In this episode of Coffee with Carl, attorney Carl Zoellner breaks down the differences between tax planning and tax preparation and which has the biggest impact on your final tax bill.
When it comes to tax planning and preparation, we’re all familiar with the latter. Preparation is what you may think of when tax time rolls around. It’s going to your accountant or chain preparer with your box of receipts and documents, then waiting for the final result.
Tax planning, on the other hand, takes place all year long, or over the course of several years. It is an ongoing process that takes into account your business activity, income, the available deductions and expenses you can capture, and your future plans. Tax planning is where you’ll see the greatest reduction in your final bill, not preparation.
Unfortunately, many preparers — especially at chains — are far from experts. They may prepare part-time or on the side. A recent IRS audit of chain preparation services found that tax preparation chains have an accuracy rate of 0%. You read that right: ZERO percent.
This is not to freak anyone out. Instead, the point is to emphasize the importance of working with a qualified, experienced professional. For our clients, an hour of tax planning saves them an average of $1,000.
Furthermore, if you’re a real estate investor, you need to be even more cautious when you choose your tax planning and preparation professionals. Many accountants and even CPAs are unaware of all the many details surrounding real estate, resulting in overpaid taxes.
Don’t wait until tax season to dump a bunch of receipts onto a chain preparer’s desk and hope for a miracle. Work with a qualified professional throughout the year on tax planning to ensure you’re not leaving money on the table for Uncle Sam.
Watch as Carl explains the differences between tax planning and prep and how a little tax planning can go a long way for investors, traders, and those with high W-2 income.
If you have any questions, comments, or feedback about this episode, let us know at [email protected].