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What is the difference between tax planning & tax filing?

Jay Zigmont
November 7, 2023
You have to file a tax return every year, but taxes are something you should be thinking about in the context of not just next year, but for many years down the road. Why? Your tax obligations can impact your financial situation both short and long term. Let’s take a look at the difference between tax planning and tax filing, and why it’s a good idea to lean on different financial professionals for help with each of them.

Tax Planning

Tax planning consists of taking a look at your entire financial picture over time and deciding what moves to make to lessen your tax liability and approach it more strategically. This is an example of a task a CERTIFIED FINANCIAL PLANNER™ can help you with. Here are some examples of what you can address with tax planning:

  • How should you sell your business?
  • Should you make a charitable donation in a given year?
  • Is it better to sell a stock share now or wait?
  • How should I save for retirement?
These questions are all crucial because they will impact how much you pay in taxes, both in the near and distant future.

For example, in the case of retirement, depending on which type of tax-advantaged retirement account you use, you may be required to take RMDs (required minimum distributions) from the account after age 72. The accounts that require this are traditional IRAs and 401(k) plans, which save you money on taxes initially, as the money you put into them lower your tax burden during those years. However, your withdrawals in retirement are taxed, which could leave you paying a lot in taxes in retirement if you have a lot of money in the account and your tax bracket is therefore higher than in your working years.

With this in mind, you can appreciate the importance of tax planning, even though tax laws change over time. A CFP® professional can even review previous years’ tax returns to see where you may be able to make changes and save on taxes in the future.

Tax Filing

Tax filing is a different animal altogether, but the good news is that there are professionals you can work with on your tax return every year (as well as in between filings, to keep abreast of tax law changes and ways you may be able to pay less). A CPA (certified public accountant) is great to have in your corner, especially if your tax filing situation is more complicated because of your income, owning a business, and more.

A CPA will file tax forms for you, submit your annual return, and advise you if you’re required to pay quarterly estimated taxes (if you’re self-employed or own a small business). They can also go to bat for you if there’s a problem or you’re audited by the IRS.

Tax planning and tax filing are two crucial pieces in the puzzle that is your taxes. Thankfully, CFP® professionals and CPAs can each help with different parts of the process.

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