Understanding the difference between Tax Planning and Tax Preparation is important for your business and the upcoming tax day. More than 627,000 businesses are launched each year. And all of them have one thing in common; they need to pay taxes, just like individuals do.
If you’re just getting started in the business world, you probably feel like there are a million things to do, with very little time to do them. Taxes are likely the last thing on your mind right now.
But you can’t ignore taxes. You need to understand the importance of tax planning. It will impact how you conduct business and manage your finances throughout the year. Luckily, tax services are available to focus on your taxes for you, freeing you up to serve your customers.
Are you wondering why you need to hire accounting services as soon as possible when starting a business? Want to know the difference between business tax planning and preparation are?
Keep reading below for essential tax tips that will help save you time and money.
What Is Tax Preparation?
Individuals and businesses of all sizes need to report their income to the IRS. The process of filing a tax return is known as tax preparation.
Filing taxes can be pretty easy for individuals with a straightforward financial situation. But many people have complex financial situations. This includes multiple streams of income, investments, and various tax credits.
In these instances, it makes much more sense to work with a tax professional to file a return on your behalf. They can help maximize your tax refund and minimize your tax burden.
Individuals can work with a CPA once per year to handle tax preparation. Though if you’re self-employed, you may need to file taxes quarterly.
Businesses always have more complicated tax situations, so almost every type of business should work with a tax preparation specialist who understands corporate tax regulations.
Tax specialists help you keep and utilize more of your working capital, thanks to their specialized knowledge of the industry and the tax incentives and loopholes in the tax code.
But first and foremost, they ensure that your tax filing adheres to federal and state tax laws. Businesses that expect to pay $1,000 or more in taxes should file quarterly returns.
Who Benefits from Tax Preparation and Accounting Services?
Not everyone needs to hire a tax professional to file their taxes. Those who would most benefit are the self-employed or new business owners, particularly in their first year of business.
Those who experience major life events, like the birth of a child, may seek help preparing taxes. And if you try filing on your own and feel like you have to pay too much in taxes, getting a second opinion from a CPA won’t hurt.
What Is Personal and Business Tax Planning?
Tax planning is a separate service from tax preparation, though they can, and often do, go hand in hand.
Tax planning is everything that happens before you sit down to prepare your tax return. It’s the process of optimizing your financial situation, whether personal or business, so that the tax filing process is smooth and your tax burdens are low.
To ensure everything works together, a professional tax planner will take a detailed look at the overall financial situation, considering all elements such as income, liabilities, assets, and many other factors. This is important not just for your upcoming tax return but also for the following years.
By taking steps to plan your taxes now, you can benefit for many years to come.
What does tax planning look like? A tax planner may make recommendations as to when to accept income. Or when to make large purchases, such as equipment or real estate.
Tax planners may also recommend tax-loss harvesting if you’re likely to owe capital gains tax. This is the process of taking losses now to lower your tax burden, which can work in your favor.
Decisions like this add up over the year and can dramatically impact the direction of your tax liabilities.
Who Benefits Most from Tax Planning Services?
Proper tax planning can benefit everyone. We are all liable for taxes—from those just out of college to those nearing retirement age. And a good plan will minimize what we owe.
Those most likely to benefit from tax planning services are self-employed, high-income earners, and real estate investors or those with a significant investment portfolio.
Those nearing retirement age and are either looking for ways to maximize retirement savings or distribute wealth to their family will want to speak with a tax professional about the best approach.
Likewise, those who have experienced a significant life change or plan to invest soon will benefit from tax planning services. Major life events include births, deaths, marriage, divorce, investments, or starting a business.
All of these events can come with unexpected tax implications, so it’s better to be safe than sorry.
Tax Planning vs. Tax Preparation
Tax preparation is something that every individual, and every business, completes every year. It’s the process of filing their taxes to the IRS and either receiving a refund or submitting payment for their tax liability.
Many individuals will file tax returns independently, while those with more complex situations choose to hire a CPA to maximize their tax return, ensuring the most significant refund or the lowest liability.
On the other hand, tax planning is something that few individuals engage in—to their detriment. Everyone will need to pay taxes for the rest of their lives.
By taking the time to organize and optimize your finances now, you can benefit from lower taxes owed in the future. It’s essential to enlist the service of a certified tax planner to do this properly.
For best results, you can hire a tax professional to help you plan and organize your taxes and file your returns when tax season comes around, streamlining the process and ensuring everything is handled professionally and thoroughly.
And if the IRS finds any issues with your return, your tax professional can also aid with tax resolution, to ensure you maintain good standing and avoid unnecessary fines.
Hire Professional Tax Services Today
There are many different types of tax services available. Tax preparation and tax planning are two of the most common. But they aren’t the only ways that professional tax services can make your life easier, saving you both time and money.
If you want to limit your personal or business tax burden, then contact Basta + Croop today for all of your tax preparation, planning, and accounting services.