The Advisor Institute: Coach's Corner
Tax bills taking clients by surprise?

Practical messages intended to help you elevate the success of your practice.

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      By David GordonDirector, Eaton Vance Advisor Institute

      We have never met a client who feels "undertaxed" and we bet that neither have you. This year's pandemic-related tax filing extension may only delay a nasty surprise for clients with multiple income sources. Even carefully calculated withholding amounts can be insufficient if clients receive supplemental wage income, investment income or other payments during the year.

      This year's tax extension provides an opportunity for you to ask clients whether their tax bill took them by surprise. Consider asking a few questions:

      • Do you owe more than you have already paid? (This could mean clients are paying penalties and interest as well.)
      • Are you getting a large and unexpected refund?
      • Would you like to avoid a tax surprise next year?

      Help clients take charge

      It's important to diagnose the cause of an unpleasant tax surprise quickly — while it's top of mind for clients — and initiate corrective action. This may be the last thing clients want to do, but addressing tax problems quickly makes a satisfying outcome more likely. Here are some suggested actions:

      • Involve your clients' accountants in preventing a recurrence of tax surprises
      • Discuss quarterly estimated tax payments with their accountants to correct underpayment of taxes (and potential resulting penalties)
      • Review withholding elections to determine if withholding an additional dollar amount from each paycheck would close any underpayment gap
      • Help clients who receive large refunds year after year understand that they are making interest-free loans to the government — they may want to consider reducing their withholding
      • Determine if the tax surprise was the result of an isolated event, such as a large exercise of incentive stock options

      Bottom line: The After-Tax Advisor helps clients avoid a repeat of the same tax experience surprise.

      tax forward