The tax season is upon us and it’s time to start thinking about our taxes. For some of us, that means hiring a professional tax preparer. For others, it may mean doing our own taxes. So, what’s the difference between tax planning and tax preparation?
Tax planning is the process of understanding and arranging your financial dealings so that you minimize the taxes that are due. It involves looking at how to best structure investments, income sources, deductions, and other aspects of your finances in order to reduce the amount of tax due each year. Tax planning should be done early in the year before filing a return.
Tax preparation is the actual act of preparing an individual or business’s tax returns for submission to a government agency such as the Canada Revenue Agency (CRA). This typically requires gathering all relevant data about income and expenses for the past year as well as any deductions or credits available. Tax preparers then use this information to determine what taxes are owed and help taxpayers complete their return. Tax preparation is usually done closer to the April tax filing deadline.
Tax planning and tax preparation are both important steps in managing taxes effectively. While tax planning should be done early in the year, it can still be beneficial to consult with a professional tax preparer closer to the filing deadline to make sure all information is correct before submitting a return. Doing so can help ensure you receive any credits or deductions that you may qualify for as well as minimize your overall tax liability.
Overall, both tax planning and tax preparation are necessary parts of managing taxes effectively. By taking time to plan ahead and understand how different decisions affect your taxes, you can reduce your overall burden each year. Additionally, having a knowledgeable professional assist with tax preparation can be a great way to make sure all of your information is correct before filing. Proper planning and preparation can help you maximize the amount of money you keep in your own pocket when it comes time to pay taxes.