By Jaelyn Larry
Taxes are one of the important elements in the business because they provide a clear picture of the financial status of the company. Tax preparation and tax planning become an essential part of business strategies. However, it has been used alternatively among businesses, whereas the meanings of these two terms are very different. It is important for us to understand the meaning of these two terms so that we can understand the characteristics of each term.
If you are looking for the difference between these two terms, then you are at the right place. In this article, we will discuss the difference between tax preparation and tax planning in Reston. You can also consult small business accountants in Reston to understand more about tax preparation and tax planning. They can explain to you in detail about these two terms and how they are important for the businesses.
What is the Meaning of Tax Preparation and Tax Planning?
Tax preparation is when there is involvement in gathering tax information, completing the tax forms, and filing the tax forms in the IRS department to get any state returns if possible. This tax preparation can be done individually or with the help of a CPA. On the other hand when we talk about tax planning, then it means that it is an ongoing process of exploring the required strategies that can help you to minimize the amount of tax that you need to pay for your business profits.
What does Tax Planning consist of?
Tax planning is not considered a one-time event. You have to be consistent in this to ensure that you are paying the least amount of tax to achieve your financial goals. Tax planning is required in all areas of the financial aspects. It includes portfolio management, income strategies, charitable activities, maximizing deductions, retirement savings, withdrawal strategies, estate planning, and other such plannings that will help the businesses to save their taxes and increase their income.
So, to have this tax planning there must be an expert accountant who can guide you with your tax planning. It will be the first step with your taxes and after the tax planning, the tax preparation comes into the picture.
What consists of Tax Preparation?
Tax preparation is when there is a special focus on completing your tax returns. It includes gathering documents, completing forms, filing returns, and other such activities with the appropriate tax authorities. In this procedure gathering tax documents plays an important role because you need all the relevant forms to accurately report the tax activities. You have to support your financial activities of various sources of income and expenses through a proper accounts report.
Once you submit these reports to the appropriate authority, then you can file your taxes. After this procedure, the tax return will be filed with the state taxing authorities. So, this is the main objective of the tax preparation and how you can proceed ahead with the activities. However, it would be always better to consult an expert tax accountant who can help you deal with all such activities effectively without any error so that you do not face any penalties and fines from the IRS department.
Thus, tax planning and tax preparation serve different activities. However, they might be related to comprehensive tax strategies, and the activities involved in this may be different for both terms. When you involve tax planning in your financial strategies, then it will help you to get financial benefits and thus, it is an important part of the financial strategies. On the other hand, without tax preparation, you cannot present the financial reports, and therefore, both activities are important for a business.
