Tax planning and tax prep are two services that are often confused, used interchangeably, and not services that every bookkeeper provides.
This blog post is going to dive into the 3 main differences between the two so you can focus on the exact services your business needs.
The first major difference is this:
Planning is just as it sounds – planning your business expenses and investments throughout the fiscal year to make sure your business is taking advantage of the tax code to the fullest extent.
Tax planning is when you work with an accounting professional to make sure you are utilizing the IRS tax codes to your fullest advantage. This does not mean you are doing anything illegal. This means that you are lowering/lessening your tax liability by utilizing the breaks that the government is giving businesses.
Prep is just as it sounds – preparing documents to be turned in. Tax prep is working with a qualified professional or enrolled agent to prepare and complete a set of tax returns, in compliance with the IRS, by a set deadline.
The second major difference is tax planning is long-term.
Once it’s time to file your taxes it’s too late to plan.
Tax planning is something that needs to be done at least a year in advance but takes into consideration the existing tax codes and looks years out to help you save money. It’s also not a one and done type task. This is something that needs to be revisited many times a year based on new tax codes, purchases, investments, etc that are made throughout the fiscal year of a business.
Tax prep can be a year-long activity because a bookkeeper does keep your accounting records accurately to help with tax preparation but the term tax prep itself refers to the act of preparing the actual returns that are submitted to the IRS.
The third major difference between tax prep and tax planning is who benefits from tax planning.
Everyone legally has to have tax returns prepared. Evasion – not filing and not paying is criminal. However, even though everyone benefits from some level of tax planning personally and business-wise, if you work with the right tax prep professional they will be able to guide you in many different strategies based on your income level, business profit, your business structure as well as investment opportunities and DAF (Donor Advised Fund) creation based on your personal and business goals.
These are just the three main differences between the two. There are many other differences that could be discussed and we would love to do that with you!
If you’re interested in seeing how we can help you plan your taxes and take full advantage of the tax codes click the button at the top that says schedule a free call. We would love to chat with you and show you how our tax planning services can help you.