Tax Planning in December

December is the last month to lower your tax bill for the 2022 tax year; however, the goal should be to identify and implement strategies that will effectively reduce your tax bill for years to come; or at a minimum, put you in the driver’s seat for when and how you pay the government “their fair share”. 

Effective tax planning allows you to be in control of your money and your taxes. Did you know that almost every financial decision that you make will either increase or decrease your tax bill and wealth status? This point amplifies the importance of selecting the right type of tax professional to work with for tax advice and tax strategies that actually cut your taxes and save you money.

Let us take a look at the three types of tax preparers who typically facilitate annual tax preparation and advice:

1. Tax Preparers

This category of tax preparers are generalist and are normally classified as non-credentialed because they do not possess any professional credentials or licenses - no certifications or tax training required. Frankly, labeling them as professional borders on lunacy. They are usually seasonal employees or contractors who perform simple data entry tasks and offer little to no tax advice or planning because they do not possess the necessary skills to do so. These people are not subject to any continuing education requirements and cannot represent you before the IRS; which in and of itself indicates a minimum level of understanding with tax laws and changes that impact your tax return and planning options. Recommendation – avoid at all costs.

2. Credentialed Tax Preparers

The Enrolled Agent (EA) designation is an Internal Revenue Service (IRS) accreditation that requires tax preparers to either be former IRS employees or pass a three-part comprehensive IRS administered exam. The designation requires the EA to meet ethics and continuing education protocols for renewals.

The highest credentialed tax preparer is that of a Certified Public Accountant (CPA). The CPA designation is administered by the American Institute of Certified Public Accountants’ (AICPA) and demands rigorous prerequisites to take the uniform CPA exam and hold the license. CPA credential holders are required to have considerable and relevant work experience, higher learning, meet ethics protocols and also have annual continuing education and licensing renewal requirements.

Tax time responsibilities for CPAs and EAs typically involve the gathering of financial information and accurate filing of your tax return to ensure timely compliance with tax law; leaving very little time available for tax strategy. Additionally, most taxpayers are accustomed to getting preparers involved in the process between January 1^st and April 15^th when the opportunity for tax planning has past and little can be done to alter outcomes for current year tax bills.  Additional crunch time constraints limit the ability of the credentialed tax preparer to develop the deeper skills required to construct comprehensive tax strategy.

3. Tax Strategists

Tax Strategists are however, tax experts that specialize in tax planning. They have extensive knowledge about tax law, regularly participate in continuing education around tax legislation; and are more likely CPA credentialed professionals. Tax Strategists help keep you compliant with all tax law, can oversee all communication with the IRS on your behalf; but most importantly, they help you save money on your tax bill each and every year!

Tax Strategist do not perform services in a silo. They work with you and your team to understand your overall financial picture, including your wealth and legacy goals. They then perform a thorough analyses and look for creative solutions to legally reduce your taxes and save you money on an ongoing basis through tax deferments, deductions, credits and permanent tax savings.

Tax strategies are never one-size fits all. There are many short and long-term tax planning strategies that a Tax Strategist can recommend. That’s why it is important to understand preparer roles and levels of expertise. One of the most important steps in building a successful tax or wealth strategy is selecting the right tax advisor who can help you formulate and execute strategies that have been customized specifically for you.

The ultimate goal for a Tax Strategist is to generate solutions that provide you with lasting tax savings that allow you to achieve your financial goals and build future wealth.

There is still have time to implement current year-end tax strategies to help reduce your taxes for 2022; however, it is imperative that you do not delay. Please make every effort to, at a minimum, contact a credential tax preparer or best; a tax strategist, to help you with 2022 tax planning opportunities and to start your 2023 and beyond tax strategy planning.

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