There is a big difference between tax planning and tax preparation. Many business taxpayers do not understand the engagement they have with their tax advisors. As a result, they end up missing out on major tax savings and opportunities.
Here’s what you need to know about the differences between tax planning and tax preparation.
What is Tax Preparation?
Tax preparation is an exercise in compliance and reporting. Generally, you have revenue and expenses to report and you place those items in certain buckets to report on a tax return. While there are options for reporting, elections you can make, and opportunities you can utilize, you are generally limited to working with the information you have.
Tax Planning vs. Tax Preparation
While tax preparation focuses on compliance and reporting, tax planning allows you to make tax-centric business decisions throughout the year, which can substantially change the information you have to report.
Those decisions are often influenced by real-money tax savings. For example, many companies do profit projections at the end of every year and make decisions about equipment purchases or employee bonuses based on those profit numbers. This is a simple exercise in tax planning – the business aims to reduce its profit at the end of the year by increasing certain expenses.
The Importance of Planning
If you wait until the close of the year to figure out your tax situation, it is too late!
Tax planning requires forethought and specialized expertise. Great advisors work with their clients as a team and lean on specialized d tax experts to ensure their clients take advantage of the opportunities available to them.
Due to the constantly changing and complex tax code, third parties often are necessary to execute tax planning opportunities like industry-focused business credits, or strategies that require a full analysis or study. Many great accounting firms lean on experts in these fields to help their clients implement the best tax strategies.
Read More: Tax tips for small business owners
One reason many business taxpayers are not actually getting tax planning services is simply that they do not want to pay for it. Tax planning is a more comprehensive service that typically costs more money. However, those additional fees are frequently recouped through tax savings.
Here’s the bottom line: we understand what tax services you are receiving from your advisors, and we can fill in the necessary gaps. Our firm does most of our upfront work at no cost to ensure there is a real-money benefit to a strategy before we execute it for you.
Ready to learn more? Contact Cunningham and Associates today at (508) 687-6329 and get a head start on this year’s tax strategy.