Article / Tax strategy and planning

Your CPA is grading your past. Who is designing your future?

Preparing your tax return and planning your taxes are not the same job. By the time the return is being prepared, most of the decisions that created the numbers have already happened.

Austin MoffatFounder, DSO CFO

Filing looks back. Strategy looks forward.

I am going to say something that may make some CPAs uncomfortable. Preparing your tax return and actually planning your taxes are not the same thing.

I work with practice owners who hand over their financial information, get their return prepared, pay what they owe, and move on. The following year they do it again. The problem is that by the time your CPA is looking at the numbers on your return, most of the decisions that created those numbers have already happened. The equipment was purchased. The retirement contributions were made. The structure was in place. The income was earned. There is not much left to strategize about.

There is nothing wrong with having a CPA who prepares your return well. That matters. But filing is largely about reporting what happened. Tax strategy is about looking ahead and asking what you can do differently before the year ends. If I know a practice is going to have an unusually profitable year, I do not want to discover that in April. I want to know while there is still time to make decisions: equipment timing, retirement plan design, entity structure, real estate, owner compensation, or another strategy that fits the owner’s situation. Timing matters.

Your tax return should not be the first conversation

One of the biggest missed opportunities I see is waiting until tax season to talk about taxes. By then we are looking at a finished year and asking what we can deduct. That is the wrong question. I would rather ask what can we still influence. Those are two very different conversations.

A tax preparer can tell you what happened. A strategic tax advisor should be helping you think about what happens next.

What can we still influence?Asked in October, that question has answers. Asked in April, it does not.

This is not about finding more write-offs

I also do not believe tax strategy means finding every possible deduction. That is how practice owners get into trouble. Buying something you do not need because it is deductible is not strategy. Spending $100,000 to save $30,000 in taxes is not saving money.

Good tax planning is about making financial decisions that already make sense for the practice and then structuring those decisions as efficiently as possible. That is a much different mindset.

Plan before the return exists

If your first serious tax conversation happens after December 31, you are probably having it too late. Your CPA may be doing a great job preparing your return. I would still ask one question: who is looking at your numbers while there is still time to do something about them?

Your tax return tells you where you ended up. Strategy is about deciding where you are going next. If you are only talking about taxes when it is time to file, start asking what opportunities you are missing during the rest of the year.

Frequently asked questions

What is the difference between tax preparation and tax planning?

Preparation reports what already happened and files the return. Planning happens during the year, while equipment timing, retirement contributions, owner pay and entity decisions can still be changed. A practice can have an excellent preparer and still have no plan.

When should a dental practice owner talk about taxes?

Quarterly at minimum, and especially in the fall, when there is still time to act before December 31. If the first conversation is after year end, the useful decisions are already closed.

Does tax planning mean finding more deductions?

No. Buying something you do not need because it is deductible costs more than it saves. Good planning takes decisions that already make sense for the practice and structures them as efficiently as possible.