Tax Preparation vs Tax Planning
All right time for our tax tip of the week. Now, remember monster Pete here, IRS monster, Pete. He does not want you to listen to what I’m about to share. So this is where you wanna pay close attention, right? We don’t, we don’t like this guy. So here we go. I want to share with you the difference between tax preparation and tax planning. Because a lot of people don’t realize that these are very different things. So tax preparation, what is that? Let’s start there. Tax prep is what you do that well, normally it’s gotta be done by April 15. And what you’re really doing is happens at the beginning of the year. And you’re simply recording what happened last year. All right. So you’re recording history. You’re saying, okay, here’s the taxable streams of income and activities that happened last year. I’m just going to record what happened last year. That’s it that’s tax preparation. And for almost everything you do, if you want to reduce your taxes both today and tomorrow, by the time you get to the tax preparation side of things, it’s too late. And this guy is just laughing all the way to the bank right now. How does that differ from tax planning? So tax planning is what you do after tax preparation season is over. So, you know, tax prep ends around April 15, again, normally. And so in normal years, usually around may or June, that’s the time where you start sitting down with your advisors and you start mapping out, not what your past looked like, but what you want your future to look like, and you start mapping out, Hey, should you do Roth conversions this year to some degree, should you start moving higher a money into life insurance?
Or should you start using overfunded life policies, both Rafael Ray’s life insurance or tax free instruments. You know, sh what kinds of deductions could you take advantage of this year? Are there any credits that you could take advantage of? So it’s where you start really taking a hard look at your situation and you start mapping out, okay, where are you now? And what steps can you take before the end of the year to get some better outcomes, tax planning. That’s where you save all the taxes. That’s where you beat up on P and that’s what we like to do. We want to just, you know, just mangle him and just crush him, right? Tax prep. That’s just recording last year, tax planning. That’s where we develop the game plan to beat up on our, friend? Pete here.