Growing up in Michigan, the annual camping trip to “The Lake” is a rite of passage. There are other things that were annual traditions while on this camping trip in our family; things like leaving at least ½ of the tent poles at home, setting up and/or taking down camp in the rain, and playing games as a family. These games were usually accompanied by a dissertation by my Dad to distract himself from how badly he was losing. The most common dissertation was entitled “The Psychology of Rummy” and was typically met by groaning and eye rolling. As the game continued, Dad would expound upon the reasons for a terrible discard and how it really was the smartest move he could possibly have made. The commentary would continue throughout the game and become increasingly ridiculous as the evenings wore on.
Just as Dad taught me that there is a “psychology” to gin rummy, I have learned that there is also a “psychology” to taxes. As we approach another tax filing season in which we all must face our own thoughts and opinions on taxes, let’s prepare by understanding some of the different mindsets for paying taxes and tax planning. How better to prepare for taxes than getting our heads in the game?
We enjoy meeting with our clients and talking with them regarding their mindset on paying taxes. These discussions have revealed a range of ideas and positions. We have heard everything! From “it is a good problem to have” after telling a client they owe a significant amount of money, to “there has to be a way to not pay the government anything” when presented with a small balance due. However, these are the extremes. Most taxpayers fall into a middle range; somewhere between being resigned to a necessary evil and looking at a puzzle to be solved.
No matter which category you fall into, there are things that you can do to apply your specific mindset to your tax situation.
Let’s talk about the two most common mindsets. First, there are those who approach taxes as a necessary evil. These are the clients who drop off their documents and wait for the results and “it is what it is.” For these types of taxpayers, I would challenge you to sit down with your tax preparer and talk about what you have going on in your life and what options you have not taken advantage of that might be available to you for limiting your tax exposure. Believe it or not, tax preparers are not clairvoyant. They do not know what tax savings could be left on the table until you communicate with them.
The other major group are the opposite, they LOVE to communicate with their tax preparer, and the guy at the bar, and their friend who did things a different way. I have to say, these are my favorite clients. They are creative and open to any and all options for tax savings that may be available to them. Within this category, we find that people tend to sway between being aggressive in their deductions, “how likely am I to be audited”, and a more conservative “I don’t want to get in any trouble.” If you fall into this category, keep on keeping on. Keep asking questions, keep seeking information, and understand that a tax preparer’s job is to ethically apply the tax code to each client to ensure the efficient and accurate collection of tax. So don’t shoot the messenger if we have a different suggestion that your friends.
Our “Psychology of Taxes” falls into the puzzle solving category. We strive to look at each client’s situation individually to ensure that we have all the pieces, but we can’t do that without you!
My Free Advice this Friday: Share your mindset about taxes with us! That information is a powerful tool that we can use to help manage your tax situation.
Check back next week to talk filing options.