Tax planning and tax management might sound like the same thing, but there’s a big difference. Tax planning is all about making sure you take advantage of every legal deduction and credit to minimize your tax bill. Tax management, on the other hand, is about reducing the taxes you owe each year. It’s more proactive than reactive, you work to keep your taxable income as low as possible, so you owe less. Both are important, but they require different skillsets and knowledge. If you’re looking to get a handle on your taxes, it’s important to understand the difference between tax planning and tax management.
Tax Planning:
The purpose of tax planning is to determine a person’s financial affairs in a way that maximizes all the deductions, exemptions, allowances, and rebates that are allowable legitimately so that his or her tax liability is low.
Tax Management:
The term tax management refers to the process of complying with income tax laws and regulations. Penalties, prosecutions, appeals, tax revisions, and settlements of tax cases fall under tax management. Tax management aims at ensuring compliance with tax laws at a specified time and manner as well as minimizing tax costs.
The Differences
| Tax Planning | Tax Management |
| Tax planning is all about minimizing your tax burden. By taking advantage of tax breaks and deductions, you can lower your overall tax liability | A focus is placed on ensuring compliance with legal formalities in order to minimize taxes. |
| It can help you make better decisions. | Assists in meeting the conditions for effective decision-making. |
| Prior to selecting the best alternative, various alternatives are compared. | The process consists of maintaining accounts in prescribed forms, filing returns, and paying taxes. |
| Future benefits are taken into account in tax planning. | In tax management, the past, present, and future are taken into account. |
| Various tax benefits can be claimed through tax planning. | The use of tax management contributes to the adherence to the conditions for effective decision-making. |
Managing your taxes is an important part of financial planning, and it’s something that should be done throughout the year, not just during tax season. By taking a proactive approach to tax management, you can save yourself time and money. Our advisors are here to help you every step of the way, so don’t hesitate to get in touch if you have any questions.
