Tax Planning vs Financial Planning: Foes or Friends
John F. Dennehy Jr., CPA, PC

Tax Planning vs Financial Planning: Foes or Friends

As a business owner, you work hard to earn a living and grow your business. However, if your tax planning and financial planning aren't working together in tandem, you're leaving money on the table. Fortunately, the team at John F. Dennehy CPA can help.

We specialize in offering financial planning and tax planning services for small to medium-sized businesses. Our experienced certified public accountant (CPA) will work closely with you and your financial advisor to help you achieve your goals.

Don't hesitate to reach out to us today for versatile tax planning and financial planning. In the meantime, read on to learn why your tax planning and financial planning should be best of friends. 

What Is Tax Planning for Businesses? 

Very simply, tax planning is the strategic process designed to ensure that you keep more of your hard-earned money instead of paying it to Uncle Sam. It includes a host of legal maneuvers to minimize your tax liability on taxable income and maximize your returns and profits. 

Without proper tax planning, you will almost certainly end up paying more in taxes on taxable income than necessary. Regardless of how complex or simple the strategy is, tax planning for small businesses should revolve around increasing tax efficiency by:

  • Minimizing the amount of taxable income
  • Managing when the taxes must be paid
  • Lowering the overall rate of tax
  • Controlling the effects of the Alternative Minimum tax
  • Claiming any applicable tax credits

What Is Financial Planning

Financial planning with a financial advisor or registered investment advisor can be defined as the long-term method of strategically and wisely managing your business finances to help you achieve your goals. With a comprehensive financial plan, your financial advisor or CPA will work to help your business become more resilient and prepared to weather storms as they arise. 

Business financial planning with a CPA or financial planner also allows your business to confidently determine how to allocate resources. By engaging in financial planning, you will be able to answer tough and detrimental questions, such as: 

  • Does your business have enough money to invest in a new office space or a new technology system?
  • Is right now a good time to tough reserve funds?
  • What impact will signing a new client have on your revenue?

When you engage in business financial planning with our CPAs or a financial planner, you can commit your company to sound business practices and increase the likelihood your business will be able to meet financial obligations. 

Your Income Tax Return: Where Financial Planning and Tax Planning Intersect

The way you spend and invest your business revenues will directly influence your tax return or tax bill. It can shape your business financial goals as well as personal finance in terms of how you save money for the future.

Each year, the federal government implements new laws and requirements that impact how you pay taxes. These new laws can open the door to several tax benefits as well as carry hefty tax implications. 

Because of this, it makes dollars and sense for your business to stay up to date on these recurring changes with professional tax advice from an experienced CPA. Failure to do so by working with an experienced CPA can lead to an increased tax burden and other tax consequences, which means less money going into your business or your own pockets. 

How Does Tax Planning Help Improve Financial Planning

Whether it's for your business finances, personal finances, investment portfolio, sound tax planning can help you reach your financial planning goals. Here are a few ways how. 

Make Smarter Decisions Throughout the Year

The majority of business owners think of taxes as a once-a-year or quarterly event. However, this is one of the worst perspectives business owners can have. Simply put, tax preparation is very different from tax planning. 

One great analogy is this: tax preparation is similar to the final exam and tax planning is the work you do all year preparing for the test. If you only study for a couple of weeks, it will not render the same results as if you were studying for the final exam all year. 

In other words, the more time and effort you dedicate to the subject, the better prepared and intentional you will be. This means tax planning is a key component of wealth management for business owners and individuals. 

When you partner with an experienced CPA for tax planning, you can make smarter decisions throughout your financial life with your holistic financial plan in sight. Tax planning takes everything into consideration, such as your Roth IRA, traditional IRA, investment portfolios, investment planning, mutual funds, gifting strategies, and other key attributes. 

Various personal and business financial factors are taken into consideration to help you minimize your tax liability and improve your overall financial situation. The ultimate goals of tax planning is to avoid paying too much money, increase your tax benefits, improve your financial situation, and help you achieve your financial goals.

Tax Planning Can Bolster Your Investment Approach 

When you engage in tax planning, it can radically transform your personal and business investment plan. In short, it can inform how you invest and help make your investments work for you in a purposeful and tax-conscious manner. 

Whether you use a Roth IRA, traditional IRA, 401(k), or any other account, tax planning coupled with financial planning can: 

  • Maximize tax-loss harvesting
  • Optimize asset allocation
  • Inform more tax-efficient withdrawal strategies with consideration to taxes.

Retirement Income Planning

As a business owner, you can't — and probably don't want to — work forever. As such, it's important to keep your eyes on the prize, which is retirement. 

By coupling your tax planning with your financial planning and retirement planning, you can strategically work to minimize your tax liability when you enter retirement. This means selecting the appropriate accounts — such as a Roth IRA, traditional IRA, insurance, and/or 401(k) — to reduce your tax liability at the most advantageous time. 

Because each option has unique tax benefits, it's important to incorporate tax planning into your financial plan for a comprehensive view.

Contact John F. Dennehy CPA for Smarter, More Holistic Tax Planning

For most small business owners, personal and business finances are closely related. As such, it only makes sense to work with an experienced CPA who can help you see the big picture.

At John F. Dennehy, we offer a full range of tax planning services. In addition, we regularly partner with financial planners and other professionals on your team to take a holistic approach to help you achieve your goals. 

Contact John F. Dennehy CPA today to learn how adding our experts to your team can help you achieve your goals faster. 

About the Author John F. Dennehy Jr., CPA, PC

We at John F. Dennehy CPA are a team of certified public accountants who service clients throughout Long Island. The services that we provide are comprehensive, and we can resolve multiple accounting needs for a client.

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