“Hindsight is 20/20.”
“Playing Monday morning quarterback.”
“Shoulda, woulda, coulda’s.”
These are just a handful of phrases about looking at the past and thinking about how things could have been done better (after the fact). But how do they apply to taxes?? Well, when it comes to managing finances, especially for business owners, knowing the difference between a tax advisor and a tax preparer can make a big difference in your tax savings. Let’s clarify the roles of each and show how proactive planning with a tax advisor can lead to significant tax benefits.
Tax preparers are essential during tax season. They take your financial documents like your W-2s and 1099s, input this information into tax software, and prepare your tax return. Their main goal is to make sure your past financial activities are reported accurately to the IRS. However, a tax preparer's role doesn't typically involve planning or giving advice on how to reduce your taxes in the future. If you're only working with a tax preparer, you're mostly looking at tax savings based on what's already happened.
On the other hand, a tax advisor is like a coach who works with you throughout the year, not just at tax time. A tax advisor helps you plan and adjust your financial strategies continuously to ensure you're getting the best possible tax benefits. Here are some strategies a tax advisor might help you implement:
- Choosing the Right Business Structure for tax optimization.
- Using Advanced Retirement Accounts: Beyond just an IRA, accounts like a solo 401(k) can be used to expand your investment options and save on taxes.
- Hiring Family Members: If done properly and legitimately, this can help distribute income in a way that lowers the overall tax bill for your family (and gets them involved in your business!).
These strategies are active. They need to be planned and adjusted throughout the year and cannot just be tacked on at the end during tax season.
It's crucial to understand that certain tax-saving strategies need to be applied within the same year. Waiting until you start preparing your tax return is too late to take advantage of many beneficial strategies, such as setting up certain retirement accounts or tweaking your business structure.
A tax advisor does more than suggest strategies. They educate you on why these strategies work and how to implement them correctly, ensuring you understand both the benefits and the legal requirements. They help you make informed decisions about your business activities all year long, keeping you on track for minimizing taxes when it's time to file your return.
Tax preparers are crucial for accurate reporting, but here at Redemption Tax and Accounting, we’re tax advisors first. We work proactively with our clients planning ways to reduce your future tax liabilities. We handle the tax preparer side too! But for business owners aiming to maximize their tax savings, engaging with a tax advisor should be a crucial part of their overall financial strategy. Reach out to us or book a free discovery call on our Contact page.
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Broomfield, CO
720-819-7379
contact@redemptiontax.com
