The Monet Blog · Taxes

Tax planning 101: the difference between filing and planning

Filing records what already happened. Planning changes what happens next. Where the real decisions live, and the calendar they live on.

By Sankha NagChoudhurySeptember 1, 20268 min read

By the time a return is prepared, nearly every number on it is already fixed. Planning is the work done before that point — choosing entity, timing, account type, and character of income while those choices are still open. This series walks through that work in order.

Filing looks backward; planning looks forward

A preparer's job is accuracy: report what happened, claim what the law allows, file on time. A planner's job is different — deciding what should happen so the eventual return is smaller. Most people only ever buy the first service and then wonder why the number never changes.

Filing questions sound like 'what do I owe?'
Planning questions sound like 'what should I do before December 31?'
The same CPA can do both, but you have to ask for the second one — and usually pay for it separately.

The four levers

Almost every legitimate strategy pulls one of four levers: what kind of income you have, when you recognize it, which entity or account holds it, and who ultimately receives it. Everything later in this series is a variation on those four.

Character: ordinary income, qualified dividends, long-term gain, or return of capital.
Timing: which tax year income lands in, and which year a deduction lands in.
Entity and account: sole proprietor versus S corp; taxable versus tax-deferred versus tax-free.
Recipient: you, a spouse, a child, a trust, or a charity.

A planning calendar that works

Planning fails most often because it is attempted in April, when only a handful of moves remain. Spread across the year, the same effort produces far more.

Q1: review last year's return for what was missed; set withholding and estimates.
Q2: entity and compensation review; retirement plan choices for the year.
Q3: project full-year income; decide on large purchases, sales, or conversions.
Q4: execute — harvesting, charitable gifts, equipment, deferrals — before year end.

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Tax planning 101: the difference between filing and planning

Filing looks backward; planning looks forward

The four levers

A planning calendar that works

Ask Monet this

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