How does Tax Planning Differ from Tax Preparation?
There are many who confuse tax preparation with tax planning. Tax preparation is merely the task of recording and reporting income and calculating tax liability. A tax preparer can try to make the best of your situation, but after the end of the year he has little or no ability to change how much tax is due. This is because by the time you meet with your tax preparer, the year is over and most taxable events are set in stone. It is a lot choosing Saint Peter as your life coach – by the time you meet with him, it is already too late.
On the other hand, tax planning is a proactive approach to reducing or postponing a company’s tax liability. It is a process of evaluating a company’s income sources, expenses and structure. The lessons learned from that evaluation are applied to develop a plan for the company to take advantage of applicable state and federal tax laws. Importantly, many tax planning strategies affect only the company’s accounting practices and not do not significantly impact how the company operates.
While tax preparers can and do give good tax advice, many preparers (CPAs included) fail to recognize that their clients could pay much less tax with a modest amount of tax planning. That is where a good tax planner can help. With prudent tax planning, Cornerstone can help your company cut its taxes.
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