Tax Advisory vs. Tax Preparation vs. Tax Planning: What’s the Difference?

If you’re a business owner trying to understand what your CPA actually does—or should be doing—you’ve probably heard terms like “tax prep,” “tax planning,” and “tax advisory” used interchangeably. They’re not the same.

While this guide focuses on S-corps and partnerships (where advisory delivers the most value), the principles apply to C-corps and Schedule C businesses as well.

Each represents a different level of service, timeline, and strategic approach. Most business owners need all three at different points, but only one of them proactively reduces your taxes before they happen.

Here’s the breakdown.

What’s the Difference Between Tax Advisory, Tax Preparation, and Tax Planning?

Tax preparation is annual compliance filing (looking backward at last year). Tax planning is proactive optimization for the current year (looking forward with projections). Tax advisory is ongoing strategic partnership (looking at big picture including multi-year strategy, entity optimization, and lifetime tax minimization). Most business owners need all three: preparation is mandatory, planning prevents surprises, and advisory maximizes long-term savings. Tax advisory typically starts at $3,000 annually and delivers 3-10x ROI when strategies are implemented.

Key Takeaways

• Tax preparation is mandatory – Annual compliance filing for last year’s activity ($1,500-$3,500 for business + personal)
• Tax planning is proactive – Forward-looking projections and optimization for current year ($3,000-$6,000 annually)
• Tax advisory is strategic – Ongoing partnership focused on entity optimization and multi-year strategies (starting at $3,000)
• Timeline differences matter – Preparation looks backward, planning looks forward, advisory looks at big picture
• Most business owners need all three – Preparation for compliance, planning to avoid surprises, advisory for maximum lifetime savings

The Three Levels of Tax Services Explained

The confusion makes sense. Many CPAs offer all three services under one roof, and the terms overlap in practice. But understanding the distinctions helps you know what you’re getting—and what you’re missing.

The simplest way to think about it: Preparation looks backward. Planning looks forward. Advisory looks at the big picture.

Tax Preparation: Annual Compliance Filing

Tax preparation is what most people think of when they say “my CPA does my taxes.” It’s the annual process of compiling last year’s financial activity and filing the required federal and state returns.

What’s Included in Tax Preparation

For S-corps and partnerships, tax prep typically includes:

• Preparing Form 1120-S (S-corp) or Form 1065 (partnership)
• Creating Schedule K-1s for owners/partners
• Filing Form 1040 (personal return) integrating K-1 income
• State tax return preparation (if applicable)
• Extension filing if needed
• Transmitting returns to IRS and state agencies

When You Need Tax Preparation

Everyone needs tax preparation. If you have a business entity that generates income, you’re required to file annual returns. There’s no option to skip this.

The question isn’t whether you need it—it’s whether you’re getting anything beyond compliance.

Tax Preparation Pricing

For S-corps and partnerships with straightforward situations (one entity, no multi-state filing, no complex allocations), you’ll typically pay $1,500-$3,500 for business and personal return preparation combined.

Add complexity—multi-state operations, multiple entities, real estate holdings, international transactions—and costs increase accordingly.

Tax Planning: Forward-Looking Optimization

Tax planning is where CPAs stop looking backward and start helping you make better decisions for the current year.

Instead of just reporting what happened, tax planning involves projecting your income for the current year and implementing strategies before December 31 to minimize what you’ll owe when you file.

What’s Included in Tax Planning

Tax planning services typically include:

• Income projections based on current year-to-date results
• Estimated tax payment calculations to avoid underpayment penalties
• Year-end strategy recommendations (equipment purchases, retirement contributions, expense timing)
• Entity structure analysis to confirm your current setup is still optimal
• Quarterly or annual check-ins to adjust projections as income changes

When You Need Tax Planning

Tax planning makes sense for business owners with variable income, growing businesses, or anyone who’s been surprised by their tax bill in April.

If you’ve ever said “I wish I’d known about this in November,” you needed tax planning.

Tax Planning Pricing

Comprehensive tax planning ranges from $3,000-$6,000 annually depending on complexity and frequency of touchpoints. Many CPAs bundle planning with tax preparation for an all-in price.

Tax Advisory: Strategic Partnership

Tax advisory is the highest level of service. It’s not just about this year’s tax return or next year’s strategies—it’s about structuring your entire business and personal tax situation to minimize your lifetime tax burden.

Advisory is proactive, ongoing, and implementation-focused. You’re not just getting recommendations—you’re getting help executing them.

What’s Included in Tax Advisory Services

Tax advisory goes beyond annual planning to include:

• Year-round tax projections updated as your business changes
• Strategic planning sessions (frequency depends on complexity)
• Implementation coordination for S-corp elections, reasonable compensation studies, Augusta Rule setup, retirement plan design
• Entity optimization reviews to identify restructuring opportunities
• Direct CPA access for questions between formal meetings
• Advanced strategies like cost segregation, defined benefit plans, real estate professional status qualification, multi-entity structuring

The key difference: Advisory isn’t just “here’s what you should do.” It’s “here’s what you should do, and we’ll help you do it.”

When You Need Tax Advisory

Tax advisory makes sense if you’re:

• An S-corp or partnership owner with $200K+ revenue
• Managing multiple income streams (W-2 + business + real estate)
• Considering entity changes, major purchases, or business exit
• Looking for proactive strategic guidance, not reactive compliance
• Asking “Is there a better way to structure this?”

If your tax situation is straightforward—single entity, consistent income, no major changes—you might not need ongoing advisory. Tax planning may be sufficient.

Tax Advisory Pricing

Tax advisory services start at $3,000 annually for straightforward situations and vary based on business complexity, service frequency (annual, quarterly, or monthly touchpoints), and strategies implemented.

Implementation of advanced strategies (cost segregation studies, defined benefit plan setup, multi-entity restructuring) is typically priced separately since these are one-time projects with specific deliverables.

Learn more about SDO CPA’s tax advisory services including what’s included and how the process works.

Which One Do You Need?

Most business owners need all three at different times—or bundled together.

You definitely need tax preparation. Filing returns is legally required.

You probably need tax planning if you’re a business owner with variable income or growth. The ROI on tax planning typically pays for itself through better estimated payment accuracy and year-end optimization.

You might need tax advisory if your situation is complex enough that ongoing strategic guidance delivers measurable value. Think of it as the difference between an annual doctor checkup (planning) and having a doctor you can call anytime (advisory).

Decision Framework

Start with tax preparation if:

• You have simple W-2 income or a small sole proprietorship
• Your income is consistent year to year
• You’re comfortable researching tax strategies yourself

Add tax planning if:

• You’re an S-corp or partnership owner
• Your income varies significantly year to year
• You want help projecting quarterly estimated payments
• You’ve missed tax-saving opportunities in the past

Consider tax advisory if:

• You have $200K+ business revenue
• You’re managing multiple entities or income streams
• You want proactive year-round guidance, not just annual meetings
• You’re considering major business decisions (exit, restructuring, expansion) with tax implications

Wondering if tax advisory is worth the investment? Read our ROI analysis of tax advisory services to see real examples of what business owners save through proactive planning.

Can You Get All Three from One CPA?

Yes. Most CPAs who offer advisory services bundle all three: preparation (compliance), planning (forward-looking optimization), and advisory (ongoing strategic partnership).

At SDO CPA, we structure our services this way:

• Tax preparation is the foundation—we prepare your S-corp, partnership, and personal returns
• Tax planning is integrated into advisory engagements through quarterly or annual strategy sessions
• Tax advisory is the comprehensive service tier for business owners who want year-round proactive guidance and implementation support

Advisory clients receive discounted rates on return preparation since we’re already familiar with their situation throughout the year.

Ready to explore tax advisory? Schedule a consultation to discuss whether ongoing advisory makes sense for your business.

Understanding Your Current Service Level

If you’re already working with a CPA, here’s how to identify which level of service you’re currently receiving:

You’re getting tax preparation if:

• Your CPA reaches out primarily in March/April
• You provide documents, they file returns, you don’t hear much until next year
• There’s no discussion of strategies for the current year

You’re getting tax planning if:

• Your CPA projects your current year taxes
• You receive year-end strategy recommendations
• You have quarterly check-ins or at least one mid-year conversation

You’re getting tax advisory if:

• You can reach your CPA throughout the year with questions
• Strategy discussions happen proactively (not just when you ask)
• Your CPA helps implement strategies, not just recommend them
• You receive updated projections when your business changes

None of these levels is inherently better—it depends on what you need. But understanding the difference helps you evaluate whether you’re getting the right service for your situation.

Related Resources

For more on specific tax planning and advisory strategies:

• S-Corp Tax Planning Strategies – Comprehensive guide to optimizing S-corporation taxation
• Partnership Tax Planning Strategies – Strategic approaches for partnership tax optimization
• Tax Planning Guide – Broader overview of proactive tax planning approaches
• How to Choose a Tax Advisor for Your Business – What to look for when hiring a CPA for strategic guidance

About SDO CPA: We provide tax advisory, planning, and preparation services for S-corporation and partnership owners. Our approach combines Big Four expertise (EY, KPMG) with the accessibility of a specialized practice focused on pass-through entity taxation.

Schedule a consultation to discuss your tax situation.