Did you know that there are two types of prep methods when preparing for tax season?
Knowing the difference between tax compliance and tax planning can affect how long it takes to file a tax return, whether it is more convenient to file online, or whether a professional is needed.
Here is a breakdown of the differences as per the Above The Canopy website.
This essentially concerns income and transactions that have already taken place. It mainly focuses on the spring when income tax returns are required.
Items like W-2 income from an employer, rental credits, or 401,000 contributions are examples that are more subject to tax compliance. As long as it’s pretty easy, tax compliance items can be done online pretty easily.
This is a popular option for those whose only income comes from an employer or small investments.
This is a little more complicated and focused all year round, rather than just when it’s time to archive in the spring.
Tax planning revolves around different types of transactions that are about to take place and minimizing the amounts owed under one broader roof.
For example, business, home, rental, and other specialty investment owners are often better off consulting a professional to get all of their transactions sorted.
Individuals with educational savings and capital gain opportunities, or companies with recruitment incentives, export incentives or special loans would be more likely to fall under the category of tax planning.
If your focus is more on tax planning, it is good to plan through the fall of that year for some professional time to put strategies together.
If you’re still wondering which decision is better for you, take a look at our graphic below to see what suggestion we have for you.