Monday, May 20, 2024

Expectation management in tax season

Schacter cites the example of a $27,000 annual tax bill. If the client had planned appropriately that money should be worth more than $27,000 by the time the bill comes due, leaving the client with the difference. Because he serves as both a financial planner and the go-between during tax season, Schacter can ensure that his clients never overpay and find themselves in that 0 per cent loan situation.

While taking this approach seems rational and obvious when he lays it out, Schacter recognizes that there is an emotional aspect that needs to be managed during tax season. He will sometimes get calls from clients asking him why their tax bill was ‘so much higher this year.’ In fact, he says, those clients often paid less in tax during the year than they did the year before, but this year they have an amount owing where last year they had a refund.

“Money represents things to people, and those things help with your happiness factor,” Schacter says. “Money doesn’t equal happiness, but it’s connected to your anxiety and your happiness. So if someone is freaked out by a tax bill owing and it supersedes all the benefits of not giving the CRA the money during the year, then they’re missing the point.”

In certain cases, when the emotional relationship with that tax refund takes precedence, Schacter says that advisors may need to focus more on managing that client’s emotions. That might mean allowing them to make the poor financial decision of overpaying on their taxes — provided the outcome is not too detrimental — so they can feel good.

Nevertheless, Schacter tries to train his clients to think differently about their tax bills and refunds. He works to maintain tax efficiency in their investment accounts and remind them that better financial habits throughout the year can help ensure they aren’t loaning the CRA thousands of dollars at no interest.

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