Tax
Definition
Tax planning is the process of structuring your finances and decisions throughout the year to legally minimize your tax liability — as distinct from tax preparation, which files what has already happened.
Effective tax planning happens before a tax event — timing income, structuring transactions, choosing the right business entity, maximizing retirement contributions, harvesting losses, and making elections before year-end deadlines close. By the time your tax preparer sees your return, most opportunities to save have already passed. Tax planning is forward-looking; tax preparation is backward-looking. The strategies available depend heavily on your situation: a freelancer has different tools than an S-Corp owner, who has different tools than a founder with equity compensation or an investor with capital gains.
Most individuals and business owners pay more in taxes than they need to, simply because they haven't planned proactively. A single advisory session with a tax planning specialist can identify strategies you weren't using — entity structure optimization, timing decisions, retirement plan contributions — that pay for themselves many times over in tax savings in the first year.