In October, I flew out to San Diego to attend an in person 3-day training to become a Certified Tax Coach. This is the first step to becoming a Certified Tax Planner. The training was illuminating. I knew most of the tax laws they covered but was never clear on how to apply them. I was inspired by all the information and ideas they covered, and it was also wonderful to spend some time around a group of people that I had a lot in common with.
Tax planning is an art not a science. This is what one of the trainers said to us during our pre-training Zoom meeting where they gave us more information on what to expect from the in-person event. I think that may be my favorite thing about accounting. It’s one of the few fields that requires a significant amount of knowledge, but also some creativity. Obviously not too much creativity, but the ability to interpret the law in different ways allows tax preparers to use both sides of their brain.
What I learned on day one of the training is that there is a big difference between tax planning and tax preparation. When we prepare a tax return, we are simply taking the information that is given to us and generating the return. There is very little we can do at that point to lower a client’s tax liability because we must be reactive. The tax information is what it is and we can’t really change it, we can only make sure to include any deductions our clients have made throughout the year. Tax planning, however, is a proactive approach to taxes. It’s looking at client’s taxes from previous years and seeing what deductions and credits could have been taken and then formulating a plan to make sure the client takes the steps necessary to be eligible for those credits in the coming years and sometimes even amending those prior year returns.
But it’s not just about saving money, after all, any tax strategy must have a business purpose, it can’t just be about avoiding taxes. It’s also about making sure clients are saving enough for retirement or saving money for their kid’s college fund. It’s helping plan for a large capital gain in the event of a property, business, or stock sale. It helps businesses earn more capital so they can grow and provide for their employees. Tax planning is not about tax avoidance, it is another form of financial planning to make sure clients are taken care of.
It also takes time. Every client’s tax situation is different, and every client has different priorities. If someone wants a tax plan, their preparer needs to know more about their goals. Do they want to grow their business, or do they want to sell? Do they want to invest in real estate, or do they want to make sure their kids don’t have to pay for college? It requires careful analysis of their taxes and regular meetings to make sure the client is maintaining compliance and to stay abreast of any changes to their tax situation. That’s why tax planning is more costly than a simple tax preparation engagement, because there is more time invested into the project.
Tax planning is suitable for anyone with a complex tax situation, particularly business owners. It is something that requires a commitment from the taxpayer to invest time into. It’s a good fit for anyone who wants to feel more in control of their finances and reach their business and personal goals. If you feel like you fit this description, then fill out our contact form. We are looking forward to being able to utilize this training and start offering this service and start working proactively instead of reactively.
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