatever the company or individual that prepares your tax return, you expect them to be trustworthy, skilled in tax preparation, and timely in filing your return.
In contrast to tax preparation, tax planning is an ongoing process throughout the year.
It is planning that is key here. By planning your taxes in advance, you can be proactive and reduce your tax liability.
A CPA or an Enrolled Agent (EA) with extensive experience and knowledge of tax law may provide tax planning services to both individuals and businesses, rather than a tax preparer.
Working with a tax law expert can also be beneficial for tax planning.
Examples of tax planning include the following:
Tax return preparation is an important part of staying ahead of the curve and preparing tax returns for the next year. It is nearly hard to plan for future tax bills without reliable records. Maintaining good recordkeeping makes it easier to pay quarterly estimated taxes and remain ahead of the tax curve.
Benefits of a Tax Professional
One of the most inherent benefits of expert tax aid is knowledge. Taxes are a complicated topic, and it is difficult for the typical individual to understand everything about this system.
A competent tax preparer will help in removing a lot of the ambiguity from tax preparation. If you are audited, you won’t have to worry as much because a professional is less likely to submit your return incorrectly.
Furthermore, professional tax preparation provides even greater tax advantages. They can help you in refining data on retirement planning, investment, and even charity donations.
You can also relax knowing that your financial goals are being maximized since the consequences have been carefully considered by a professional.
You will most likely benefit from tax preparation if you are required to file an annual tax return.
You can submit your return on your own or get help from a tax expert.
If your tax situation is even slightly difficult, engaging expert tax preparation services may be worthwhile. They can ensure that you are reporting accurately and identify all of the credits and deductions for which you are qualified, saving you money.
Planning your taxes should be done individually. Everyone does not require tax planning. But it’s worth it for those who may benefit from it.
Most taxpayers do not take advantage of tax planning, but they should since it may help them reduce their tax due on next year’s tax return. While it may necessitate extra time with an accountant, say regularly – or even monthly – the tax savings are generally well worth it. An accountant will have a better idea of what you can do this year to save money on your tax return in the coming year by examining previous returns.
“When you fail to plan, you plan to fail.”
You will lose out on possibilities to save money if you wait until the end of the year to consider your taxes, whether personal or company. It’s too late to go back in time and make things right by the time tax season rolls around. A tax planning specialist will have a clearer idea of what you can do this year to save money on next year’s tax return by examining previous returns. If you’re ready to understand how a tax and accounting professional can help you save money,
Tax planning and tax preparation are both valuable services. However, each has a unique outcome that determines which service you should use. A first step toward utilizing either of these services is understanding the difference between tax planning and tax preparation.
Working with someone who is experienced in working with clients like you can help you get the most out of your service and your money. Make use of tax planning expertise to help maximize your profits while minimizing your tax liability.
Do you want to know how we can help you plan your taxes for the year ahead? Whether you need tax planning or tax preparation, our experts can help. Connect with us today.
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