Navigating the World of Taxes: Filing vs. Planning

Understanding Tax Filing vs. Tax Planning

When it comes to taxes, many people confuse filing with planning. Tax filing is the annual ritual of submitting your tax return by the deadline, usually April 15th. It’s a must-do, with penalties for missing it. However, tax planning is a different ball game. It’s about strategizing to minimize your tax burden now and in the future. Unlike filing, tax planning doesn’t have a deadline, but the rewards of planning can be substantial, potentially saving you thousands.

Is My Tax Preparer a Tax Planner?

Your tax preparer is like a historian, documenting your financial past. They compile your forms and deductions to report your financial situation to the IRS. But a tax planner is more like a strategist, looking ahead to minimize future taxes. For example, contributing to a retirement plan after the year ends can still help, but the impact is less than planning throughout the year. If your tax person only sees you once a year, they’re likely not offering much in the way of proactive planning.

What Exactly Is Tax Preparation?

Tax preparation is the process of compiling and filing your tax return. You might use software or hire a professional, especially if your taxes are complex. While your preparer might offer tips, like increasing retirement contributions, these are often limited and not comprehensive plans. It’s common to leave these discussions without fully grasping the benefits, highlighting the need for a dedicated tax planner.

What Does Tax Planning Entail?

Tax planning is about more than just a big refund; it’s a strategic approach to reduce your tax bill. It involves strategies like bunching deductions, tax-loss harvesting, and optimizing retirement contributions. For instance, timing capital expenditures can yield bigger tax benefits. A tax planner can help you navigate these strategies, ideally someone with expertise like a CPA or financial planner.

Can My Financial Advisor Really Not Give Me Tax Planning Guidance?

Some financial advisors can’t offer tax advice due to firm policies, but others can. Tax planning might involve simple steps like better bookkeeping or more complex strategies like Roth conversions. While some moves might increase taxes now for future benefits, the payoff can be significant, like tax-free income in retirement. Always check if your advisor provides tax guidance or works with a tax professional.

You Deserve Expert Tax Planning Advice

Considering the potential savings, it’s worth seeking a tax planning expert. For high-income individuals, strategies like Cash Balance Pension Plans can shelter significant income. For example, one business owner saved over $3.5 million in taxes over a decade. Don’t overlook the importance of tax planning; it’s about keeping more of what you earn. Expert advice can guide you to financial freedom sooner. Remember, it’s not just about earning, but about what you keep.