RTS #065 The same “outcome” does not equal the same experience
Two clients get their tax return for the year and each owes $10,000 to the IRS, one is elated and one is devastated, why the difference?
A simple answer could be that the first had a total tax bill of $1,000,000 throughout the year, so $10,000 doesn’t feel too bad, and the second only owed $15,000 for the whole year, so the $10,000 was life-altering. Anyone would understandably be irate at the second scenario, but as we work alongside taxpayers and their advisors, that is not what we most commonly see. In almost every case, how a client feels at tax time is completely dependent on reality vs. expectations. When the tax bill comes as a surprise, the client is going to be mad EVERY time.
Making the situation worse is that it is highly unlikely the CPA preparing the return is going to call you before they break the news to their client to see if there is other context they should have (unless, of course, you’re an RTS Premiere member, and then you will definitely get that call). Much more likely is that you are going to be thrown right under the bus:
“You would have been fine, but it looks like your advisor made you do a Roth conversion.”
“It probably would have been okay, but your investment income screwed everything up.”
When we know a client is going to have a large tax bill do we make sure we understand WHY there is a balance due, we get context from the advisor they are working with and we make sure there is a plan for preventing the same issue from happening in the future. But as far as we can tell that is not the industry norm, so what can you do about it?
First step is making sure you understand the tax implications of what you are helping your clients do (you’re probably already above average in this area just being an RTS subscriber) and the level up from there is proactively communicating with clients to set expectations of what the planning you do with them throughout the year will look like at tax time. Rockstar level is doing all of that and sending a year-end tax letter (1099 letter) to recap the work you’ve done and set them up for success when it comes to their tax filing.
A great bonus would be helping them calculate and even set aside the taxes that are a result of the planning that you do. If we could wave a magic wand, you wouldn’t be allowed to execute a Roth conversion without submitting a plan for how the taxes are getting paid…but alas, Congress isn’t returning our calls either. 😉
Every money decision has a tax impact; help your clients have a better tax experience by setting and reinforcing clear expectations.
Happy Tax Planning!
