Glossary
Tax Planning
Tax planning is the process of analyzing your financial situation to legally minimize your tax liability. It involves using strategies like tax-advantaged accounts, deductions, credits, and income timing to reduce the amount of taxes owed.
Why is tax planning important?
Effective tax planning helps you keep more of your money by reducing your tax bill, improving cash flow, and avoiding costly mistakes or penalties.
What strategies are used in tax planning?
Common strategies include maximizing deductions and credits, contributing to tax-advantaged accounts (like 401(k)s, IRAs, and HSAs), harvesting tax losses, and timing income or expenses.
What’s the difference between tax planning and tax preparation?
Tax preparation involves filing your tax return, while tax planning is a year-round process aimed at reducing your future tax liability through strategic decisions.
Do I need a professional for tax planning?
While you can do basic tax planning on your own, a CPA or tax advisor can help with more advanced strategies—especially if you’re self-employed, own a business, or have significant investments.
How does tax planning relate to retirement?
It ensures you withdraw from retirement accounts in the most tax-efficient way and helps you decide between Traditional and Roth contributions based on your future tax bracket.
Subscribe to our newsletter
Get the latest on finding, evaluating, and working with financial advisors; delivered right to your inbox.
