Feb 14, 2022
When it comes to taxes, a key distinction to make is the difference between tax planning and tax preparation. Tax preparation is a reactive process that primarily consists of reporting what has already happened in the prior tax year to understand your tax liability and whether you’ll receive a refund or owe taxes when you file your return. Tax planning, on the other hand, is a proactive process that involves looking at your overall financial situation, your goals, and your expected future path, to figure out what you can do proactively to minimize your tax liability, not just in a given year, but more importantly throughout your entire lifetime. Keep in mind that just because you have someone preparing your tax return, don’t assume they’re also doing proactive tax planning for you.