Tax Plan vs. Tax Prep & the Super Bowl matchup

What can Super Bowl teams teach about tax planning versus tax prep? Turns out there are some parallels. You wouldn't wait until the game starts to begin coming up with a strategy right? Unfortunately, a lot of people deal with taxes the same way and want to start their tax reduction planning when the year is over. Here are 6 key differences between tax planning and tax preparation. The difference can be huge, and costly.

February 07, 2023

Transcript

 Full week. Welcome to Shah Plan-it for February 7th, 2023. You know, who's not playing in the Super Bowl on Sunday? My Chicago Bears, but we're not gonna talk about that today. Stay with me on this particular scenario, right? Imagine that you're in the locker room and all the players are huddled around the coach, and the coach says, here's what we're going to do to win this game.

We are down. But that conversation is happening after the fourth quarter is over and all the confetti has already fallen and one of the teams has already won the super. It's a little late to be doing planning at that point, right? Unfortunately, not in football, but in tax planning, that's what's happening right now.

My phone lights up this time of year and it's been lighting up because, Hey Neel, I just got all these 10 90 nines and these W two s and these K one s, and I'm gonna have to pay a lot in taxes. So what can we do about that? And it's kind of like being in the locker room after the game is over and saying, okay, how do we win?

And it doesn't work that way. So there are, in my opinion, these sort of six different strategies between what we call tax planning or six key differences, I should say, between what we call tax planning and tax preparation. One of it, which, which I just described, is timing. Tax planning occurs throughout the year.

You don't wait till the game starts to start coming up with a game plan. You definitely don't do it when the game is over. You do it as soon as you know you're playing a game, and right now you know you are playing a game. You are going to have to file taxes for your 2023 when 2024 rolls around. So your planning has to occur throughout the year.

Get a head start on it, tax preparation. On the other hand, that happens closer to a tax filing. So that's the first difference. The second is the goal. You know, when you're, when you're actually, maintaining a scoreboard, you. Gotta make sure that you know what happened after the fact. Somebody scores a touchdown.

You know, you have to put something up on the scoreboard. So with tax preparation, it's very much like a scoreboard. You have to basically keep score of the income that you have, the expenses that you incurred, right? So tax preparation, the purpose of that, the goal of it is to accurately complete your tax return.

The goal of tax planning, that's usually to reduce your tax burden over either the short term or the long term, right? So the second difference is the. The scope is the third difference. Tax planning involves a broader range of activities and considerations, like it's like reviewing your existing financial situation, it's making changes to your investments or your business structure to reduce that tax liability.

Again, tax preparation that's more focused on gathering and organizing the necessary documents and the information to complete your return. That's not to say one's more important than the other. Just know that the timing of that, the goal of that, the scope of that very difference expertise. You know who's gonna be the one who's helping you with your tax planning if you're not the one doing it yourself.

Tax planning usually requires the help of a tax professional. You're not gonna get a whole lot of TurboTax or H and r Block, or even folks who necessarily are just more scorekeepers and actually just filing. Usually from a tax planning perspective, you want a little bit more expertise from a tax professional.

Usually in my, in a perfect scenario, you'd be able to get your attorney, your C P A and your financial advisor on the same page with respect to this tax planning. In a more perfect scenario, that might even be the same person and I might know a guy or two. So that might be one of those things that you wanna consider when it comes to tax planning, is who is that expert who's helping me?

You want somebody who's actually able to be proactive versus the tax preparation. Usually that's just more of a basic understanding, not to minimize it, cuz there's still some creativity there, but it's probably a different expertise. Fifth difference is cost. Tax planning could involve some upfront costs or as I like to think of it as investments.

Whether you're hiring a profess. Or whether it's somebody who's already on your team, but it could save you money in the long run. That's why I consider it more of an investment. So the fifth difference in here, in in the tax planning is gonna be your cost associated with it, because there's going to be an investment associated with it too.

Tax prep can also involve costs, but usually that's more like software fees or professional fees. And they tend to be sort of one time cost or project oriented cost. And then finally, the sixth difference is the outcome. I know we talked about the goal, but the outcome itself, the goal of tax planning more often than not is a lower tax bill over the long term.

While the outcome that you're looking for from a tax preparation perspective is a completed tax return now. All right, Neel, I get it. You're telling me the difference between tax plan and tax preparation. So let me just hit snooze on it, right? I'll just deal with this after I file my taxes for this year.

No, don't do that. Why? Well, first of all, I told you planning happens throughout the course of the year. Get your financial advisor, your accountant, your attorney, and anybody else, your business advisors all on the same page, and start having this conversation right now and saying, look, we don't wanna do this.

The chiefs. And, the Eagles, they're not waiting until the game starts to start doing their game planning. Their game planning happens as soon as possible, as early as possible. The scouting happens as early as possible. So should your tax planning start figuring out now what you can do? Are there a couple things you might still be able to do for last year's return?

Maybe you won't know until you have that conversation, so start that planning sooner than later. All right, so enough preaching. I hope where you are, you're staying safe, you're staying warm. I hope you'll be watching the game with loved ones and I hope you're whatever, wherever you are, get home safe too because, a lot of bad things happen when people are driving home after the Super Bowl.

All right? Stay safe, stay well. I will see you next week on another episode of,