When I talk about offering both tax prep and tax strategy, one of the first questions I hear is, “What’s the difference?” It’s a fair question—as many people assume these are interchangeable services. However, they serve very different purposes and deliver very different outcomes. Understanding the distinction can play a big role in shaping your financial future. Below are five key differences that explain how tax prep and tax strategy are different.
Perspective:
•Tax Planning is forward-looking. It’s about looking ahead & trying to anticipate what is coming & prepare for it.
•Tax Prep is historical, reporting on what happened in the prior year.
Goals:
•The goal of tax planning is to optimize your tax situation & to produce savings for you over your entire lifetime (not just one year).
•The goal of tax prep is compliance; sending in a return to satisfy the IRS.
Timing:
•Tax planning is done throughout the year. Typically most tax payers will meet with their strategist several times throughout the year.
•Tax prep is done once per year, typically between February – April.
Value:
•Tax planning should provide value in the form of reduced taxes, increased savings, financial clarity, and peace of mind.
•Tax prep helps you avoid penalties and fines.
️Impact on the Future:
•Tax planning can have a tremendous impact on your business for years & years. For example, if your tax strategist helps you determine that making the S-election will help you save on self-employment taxes, that election carries forward in perpetuity and will save you money for years to come.
•Tax Prep typically only affects the year you’re filing a return for.
I am a big believer that tax compliance and tax strategy should work together. And while filing an accurate return is the baseline, proactive planning is where the real value is created. I love helping clients look ahead, ask better questions, and make intentional decisions that compound to maximize their tax savings.
If you’d like to learn more, click the “Schedule a Call” button at the top of the page to get started!
