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Tax Planning vs. Tax Preparation, What Is The Difference?


Welcome to tax time, where people scour each line of their return looking for potential savings and frantically rush to submit their forms to the IRS by April 15. When people think about doing their taxes, they often only think of tax preparation. But your tax strategy does not have to be limited to once per year. It can be a comprehensive strategy to help you plan for the future while minimizing your taxes.   This process is called tax planning.

Is there a difference between tax preparation and tax planning?  The short answer is yes. Tax preparation is reactive (looking backward) and tax planning is proactive (looking forward).

Even though these names sound similar, they represent a different facet of your taxes and actually mean vastly diverse things. I’d like to walk you through the basics of each service and show you that when they work in tandem, they will be most beneficial to you.

What is Tax Preparation?

Tax preparation is a service where a tax professional organizes and enters last years tax information on the correct lines of the tax return. This means you may see your accountant or tax professional once or maybe twice per year during busy tax season. These professionals are experts at tax law and ensure that your return is compliant with IRS regulations. You can rest assured that with the right tax preparation professional, your return will meet both federal and state regulations.

With a professional tax preparer, you may get general tax guidance and tax savings advice based on your own record. They may also be able to answer any general questions you have about the process. But you will not receive specialized, proactive tax strategies to help you minimize your tax liability.


That level of scrutiny, detail, and planning fall into a more comprehensive process—one that requires much more time, research, and attention. When you are preparing your taxes for the current filing year, you are looking back and examining what happened the year prior. You look at your income streams, charitable giving, and other deductions and record that for the IRS. Tax preparation is looking backward, whereas tax planning is looking forward.

What is Tax Planning?

Tax planning is a comprehensive tax strategy that looks to the future to help chart a path of financial behavior that will aid in your overall tax status. As a comprehensive service, tax planning is less focused on your specific return and more focused on how to prepare you to maximize that return.

Tax planning will look at your financial goals, values, and vision for the future to help you create a custom plan for your financial wellbeing. This often means having more regular meetings with a financial planner and being proactive about future financial decisions.

To that end, tax planning is an ongoing process, one that shifts and changes as your goals do. There are many more moving pieces to this process but it does foster great working relationships, openness, and transparency between a financial planner and their client. Tax planning is about creating the best plan for you and keeps your goals in mind. Some of the items you might see in tax planning are:

  • Maximize charitable giving
  • Managing tax bracket
  • Understand tax loss harvesting
  • Risk tolerance and portfolio assessment
  • Retirement saving and distributions
  • Roth IRA conversions

This list is simply a sampling of the many factors that can help you think ahead about your taxes and ways you can act in a fiscally responsible and tax-friendly way.

Why A Financial Advisor Can Help

A fiduciary financial planner specifically has your needs in mind. Your financial planner cares about you, your financial goals, and your plans for the future. They want to see you succeed and with their advice and planning strategies will help you reach and surpass your financial goals.

Sometimes the world of taxes and investing can seem unapproachable. A financial planner is someone who is on your side and carries your best interest throughout this process, making the unapproachable, approachable again.

There is a big difference between tax planning and tax preparation. Tax planning sees the big picture, it zooms out to get a comprehensive view of your finances and helps chart better ways forward. Tax preparation has a singular view of your tax return. Though a vital part of your financial plan, you shouldn’t stop at tax preparation. By using both tax preparation and tax planning, you are giving yourself the best opportunity to stay better informed and succeed in your financial goals.

We love talking taxes over here! If you would like to discuss ways to act in a tax-efficient manner all year, give us a call!

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