Why Is Tax Planning Different From Simply Filing Taxes?
True Root Financial is a fee only financial advisor and financial planner based in San Francisco, CA. We serve clients across the globe.
Let’s play a quick game. Hint: One Could Save You Hundreds of Thousands Over Your Lifetime!!
Here are two scenarios:
Scenario A: Every April, you gather your W-2s, 1099s, and a shoebox of receipts. Your CPA (or TurboTax) inputs the numbers, files your return, and tells you how much you owe—or how much you’re getting back.
If you are a tech professional interested in learning how we can help you claim your financial independence by investing wisely, minimizing taxes, and maximizing your equity compensation, please book a no-obligation call here.
Scenario B: Months before year-end, you review your income sources, stock vesting schedule, and investment gains. You adjust when to sell certain assets, set up a donor-advised fund for charitable deductions, and explore strategies to spread your income over multiple years, all before the IRS ever sees the numbers.
Both involve taxes. But only one puts you in control. Whether you’re a tech professional dealing with RSUs or a business owner looking for deductions, watch the video below for a full break down of tax strategies tailored to YOUR career.
Key Takeaways:
- Filing is reactive; planning is proactive
- The right tax strategy can save you thousands each year, and hundreds of thousands over your career
- Equity compensation requires special attention to avoid costly surprises
- Planning must occur before year-end to have an impact.
Why People Confuse The Two?
Most tech professionals we meet in the Bay Area assume that because they work with a CPA, they’re “doing tax planning.”
The reality? Filing taxes is backward-looking. Tax planning is forward-looking.
Filing is compliance: it’s reporting what already happened in the last tax year.
Planning is strategy: it’s shaping what will happen in the future to minimize your lifetime tax bill.
One makes sure you stay out of trouble.
The other can save you tens or even hundreds of thousands of dollars over time.
Filing Taxes: The Rearview Mirror
Think of filing your taxes like looking in your car’s rearview mirror. You can see where you’ve been, but it won’t change the road ahead.
When you file, you:
- Gather your income and deduction records for the year.
- Report your numbers to the IRS.
- Pay what you owe or get a refund.
It’s important work, but by the time you file, the events that drive your tax bill, stock sales, bonuses, and charitable contributions are already in the past.
No amount of wishful thinking in April can undo a tax hit from December.
Tax Planning: The GPS That Saves You Time and Money
Tax planning is more like using a GPS before your trip. You look at the road ahead and choose the best route, avoiding costly detours.
For high-income tech professionals with RSUs, ESPPs, stock options, and other investments, the opportunities are huge. Here’s what proactive planning can include:
- Timing income and stock sales to avoid higher tax brackets.
- Roth IRA conversions in years when your income dips.
- Charitable giving strategies like donor-advised funds to bundle deductions in high-income years.
- Tax-loss harvesting to offset investment gains.
- Planning for the Alternative Minimum Tax (AMT) when exercising incentive stock options (ISOs).
The goal is simple: pay what you owe but not a penny more than necessary. Watch the video below where we uncover the strategic tax planning moves that can save you tens of thousands especially if you’re dealing with RSUs, ISOs, ESPPs, or stock options.
Real-Life Example: Avoiding a $15,000 Surprise With ESPP Timing
A client in Mountain View was set to sell their entire Employee Stock Purchase Plan (ESPP) shares right after purchase. On the surface, this seemed like a quick profit.
But when we modeled the sale, we discovered that holding the shares for just a few extra months would qualify them for long-term capital gains treatment, reducing their tax rate and saving $15,000 in federal taxes.
Sometimes, a small change in timing can lead to a big change in your after-tax return.
Another Story: Using a Sabbatical Year for a Roth Conversion
A software engineer in San Francisco decided to take a one-year sabbatical. Her income dropped significantly, putting her in a much lower tax bracket than usual.
Instead of letting the year go by without action, we used it to convert a large portion of her traditional IRA into a Roth IRA—locking in taxes at a lower rate and setting her up for decades of tax-free growth.
The result? Potential six-figure tax savings over her lifetime, simply by using a low-income year strategically.
Why This Matters More in Tech?
If you work in tech, especially in the San Francisco Bay Area, you’re likely juggling multiple forms of income:
- High salary and bonuses
- RSU vesting schedules
- ESPP purchases
- Stock option exercises (ISOs or NSOs)
- Investment gains from startups or other ventures
The more moving parts in your income, the more opportunities you have to reduce taxes—if you act early enough.
The Bottom Line
Here’s the simplest way to remember the difference:
Filing taxes = Recording history.
Tax planning = Designing your future.
You need to file to stay compliant. But if you want to keep more of what you earn, planning is where the real savings happen.
Ready to Move From Filer to Planner? Your Next Steps:
At True Root, we specialize in helping Bay Area tech professionals with equity compensation turn tax season from a stressful scramble into a strategic advantage. Let’s talk before the year is over; your future self (and your future bank account) will thank you. Schedule your free consultation today.
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