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Top Tax Planning Services Questions

7 minute read

We want to debunk all the myths and misconceptions about tax planning. Many people, including many tax professionals and accountants, do not understand the term; there is a lot of confusion about the difference between tax projections and tax planning. They are not the same. 

A tax projection uses current income and expenses to project taxable income for the entire year, which allows an estimate of tax due. 

Tax planning goes beyond mere tax projections by analyzing your financial situation to make sure all elements work together so you pay the lowest taxes possible. 

This is why we set out to answer some of the questions both firms and their clients have about tax planning.

Is tax planning the same as a tax projection?

Tax projections help set aside money for future taxes owed. That said, many times tax projections do not  help save money on taxes, like tax planning might. Tax projections are more limited than tax plans because tax planning proactively seeks out tax strategies to legally reduce taxes. Tax projections help determine what you owe in taxes, while tax planning is knowing how much you can save yourself in taxes.

What is tax planning?

How do you define tax planning? Tax planning seeks to find tax strategies to legally reduce taxes based on a client’s life, business, and any applicable regulatory requirements. It is centered on lowering your tax bill to keep more of your hard-earned money to save, invest, or give as you see fit rather than paying the IRS. Tax planning is not cheating, but paying what you actually owe. People who do not tax plan overpay by neglecting to take advantage of certain credits and deductions that are rightfully theirs.

How much money can tax planning save a person?

Tax savings are based on individual circumstances. Because everyone’s tax situation is unique, there is no definitive answer to potential tax savings. Some people can take advantage of certain credits, while others might be able to take certain deductions that will not work for others. For example, Sole Proprietors may qualify for the Home Office Tax Deduction other businesses or individuals may not qualify for. 

We can, however, make general estimations. In general, the more money a person has, the more they earn, and the more investments they have, the higher potential for them to find more savings. Those who earn less and have less investments or assets typically do not owe as much in taxes because they generally have a less diverse financial portfolio. A business owner who makes $800,000 and has a variety of investments could likely find more tax savings with a good tax plan than a W-2 employee making $40,000 with few assets.

Is tax planning legal?  

There is a significant difference between a legal tax plan and tax evasion. Failing to pay what an individual or business owes to the IRS is tax evasion, which is illegal. A tax plan, however, simply looks for all the legal ways a person can reduce their taxes. In other words, tax planning is not only permitted, it is smart.

If I tax plan, will I get audited? 

The chances of getting audited are slim. It is unlikely the IRS knows you have a “tax plan.” The IRS sees that a taxpayer is legally taking credits and deductions they are eligible for. A tax plan could trigger an audit if an IRS agent sees some discrepancies or anything suspicious. If you do a proper tax plan, you have no reason to worry. 

Is tax planning software required to tax plan? 

A few firms have tax planned over the past few decades, but until recently technology was incapable of helping the tax planning process in a significant way. In the past, some accountants might have used spreadsheets and attempted to find savings manually that can now be done with the click of a button. Corvee can calculate over 1,700 strategies for you. While software is not required to tax plan, it significantly speeds up the process and makes it much easier and time-efficient. Software is also able to find more tax savings than attempting to do it manually, unless you have the entire tax code in your head and an extra dozen hours.

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When is the best time to create a tax plan? 

Do you remember the saying, “The best time to plant a tree was 30 years ago; The next best time is today?” This principle can be applied to tax planning. Any time of the year is a good time to tax plan. However, it is better to start before late December because you need some time to implement some strategies before the end of the year. 

Of course, if you do not have time to implement a strategy before January 1, you can wait to change things for the next year. In a perfect world, you get tax planning done between January and October so you have plenty of time leading up to December 31 to get everything done. Because of this, many firms love to concentrate on tax planning during the summer months, even if they tax plan year-round.

How much does a tax plan cost? 

There is no set price for a tax plan: every firm charges its own fees. Most tax plans run between $2,500 to $9,800. Tax planning is usually bundled with tax prep and other services for a quarterly fee, such as $2,750. Most firms will charge more for a tax plan that saves a client more money and less for a tax plan that does not save as much. However, some firms offer tax planning for a fixed fee, especially if it is bundled with other accounting and tax services.

What is a tax planning strategy?

Each tax plan comes with one or numerous strategies recommended to implement for individuals or businesses. For example, changing your business entity from a C Corporation to an S Corporation could allow for more tax deductions. By implementing this hypothetical strategy, you could potentially save X amount of money. The purpose of each strategy is to reduce your tax bill.  

Can I legally tax plan as a bookkeeper? 

Anybody can legally tax plan. You do not need a CPA, a bookkeeper, just yourself. Since most people are intimidated by the idea of tax planning, they leave it to their accountant to “do the dirty work.” Ordinary citizens — truck drivers, plumbers, and business owners — can do tax planning if they have the knowledge and skills to do so. The IRS does not require any particular tax planning permit, diploma, or certificate to legally tax plan. In reality, the IRS does not know if a taxpayer tax plans themselves or not. 

How important is it to tax plan?

The answer to this question varies depending on each person and their circumstances. Some individuals and businesses are able to save hundreds of thousands of dollars while others may only be able to save a few thousand. The importance of a tax plan is associated with the amount of money involved. It is more vital to get a billionaire tax plan for someone like Jeff Bezos because the potential savings for a person with such a large sum of money is tremendous. For ordinary people and business owners who are not ultra-wealthy, the amount of money they can save could still be substantial, but is unknown until a tax plan is completed, which is why almost everyone should get a tax plan.

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