How not to lose your sleep, hair and freedom this Tax Season!


Tax Planning vs. Tax Preparation

“Tax Season” (what is typically January thru April) is more anxiety ridden than any other “Season” in America.

There is the infamous “Christmas Season” that begins (for some) in July with much planning, preparing, spending and then regretting. Tax Season which similarly involves much of the same has caused many to lose sleep, hair and even their freedom.

Don’t lose sleep, hair or even your freedom by simply taking control of your “Tax Season”.

As a tax planner/preparer, I long to see my customers during the summer months. Of course, I understand that summer vacations are much more fun than time spent with your tax accountant. However, I can guarantee it is time well spent and it will save you much (sleep, hair and freedom) in the long run.

In previous blogs, I have discussed Financial Management and your Business. I’ve discussed the need to watch, analyze and strategize using reports such as P&L’s, Balance Sheets and Cash Flow Statements. I’m sure that due to these previous blog posts, you are all now working with your Financial Manager and managing by your numbers.

Today, I’d like to discuss Tax Planning vs. Tax Preparation. One is proactive and one is reactive.

Full Definition of PLAN – Webster’s Dictionary

1

a : a top or horizontal view of an object

b : a large-scale map of a small area

2

a : a method for achieving an end

b : an often customary method of doing something : procedure

c : a detailed formulation of a program of action

d : goal, aim

3

a : an orderly arrangement of parts of an overall design or objective

4

a : a detailed program (as for payment or the provision of some service) <pension plan>

VS

Full Definition of PREPARE – Webster’s Dictionary

1

a : to make ready beforehand for some purpose, use, or activity <prepare food for dinner>

b : to put in a proper state of mind <is prepared to listen>

2

a : to work out the details of : plan in advance <preparing a campaign strategy>

3

a : to put together : compound <prepare a prescription>

b : to put into written form <prepare a report>

The word PLAN is a noun (thing) – a top a horizontal view of an object, a large scale map of a small area, a method of achieving an end, a detailed formulation of a program of action, an orderly arrangement of parts of an overall design or objective.

The word PREPARE is a transitive verb (action) – to make ready before hand, to put together, to get ready for.

These interesting words, some may say semantics, play a significant part in what is… “Tax Season” and speaks volumes as to why many may find themselves in an anxious state sometime right after Christmas Season (ironic isn’t it).

The majority of America jumps from the planning to the preparing. I believe that one cannot go without the other (in that order) without causing anxiety. As a plan is an orderly arrangement of parts of an overall design or objective. Order is anxiety’s kryptonite.

Tax Preparation vs. Tax planning means that somewhere between January 2nd and April 15th you sit with your accountant (preparer) to take action, work out the details of the past year, put together a tax report in written form and get ready for the consequences.

Tax Planning happens on or before January 2nd for the upcoming year. It is taking a bird’s eye view of your financial situation. This planning activity closely looks at the full picture (a large-scale map of a small area). You devise a method for achieving the desired end result. You and your tax preparer come up with a detailed formulation or program/plan of action that you will live by throughout the upcoming year. Tax planning means this tax season, your preparer would simply be reporting (preparing) the results of your financial plan of action and not the act of putting together and then get ready for the results of an unplanned tax year.

Tax planning not only saves you sleep, hair and freedom, but time and money (those other two very valuable assets).

The process of tax planning involves:

  • Review of the outcomes of previous tax years

  • An analysis of laws that have changed in your tax brackets or areas of concern

  • Forecast of your business or family life;

  • Along with a plan of action for an optimal upcoming tax season

Did you know in 2014 higher incomes were taxed at a higher rate? Did you know that there are new tax breaks for Entrepreneurs and Small Businesses in 2015? 2015 also has the distinction of ushering in new Foreign Account Tax Compliance Act (FATCA) deadlines. Are you aware of the many legal tax shelters? Do you know of the many changes in Marriage, Family and Child Tax laws? Most importantly did you plan for this upcoming Tax Season?

“If you don’t plan to give Uncle Sam all of your money, you must plan how not to do so”….Your tax planner will show you the legal ways to avoid high tax liabilities.

Don’t lose your hair, sleep or freedom! Contact IBCVI & Co., we are not just tax preparers; but tax planners. Call us at 340-778-4228 or visit us at www.ibcvi.com for an appointment; let’s plan for your family’s future today! Tell us what you think by leaving a comment below, on Facebook or Twitter!

Abbelle Bakr B.A, C.A, SRTP

Tags Tax Tax Accounting Accountants Financial Advisor Tax Accountant IBCVI Financial Manager St. Thomas Entrepreneurs Small Business St. Croix Finance Tax Season Tax Preparation Income Tax Uncle Sam Tax Planning Budgeting Virgin Islands Bookkeeper Mompreneur

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