Tax Management Vs. Tax Planning: What Are The Four Differences?

Many small business owners often view tax terms as abstract concepts that are very difficult to comprehend or distinguish. While that can in fact be true to some extent, we’re here to break down those terms and make them easier for you to understand. 

This article will help you differentiate between two often mixed-up tax terminologies—tax management and tax planning—by going through their major differences. 

What do tax management and tax planning mean? 

To thoroughly understand these two concepts, first, let’s take a look at their definitions:

  • Definition of tax management: 

The management of finances for the purpose of paying taxes is known as tax management. Tax management is responsible for the timely filing of returns, having accounts audited, and complying with the law. Interest, financial penalties, and prosecution can all be avoided with proper tax management.

  • Definition of tax planning: 

Tax planning means financial planning for tax efficiency. The ultimate goal of doing tax planning is to save money and lower your tax liability as much as possible.

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Key differences between tax management and tax planning 

Listed below are four main distinctions between tax management and tax planning that can help you never mix them up in the future:

Key difference Tax management Tax planning 
Objective Have your tax properly processed to avoid payment of interest, penalty, prosecution, etc.Keep your tax bill as low as possible
Activities Keep accounting records up to date, file returns, conduct audits on accounts, and make sure payment is on timeAnalyze various elements such as size, the timing of income, timing of purchases, etc., and develop suitable strategies to reduce tax liability 
Timing nature Mainly deal with the past (e.g., go over past records to audit) and the present (e.g., maintain accounting records, file tax)Focus on planning for the future. 
Obligation It’s a compulsory process It depends on your business 
Differences between tax management and tax planning

Final thoughts 

To conclude, tax management refers to how you manage financial affairs while adhering to tax laws in order to avoid paying interest and penalties. Meanwhile, tax planning is the process of financial planning for tax efficiency. One similarity is that they both ensure your business doesn’t need to pay any unnecessary money in tax. 

On a side note, keeping and organizing your receipts is a very important part of tax management since receipts are often required to claim deductions. 

Don’t miss out on deductions by losing track of your receipts. It can easily happen with stacks of papers everywhere. Let Shoeboxed take care of that for you.

Shoeboxed is an online application that can transform your receipts and documents into a digital format in just a click. It automatically extracts, categorizes, and human-verifies important data from your receipts so that you can go over and check your records anytime with ease. Shoeboxed ensures you will always have your receipts securely stored and ready for tax purposes. 

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