Tax Preparation and Tax Planning: What’s the Difference?

July 21, 2023

It’s the midpoint of the year when most families are experiencing the lull of summer. However, you may not know that this is prime time to begin planning for the next tax season.

Everyone expects to work on their taxes between February and April each year, and many believe simply using an accountant for tax preparation can save them the most money. But if you aren’t using the rest of the year for tax planning, you’re missing out on significant opportunities to reduce your tax burden.

What’s the difference between tax preparation and tax planning?

Tax preparation occurs in early spring and involves gathering documents and filing your taxes. Most tax preparers aim to file your taxes correctly based on information you provide and avoid tax penalties. However, when given only a few weeks to file your taxes ahead of the deadline, tax preparers have likely lost the window of opportunity to reduce the amount of taxes you owe.

Tax planning, on the other hand, is ongoing. By working with a financial advisor and tax professional regularly throughout the year, you can identify ways to save money before tax season arrives.

Comprehensive tax planning examines all aspects of your financial life and may include evaluating things like:

Retirement savings and distribution strategies
Business planning (business succession planning or employer-sponsored retirement plan guidance)
Estate planning
Portfolio management
Charitable giving strategies

At Davie Kaplan, our wealth advisors and CPAs work together as a team to evaluate every available opportunity to reduce your tax liability. With a proactive approach, we can identify ways to maximize your deductions, look for tax-optimized withdrawals, forecast your estimated annual income and apply relevant tax credits to help lower your tax bill.

Tax planning is not a one-time process; every change in a business, family or individual’s financial status might have significant tax ramifications. Our professionals are available to offer the best tax advice for each circumstance you face – while keeping you on track to meet your financial goals, including education savings or retirement planning.

Categories: Tax Planning