If even Albert Einstein says that income tax is one of the hardest things to understand in the world, it is understandable why we lesser mortals will need help from time to time. When it comes to filing state and federal tax returns, people often struggle to understand the latest tax reforms and make the necessary calculations. Given the complexity of filing tax returns, people often turn to internal tax services and consult professional experts who will help them prepare their taxes.
Differences between Tax Planning and Tax Preparation
One common mistake that taxpayers often make is that they do not plan in advance while preparing their tax returns. Perhaps you think that tax planning and tax preparation are the same thing? Here are some key differences between tax preparation and tax planning:
- Different Services: In simple terms, tax preparation is when you file your tax returns. The process often involves filling the tax forms, compiling the necessary financial data, on so on. On the other hand, tax preparation is undertaken by an experienced consultant with detailed knowledge of the tax laws. Even though both services involve tax consultants, tax planning comes before tax preparation.
- Time Duration: Since the scope of tax planning is wider, it is seen as an ongoing process that taxpayers are engaged in throughout the year. Tax planning basically involves keeping track of all your finances and hence, does not have a set deadline. Tax preparation, on the other hand, needs to be completed before the deadline set up by the federal government (Tax Day).
- Scope of Services: Tax preparation is the process of filling out the tax forms and filing your tax returns, and is generally done once a year. For simple tax returns, people just prepare their taxes on their own and then consult a professional through ITS LLC to go over the records. Tax planning involves analyzing financial records, including income and expenses, to identify a way to maximize deductions. Since tax planning is a little more complicated than tax preparation, it is better that you consult a certified public accountant to get the best benefits.
Despite its differences, tax preparation and tax planning both require consultants and tax experts if you want to complete your tax work properly. Tax consultants and certified accountants will be able to give you financial advice so that you file your returns accurately and get the most benefits.