Business owners make tax choices all year.
For example, hiring an employee can affect payroll and cash flow. Buying equipment may also change your tax bill. In addition, changes to your pay or retirement plan can affect both business and personal taxes.
Tax preparation reports what already happened. Tax planning helps you review choices before you make them.
Most business owners need both services.
What Does Tax Preparation Cover?
Tax preparation is the process of completing and filing tax returns for a past year.
To prepare the return, your CPA reviews records such as:
- Business income and expenses
- Payroll and owner pay
- Estimated tax payments
- Equipment purchases
- Retirement contributions
- Investment activity
- Real estate sales
- Personal tax forms
At this stage, most choices have already been made. Therefore, the return reports the results of those choices.
Accurate tax returns are important. They help you meet filing rules and create a clear record for future planning.
Learn more about our tax preparation services.
What Does Tax Planning Cover?
Tax planning looks at choices that may affect your future tax bill.
For instance, a planning meeting may cover:
- Whether to change estimated tax payments
- When to buy equipment
- How to pay yourself
- Whether your business structure still fits
- How much to add to a retirement plan
- How hiring may affect cash flow
- How a property sale may affect taxes
Because the review takes place early, you have more time to weigh your options.
Talk with your CPA before you complete a major transaction.
Our tax planning services help business owners prepare for key choices during the year.
How Do These Services Work Together?
| Tax preparation | Tax planning |
|---|---|
| Covers a past tax year | Reviews current and future choices |
| Reports past activity | Looks at planned activity |
| Focuses on correct filing | Focuses on clear decisions |
| Follows tax deadlines | Happens during the year |
| Calculates taxes due | Helps estimate taxes and cash needs |
Tax preparation gives your CPA a clear view of the prior year. As a result, that information can guide the next planning meeting.
Planning can also make tax preparation easier. For example, your CPA may already know about large purchases, payroll changes, and other key events.
When Should You Talk With Your CPA?
A planning meeting may help when:
- Business income changes
- Profit rises or falls
- Estimated payments no longer fit
- You plan to buy equipment
- You want to hire someone
- Your pay may change
- You plan to buy or sell property
- Retirement is getting closer
- Your business structure has not been reviewed
- You often get an unexpected tax bill
However, you do not need to wait for a large event. A regular review may find issues early.
What Happens in a Tax Planning Meeting?
A planning meeting often starts with your current records.
First, your CPA may review income, expenses, payroll, and tax payments. Then, you can discuss changes in the business. You can also review choices you expect to make soon.
Next, your CPA may prepare tax estimates or suggest action steps. This process gives you useful facts before a deadline or purchase.
Clean books also make the meeting more useful. Therefore, keeping your records current can save time and improve the review.
Learn more about our bookkeeping services.
How Often Should You Meet?
The right schedule depends on your business.
Some owners meet with their CPA once before year-end. Others meet each quarter because income or costs change more often.
In addition, you should call before a large purchase or sale. Even a short talk may help you understand the tax effect.
Keep Tax Planning on Your Calendar
Good planning starts with current records.
Review your results during the year. Also, tell your CPA about major choices before they are final. That gives you time to ask questions and review the tax effect.
Woodard & Associates helps San Diego business owners stay organized, plan ahead, and make sound tax and financial choices.
Have a tax or business decision coming up?
This article is for general information only. It does not provide tax, legal, or financial advice. Advice will depend on your facts and needs.