Tax Planning Services: Who do you call?

Tax planning services have the ability to save your financial future. They can save your business as well, if you have one. Unfortunately, the practice of tax planning is rarely utilized by the average person.

The average person will wait until January to scramble together the most details and information they can find for a mediocre tax refund. And even then, their biggest strategy involves trying to get their refund back faster and trying to see if they qualify for 2 or 3 tax credits.

It generally doesn’t occur to most people that if they planned their taxes ahead of time, they could steer their expenses and income to a point of maximized tax rebates.

Imagine knowing when you file your taxes that you’ve efficiently taken advantage of every credit, deduction, exemption and loophole? What’s more, even the people who want to begin tax planning, don’t know what type of tax planning services they need?

Do you call a CPA, a tax attorney, or another type of tax resolution specialist? What should you expect to pay for their services? And what services can you expect them to provide?

What does a tax planner do?

While providing tax planning services, a tax planner will familiarize themselves with your tax and financial history. Then they will analyze your individual situation to find out what strategies you should use to lower your tax liability and increase your refund. This is all done within the confines of the law and planned to be executed by you over the course of the year(s).

Remember, there are over 2,600 pages of tax code that you have to stay within to remain on the right side of the law. Over 4,000 if you count the prior laws. And over 70,000 if you count the inclusion of information about tax code itself. Because of this, many people who want to maximize their taxes, sometimes end up in legal trouble with the IRS.

Instead of learning the laws, or hiring someone who knows the laws, they might attempt a shoddy job of doing it themselves. You can do it yourself. But you also want to avoid tax evasion and tax fraud charges (that can land you in jail). So you should make sure you are well versed in tax law. If you don’t want to do all that studying, hire a professional.

Can a tax preparer provide tax planning services?

That depends. A registered tax preparer has the authorization from the IRS to give advice only as it pertains to filing forms that are submitted to the IRS. They generally don’t have the knowledge needed to fully examine the financial architecture of your tax situation. And they aren’t required to.

Unfortunately, there are many people who think that the limited experience of a general tax preparer is all the tax planning services they will need. This is part of the reason that billions of dollars in deductions and credits go unclaimed every year.

This oversight can be detrimental to your financial health and should always be considered when requesting tax planning services.

What is the difference between tax preparation and tax planning?

Contrary to popular opinion, tax preparation and tax planning are not the same thing.

Tax planning is creating a strategic blueprint. A long term plan. It is analyzing the situation and coming up with a plan that maximizes your tax refund by finding opportunities to claim all deductions and credits you may qualify for. It is a plan to lower your taxes owed and to avoid situations that might create a rift between you in the IRS. All of this is done before you begin tax preparation. Because the truth is, once you start preparing your taxes, it’s too late to plan them…for that year at least.

Tax preparation on the other hand, is the act of filing your taxes. Tax preparation is basically what you do with the information and strategy that you created during your tax planning. It is the last step in the chain of events that was started with tax planning.

In order to be as efficient and wealth-wise as possible. You would do both. Start with tax planning. Follow the plan. And at the end of the year, prepare your taxes (or have them prepared).

Is a CPA a tax advisor?

In a word…yes. Certified public accountants are financial specialists that can not only help you balance your books, but also provide tax planning advice. They understand financial requirements and usually have the knowledge of deductions and credits. Additionally, they are federally recognized by the IRS to provide tax advice and tax planning.

CPA’s are also allowed unlimited representation of their clients in tax audits and the entire taxation process. It is well known that a good CPA is an undeniable asset to self-employed individuals and small business owners.

Is a CPA liable for tax mistakes?

Yes. If the CPA committed errors on your return that caused penalties or interest to be incurred, you (as the taxpayer) can ask them to cover it. Usually, a reputable CPA will cover the costs of their own mistakes without being asked. They generally just need to be made aware of their mistakes.

But in the event that they don’t cover their mistakes, you can sue them in a court of law to recover what they cost you.

And to be clear: the taxpayer still must pay the bill if it is discovered that you owed more money. The CPA is only liable to pay for the interest and penalties.

The CPA may also be held accountable for different penalties from the IRS because of the mistake they made.

What is the difference between a financial advisor and a financial planner?

There are doctors and then there are podiatrists (foot doctors). Similarly, there are financial advisors and then there are financial planners.

Financial advisors are among a broad category of money management professionals. They may be stock brokers, bankers, insurance agents, and yes… even a financial planner. They may call themselves consultants, or analysts as well. But they have similar occupations. Advising you how to better create, grow, and maintain wealth. Sometimes that’s through insurance, or estate planning, or investments. Either way, a financial advisor’s job is to help you manage your wealth.

A financial planner is a specific type of financial advisor. They also can specialize in certain sectors. Their primary role is to help people and businesses plan for and achieve their wealth related goals. So, while every financial planner is technically a financial advisor, the opposite is not necessarily true.

Are financial planners worth the money?

That depends. There are so many variables that you have to take into account when answering that question for yourself. What is your net worth? How money-minded are you? Do you have thousands of dollars at your disposal to pay for their services.

A financial planner can possibly charge you between $1,000 and $2,000 for a sound financial plan. Add a few hundred dollars every month if you want to keep them on standby for continued advice and help. That is quite a bit of money for the average person. But maybe you are a high net worth individual with a complex tax situation.

Do I need a CPA or a tax attorney?

They both can represent you in an unlimited status before the IRS. They both have expert knowledge of taxes and tax code. The difference between them and the choice to choose one or the other depends on your situation. Are you in current trouble with the IRS? Do you owe back taxes or are facing levies and liens? If so, then there’s your answer.

A tax attorney can negotiate with the IRS on your behalf, handle wage garnishment and property seizure issues. Additionally, they also handle audits, back taxes, and un-filed taxes. You have to assess your individual situation to figure out if you need to hire a tax lawyer or a certified public accountant. One specializes in money, while the other focuses on law. Both are helpful. And indeed, there are many tax lawyers that have a dual role as a CPA.

Tax Preparer

A tax preparer can cost you an average yearly fee of $176-$273

To be certified and receive a PTIN (Preparer Tax Identification Number): A person must complete an exam and 72 hours worth of continued education courses every 3 years. High School Diploma requirement.

Have unlimited representation before IRS and represent their clients involving audits, payment/collection issues, and appeals.

They have extremely limited tax planning services and usually limited knowledge.

A tax preparer is rarely a tax planner and usually only there to file the necessary forms. The plan is created and set in motion well before the tax preparer enters the scene. Often times, they don’t know what your plan is and only handle the paperwork involved with reporting to the IRS>

Should you hire a CPA for your tax planning services?

A CPA can cost you anywhere upwards of $200 depending on what you need and how long you need them. If you are only requiring tax preparation services, be prepared to pay around average costs. But if you consult with them based on an hourly fee, be prepared to pay an additional $30 per hour.

It is important to note that the costs vary from region to region as well as by accountant. Accountants with additional certifications can demand a higher fee for their services.

To be a certified public accountant: The person must pass the CPA exam, as well as the AICPA ethics exam. Then they must complete between 6 months and 2 years interning under a qualified CPA. Then get licensed under the state board. Bachelors Degree requirement (varies by state). Some states require you to have a certain amount of hours in specific courses as well as between 120-150 semester hours total. Must have PTIN to prepare taxes.

They also have unlimited representation before the IRS and can handle all financial matters presented. Extensive knowledge of tax code and best suited for providing tax planning services.

Tax Attorney

Tax attorney’s usually charge by the hour. Their average hourly wage is between $200-$400, but can charge more.

Must complete law school. Internship. Pass state Bar. Bachelor’s degree required.

In addition to unlimited representation before the IRS, a tax attorney has the unique ability of being able to represent their clients legally. In a court of law, a tax attorney can negotiate with the IRS, mitigate fees, wage garnishments, liens and more.

So which should you choose for your tax planning services?

I can’t answer that question for you. It depends on your personal situation. If you are rich, and don’t have any problems with the IRS, then perhaps a financial planner is the right choice for you. Are you are facing a seizure of your property, maybe a tax lawyer. If you are simply focused on finances, then call a CPA. Or if you think you have the right amount of knowledge and patience, create a plan yourself.