The Distinctions of Tax Planning from Tax Filing

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The Distinctions of Tax Planning from Tax Filing

June 16, 2019

“The art of taxation consists in so plucking the goose as to obtain the largest number of feathers with the least amount of hissing.” This was quoted by Jean-Baptiste Colbert, a minister of Finance of France under the rule of King Louis XIV. It can be rephrased as the largest possible amount of income with the smallest possible amount of economic damage.

Have you ever wondered why some business in the same industry and with the same income bracket pays lower tax than the other or even not paying taxes at all? There’s a reason behind why some taxpayers can avoid or cut their taxes. You may not realize it but knowing the distinction between tax filing and tax planning have a huge effect on your tax return.

Tax filing is limited only to the preparation and submission of the tax return to the IRS. The primary objectives are to make sure your tax reporting complies on both federal and state tax laws and you are paying taxes legally and accurately.

Tax planning is working with a tax professional with the purpose of using the tax code to the taxpayer’s utmost benefits.

Tax Planning Involves A Deep Understanding of Tax Laws and Accounting Concepts.

The taxpayer should know the qualified deductions and credit that can be used to reduce tax liability. He also considers the timing of income and purchases; selection of investments and the management of retirement plans to optimize the tax situation. The taxpayer could hire a tax professional to aid him on his tax planning.

Tax Planning Is Time-Consuming.

There should be an active engagement between the taxpayer and tax professional when analyzing the financial information and the previous tax returns to come up with an efficient tax plan. Tax planning is a year-round process with continues research and analysis.