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What Is Tax Planning & Why Does It Matter? Thumbnail

What Is Tax Planning & Why Does It Matter?

It’s tax season! We’ve entered the time of year when everyone is talking about taxes. As financial planners, though, we don’t like it. It really bothers us that most people only think about taxes in the spring, between February and April each year.

You see, if you only think about taxes when your return is due, all you can do is pay your taxes. It’s too late to do anything else. You need to think about taxes during the rest of the year if you want the chance to have any kind of influence over them.

The Difference Between Tax Planning and Tax Preparation

The problem is that tax preparation is backward-looking. You look through your documents to see what happened during the year and you report it to the IRS. A CPA or tax preparer’s job is to keep you compliant with what the government thinks you owe each year. What good financial planners do is forward-looking and we call it tax planning.

Tax planning is proactive. It involves looking forward to see if there are any moves you can make now to put you in a better place in the future. We review your tax return looking for potential opportunities to limit your taxes. Tax planning doesn’t just look at one year at a time, like tax preparation. Our goal is to minimize your lifetime tax liability, which can sometimes mean paying more taxes in the present to avoid paying even more in the future.

Why is Tax Planning Important?

Proactive tax planning is important because taxes touch every part of your financial life. Almost everything you do that relates to finances has tax implications. If you’re not careful, taxes can eat up a major part of your income. Strategic tax planning can free up more of your income to provide for your family, achieve your goals, and help those in need.

Who is Tax Planning For?

Tax planning is for everyone, not just the wealthy. In fact, often those with lower incomes have more opportunities to plan and minimize taxes. Regardless of your income sources or filing status, nearly anyone who pays income taxes can benefit from having a professional review of their tax return to identify relevant planning opportunities.

At Guide Financial Planning, we include tax planning in every one of our comprehensive financial plans. We review your tax return in detail to see what kind of alternatives may be available to you. We may conclude that you are currently maximizing every available tax-saving opportunity, which provides you with great peace of mind. Alternatively—and more frequently—we'll identify a handful of tax-saving opportunities, both in the current year and in future years.

For our ongoing clients, we talk about taxes twice a year. In the spring, we meet to review the past year’s return, demystify it, and see if there’s anything that needs to be changed going forward. In the fall, we look at what needs to be done before the end of the year.

What Kind of Tax Planning Opportunities are There?

What kind of things can be done to lower your tax liability? There are numerous tax planning opportunities available. For those with a low-income year, Roth IRA conversions can lock in a low tax rate for retirement funds so that they can grow tax-free going forward. Low-income years can also be great times to realize long-term capital gains, sometimes at a 0% tax rate. Tax planning can be as simple as switching from Roth to traditional 401(k) contributions in order to lower taxable income enough to qualify for a specific deduction or credit. Those who are charitably inclined can save a lot on taxes through a bunching strategy with a donor-advised fund or by making contributions with appreciated securities. Pastors can do wonders to increase their available income by maximizing the clergy housing allowance.

Those are some of the most popular tax planning strategies we utilize each year. However, we also run tax projections to determine how potential changes, such as filing status, dependents, stock option exercises, etc., may impact our clients’ upcoming tax liability.


At Guide Financial Planning, we are not CPAs or tax preparers. We do not prepare tax returns, though we do help our clients make sense of their tax returns. As financial planners, we provide our clients with forward-looking tax planning. It’s amazing how much a simple review of your tax return can tell us about your situation and the opportunities that it can unlock for your future. If you are interested in learning more about tax planning and the services we provide, schedule a free introductory call today.

About Guide Financial Planning

Guide Financial Planning is led by founder Ben Wacek, who is a Christian fee-only Certified Financial Planner™ and Certified Kingdom Advisor®. He has a passion to help people of all income levels make wise financial decisions and steward their resources from an eternal perspective using Biblical principles. Based in Minneapolis, MN, he works with clients both locally and virtually throughout the country and abroad. You can follow the links to learn more about Guide Financial Planning and our team and the services we offer.