Many small business owners often view tax terms as abstract concepts that are very difficult to comprehend or distinguish.
We get it. This isn’t everyone’s favorite cup of tea.
Let’s break down those terms and make them easier for you to understand.
Today, we help you grow your tax savvy by differentiating between 2 often mixed-up tax terminologies—tax management and tax planning—by listing 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
Tax management is the management of finances for the purpose of paying taxes. 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 is 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
Here are four main distinctions between tax management and tax planning that will help you keep the categories straight.
|Key difference||Tax management||Tax planning|
|Objective||Proper tax return processing to avoid fines, payment of interest, penalty, prosecution, etc.||Keep your tax bill as low as possible|
|Activities||Keeps accounting records up to date, files returns, conducts audits on accounts, and makes sure payment is on time||Analyzes various elements such as size, the timing of income, timing of purchases, etc., and develops suitable strategies to reduce tax liability |
|Timing nature||Mainly deals with the past (e.g., go over past records to audit) and the present (e.g., maintain accounting records, file tax)||Focuses on planning for the future|
|Obligation||It’s a compulsory process||It depends on your business|
Tax management refers to how you manage financial affairs while adhering to tax laws 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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You can stuff your receipts into one of our Magic Envelopes (prepaid postage in the US). Use our receipt app (iPhone, iPad and Android) to snap a picture while on the go. Auto-import receipts from Gmail. Or forward a receipt to your designated Shoeboxed email account.
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