Even if your small business intends to hire a CPA, it’s a good idea to familiarize yourself with some basic elements of the tax needs of your business. One thing that too many business owners fail to understand is the difference between tax planning and tax preparation.
Someone who doesn’t know any better might assume these are the same. This is understandable, but in order to identify the service your business most needs and to communicate that with your CPA, you ought to learn the difference. After all, tax planning and tax preparation are substantially different disciplines.
Too many people conflate tax planning with tax preparation. Here are some differences.
What Is Tax Planning?
If there’s one lesson to learn about this, it’s the following: tax planning takes place year-round, and not just during tax season. Essentially, the task of a CPA when tax planning for a business or individual is to minimize the amount their client will owe in taxes.
For instance, one task of an individual engaged in tax planning could be bunching deductions such as medical or charitable expenses to minimize the amount owed when tax season comes around.
If you’ve ever filed your business’ taxes yourself, you may have kicked yourself for not keeping track of information more carefully in the previous year. If your CPA has a tax planning service, you can count on them to stay on top of bookkeeping with an eye toward minimizing the amount you owe. They will also work with you to achieve your long-term financial goals.
How About Tax Preparation?
Tax preparation, on the other hand, is not year-round. Generally speaking, it occurs once annually—during tax season. As you might have deduced, tax preparation refers to the preparation and filing of your tax return.
But what will this look like for you? If you’ve hired a CPA, you will probably have to meet with them before the tax deadline to exchange some financial documents. They will review your information, including SSNs, income, and expenses. Ultimately, they will ensure that your return is completely compliant with state and federal laws.
You might be wondering: why do I need tax planning services, then? Prior to reporting, tax planning services will identify the best ways to optimize your tax return to suit your business’ or your personal needs. It is also a forward-looking service that will help you minimize tax liabilities in subsequent years.
Tax preparation only focuses on the here and the now. Tax planning, on the other hand, hones in on the bigger picture. In the end, it will give you a better return on your investment.
Contact Bowman & Company Today
Bowman & Company CPA, PC provides all of our individual and small business customers with experienced, accurate, and affordable financial services. Our financial services are aimed at decreasing your taxes and increasing your net worth through responsible, timely, and accurate recordkeeping. We offer our services to clients throughout the Washington, D.C. metropolitan area including Maryland and Baltimore County, Columbia, and Howard County. For more information on our offerings, contact us online or call us at (410) 381-8121. You can also find us on Twitter, Linkedin, Facebook, and Youtube.