Tax planning is more than hiring a professional to sort your financial affairs at the end of the tax year. If done correctly, tax planning can save you thousands of dollars, countless hours, and a significant amount of stress. A proper tax planning strategy will vary from company to company, especially depending on your financial situation. If you are an entrepreneur, most of your tax planning efforts may focus on business strategies. If you work for a larger company, you might require CFO services or advice on navigating mergers and acquisitions.
At the most basic level, a strong tax planning strategy removes the pressure of knowing and understanding every single change in tax laws. With the help of an expert, the time devoted to taxes is significantly reduced and less stressful. If anything, a strong tax planning strategy makes financial management a little more simple and a little less stressful. Here are four more specific benefits of tax planning.
Strategize Financial Decisions
Oftentimes, finances are more complex than simply determining whether a decision is “good” or “bad” for your wallet. Many people do not understand that the timing of a financial decision can greatly affect its impact or the scope of benefits received. Whether you are buying a house, deciding how much money to give to your child as a wedding gift, or how to plan for college expenses, a professional tax planner can help you determine the best time frame to work within.
Financial decisions that can be impacted by tax planning include buying a house, combining personal finances, hire family members, college payments, debt payments, large purchases, business decisions, gifts, donations, and more. A professional tax planner can help you learn and optimize the tax laws that work for your benefit and save you money in the process.
Avoid Costly Errors or Surprising Payments
When you are filing your taxes on your own, the fear of making an error is a significant stressor because of the cost associated with tax-related mistakes. A tax planning strategy can eliminate errors and take the stress off of the individual. A proactive approach makes you less likely to miss deadlines, incur penalties or fees, or incorrectly file your tax returns. Long-term and year-round tax planning strategies eliminate the hurry and the mess of once-yearly planning sessions and set you up for financial success. A strong tax plan helps you make more accurate estimates of what you will owe at the end of the year, so you can be prepared ahead of time instead of having to pay an unexpectedly large sum.
Reduce the Chance of Litigation
Just as tax planning can reduce the likelihood of errors or fees, a strong tax plan can reduce the chance of litigation as a result of poor financial planning. This is an especially important consideration for small business owners as well as those managing their personal finances. Without a proper understanding of tax laws, entrepreneurs managing their own finances run the risk of incorrectly filing their taxes on time, paying their estimates, or reporting their financial information. This can result in errors, mistakes, and ultimately, investigation.
And even if no errors occurred in the tax preparation process, litigation issues could still arise if a taxpayer wants to contest a payment. All of these are costly measures and require far more time, effort, and money than is affordable for small business owners and individuals alike. Creating a strong tax planning strategy can help eliminate any need for litigation before, during, or after taxes are filed.
Benefit from Professional Expertise
There are countless ways to save money on taxes, take advantage of tax breaks, or strategize your financial decisions—and you may not be aware of them. It’s a simple truth, but tax planning is beneficial for any taxpayer because you are drawing from someone’s expertise. Whether this means that tax planning is more efficient because they are familiar with systems and processes, or that it saves you money down the line, tax planning is beneficial because it takes the pressure off of you. The best way to determine if you can rely on a tax professional’s expertise is to check their track record and see what accolades they have won in other spheres of influence.
Take a proactive approach to tax planning and hire a professional who can help set you up for success in your personal and business finances. Thoughtful tax planning can save you thousands of dollars and a considerable amount of time, effort, and stress.
Our founder and CEO Anil Grandhi was inducted into the Forbes Finance Council in 2021 and has shared his expertise with thousands of readers online. The council is an invite-only community for executives in accounting, financial planning, wealth and asset management, and investment firms. You can trust that the Forbes Finance Council’s expansive resource library comes from the best minds in the money management industry.