Knowing the Difference: Tax Preparation vs. Tax Planning

Provided by Steven M. Neher, CPA, Cordell, Neher & Company, Wenatchee Certified Public Accountant

Steven M. Neher, CPA, Managing Member, Director of A&A

The average taxpayer doesn’t typically spend too much time contemplating their taxes. Most of us fill out our W-2 and hand over our documents to our CPA when it’s tax time. Still, with ever-changing tax laws and personal tax situations continuously evolving, some people are left wondering how their returns might be affected next year. The short answer is: that it affects everyone differently. There’s no concrete way to know until we dig into your unique situation.

Tax planning is not the same as tax preparation, yet many households and businesses only consider taxes during preparation season. Taking advantage of available tax benefits requires a little forethought and proactivity. The main goal of tax preparation is to ensure you’re operating in compliance with federal and state tax laws. It doesn’t take into consideration your complete financial picture, which can lead to missed opportunities for decreasing your tax bill.  Tax planning, in contrast, aims to maximize your tax savings(including minimizing penalties). When proper tax preparation and planning are utilized together alongside a complete financial plan, you have the potential to keep more of your wealth for yourself, your loved ones, and your business.

What Is Tax Planning?

Tax planning analyzes your personal or business’s financial situation to ensure that all elements work in tandem. Hence, you pay the least amount of taxes possible. There are numerous areas included in tax planning like the timing of your income, salary size, the scheduling of big purchases, and planning for future expenditures.

Saving for retirement, selecting classes of investments, and tactics like tax-loss harvesting are all strategies that fall within our tax planning process so we can ensure you’re not missing opportunities to save on your next tax bill.

For tax planning to be the most effective proper tax preparation is vital. Unorganized files, missing documents, and incomplete paperwork can hinder the tax planning process and adversely impact your potential return.

Preparing for the Tax Season

Planning well in advance of the tax season may help better prepare you for the unexpected. Here are several reasons to begin planning early:

  • Your home, job, or relationships changed in 2022
  • You need to start saving money if you may owe taxes.
  • You want to ensure you qualify for tax deductions.

Our firm reviews these areas with you throughout the year to ensure your tax preparations go smoothly. You can make periodic assessments of your paycheck withholdings so that you will get a refund or can reduce or eliminate your tax burden.

You should keep track of and store your tax and other financial records to avoid delays or frantic preparations as the filing deadline approaches. Records may include W-2 forms, canceled checks, specific receipts, and previous-year returns.

Here is a list of other items to start gathering:

  • Pay stubs
  • Mortgage payment records
  • Closing paperwork on home purchases
  • Receipts for items or services you may want to claim as itemized deductions
  • Records on charity giving and donations
  • Mileage logs on cars used for business
  • Business travel receipts
  • Credit card and bank statements to verify deductions
  • Medical bills
  • 1099-G forms for state and local taxes
  • 1099 forms for dividends or other income

Although the 2021 tax season is more than six months behind us, the final months of 2022 can provide you with some unique opportunities to avoid unpleasant surprises and last-minute scrambling as the finish line draws near.

At Cordell, Neher & Company, PLLC, we remain current on local, state, federal, and international regulations. Our trained professionals are continuously developing and amending tax-smart strategies so that you can take full advantage of opportunities to reduce your tax burden. In addition, we can help develop investment plans that make sense for your unique situation, including preserving wealth for your future needs or distribution to loved ones and charities.

For more information about tax preparation, planning, or our other financial services, visit Call any of our qualified CPAs, accountants, or advisors at (509) 663-1661, and we’ll begin helping you, your family, or your business today.

  1. gov, August 18, 2021
  2. gov, March 12, 2021

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