Look Ahead Instead of Just Being Prepared: Incorporate Tax Planning into Your Yearly Accounting Routine

Most of us only think about income taxes once a year, and often only right before they’re due. For individual taxpayers, tax preparation is something that starts, at the earliest, around January, when we can start gathering the documents we’ll need for filing our income tax. 

Of course, many small business owners know that preparing to file taxes isn’t all there is; for them, tax planning is an additional step and a year-round process. But even individual taxpayers can benefit from adding tax planning to their yearly routine. And if you’re self-employed or a small business owner, and haven’t been taking advantage of tax planning services, now is a great time to start.

So what’s the difference between tax preparation and tax planning?

Tax preparation, which is what most of us are familiar with, is the process of collecting the papers and information we’ll need to file our taxes. Depending on where you live, the forms you’ll need to submit for calculating payments and deductions will start to become available between January and March. After that, it’s simply a matter of either handing the documents and other information over to a CPA, or braving the waters of doing a tax return on your own. Once that’s done, we can wait until the start of the following year to do it all over again.

Tax planning, on the other hand, is a more involved process that takes place throughout the year. It’s definitely something you want to hire an expert for because there are many moving parts to juggle and it requires more in-depth knowledge of tax laws. In broad terms, tax planning looks into the nooks and crannies of your financial life to see what can be improved. A first step usually involves having a CPA look at previous tax returns to identify areas where you might be able to deduct and save on your next filing. Once your accountant (or other tax planning professional) has a clear overview, it’s time to look into the minutiae. Tax planning addresses things like expenses, retirement plans, and investments to determine how they might affect immediate and longer-term income tax filings. With this information in hand, you’ll have a better sense of how your present and future finances might look. Tax planning will also give you useful information to take into your tax preparation process, whether you file quarterly or yearly returns.

Tax preparation and planning are two separate entities, but they can work together to help you better manage your tax filings. Tax planning examines and tweaks areas that might be overlooked during barebones tax preparation. It does take time and requires expert help, but can have great benefits in the long run for your personal and business finances.

If you’d like to give tax planning a try, contact me, and we’ll talk!

margo.masri@margomasri.com or 516-569-9811 and here is my quiz please take https://mmaccounting.consulting/isbusinessservingme