Episode 48: What Works Wednesday: Tax Preparation Vs. Tax Planning

Welcome to What Works Wednesday! Last time, we talked about the crucial difference between tax preparers and tax planners. Tax planning isn't just for tax season—it's a year-round necessity, especially for self-employed professionals. Tax preparers focus on the past, while tax planners look ahead to minimize liabilities and align with long-term goals. Join us as we explore this vital topic further, empowering you to make informed financial decisions.


Welcome back to another episode of What Works Wednesday. I actually shockingly got a lot of comments on the last episode where we talk the last episode of What Works Wednesday where we talked about things you can do now to still impact 2023 taxes. But most of the comments were around a small idea that was actually baked into the episode. It wasn't one of the core thoughts, which was this idea of hiring a tax planner or tax advisor versus a tax preparer.

and what the difference is and how to know what you do. And you may be wondering, hey, we're past tax season. I finally got my taxes done. Why are we still talking about it? And the reason being that even though tax season is done, tax planning is a year round sport. It is a marathon. And in order to have your taxes as efficient as possible, especially as a self -employed professional, you need to be thinking about it now almost

more than next January, February, March, because it's what we're going to plan and look at and do now that's really going to move the needle for you. So in that episode, I basically talked about how oftentimes we look at our tax preparer and expect them to kind of know everything about taxes for us. And really what they're doing is acting as a historian. They're looking at your rearview mirror saying, where have we gone on this journey over the last year? And how do we

put that into paper, how do we catalog that for the IRS to make sure that you pay the right amount of taxes? Rarely are they actually looking forward and saying, all right, let's look through the front windshield at where you want to go, kind of the path we're on, and determine what the best moves would be for you from a tax perspective. And oftentimes they don't have all the pieces of the pie either. They're just looking at your taxes and your income. They're not looking at your business and...

your parents gift that's coming and all these things, you kind of have to give them those tools in order to be able to do that well. So I constantly hear people, clients of mine or prospects or just people in the community complaining like, I paid as tax person and I don't feel like they're giving me any advice. And my response is, do you pay them for advice? I'm like, well, I pay them to do my taxes. I'm like, okay, so you're paying for tax preparation.

not tax planning. That's a very different offering. That's a totally different business model service model. Oftentimes people will say that about their financial advisor, but some financial advisors don't give tax advice based on their compliance and regulations or their certifications. You have to be a CPA and enrolled agent or an enrolled actuary in order to actually give formal tax advice. So it gets confusing for the everyday person. And when you're self -employed and you're running a million miles a minute,

with a thousand plates spinning, trying to balance your business, working on your business, working in your business, your family and personal life. You don't have time to hunt down professionals and figure out what to do, but it's important because you also don't have time to do your tax planning. So what is tax planning? Why is it different? Well, it's that backward forward. Tax planning is saying, hey, I'm going to hire this person. They're going to come in. They're going to get to know every area of my financial life, my goals, my desires.