Why People Delay Tax Planning | Wes Patton Mission Wealth

[music] >> Hello, my name is West Patton and I’m a partner and senior wealth advisor here at Mission Wealth. Today, I’ll briefly discuss four behavioral biases that can prevent people from minimizing their annual taxes and describe how financial planners can help to address them. First off is the planning fallacy. People tend to underestimate how long tasks will take including end-of-year tax planning. Because of this, important actions like making retirement contributions, planning charitable donations, or managing capital gains often get delayed until it’s too late. One helpful solution is by using implementation intentions, which are simple if-then plans. For example, if it’s October 1st, then I will schedule a meeting with my tax advisor. Research shows that these accountability measures significantly increase follow-through and thus real-life financial outcomes. Planners can support their clients by scheduling tax planning meetings at a set cadence every year and by automating certain things like document collection or contribution monitoring. The second bias is the present bias, which is our tendency to prioritize spending today over future benefits. Because of this, people will often underfund tax-advantaged accounts like IRAs, HSAs, even though they can provide very valuable tax planning opportunities. One way to address this is through pre-commitment such as automatic payroll deductions or systematic contributions. When savings happen automatically, people are much more likely to stay consistent and properly capture the tax benefits. Third is the status quo bias, which relates to people’s natural inertia. People will tend to stick with existing choices even when their financial situation changes. For example, someone might keep the same amount of tax withholding year after year despite income changes, a new job, or other life events. This can lead to missed tax savings opportunities or even penalties. Planners can help by making annual tax reviews the new default and encouraging clients to reassess their tax strategy each and every year, even if it feels like not much has changed. Lastly, there’s ambiguity of version or as I like to call it analysis paralysis. Tax decisions like choosing Roth contributions versus non-Roth contributions can be very complex. And when people feel overwhelmed, they often avoid making a decision at all. Advisors can help by simplifying choices, focusing on the most impactful strategies, and breaking down more complex decisions into more manageable, smaller steps. Overall, behavioral biases play a major role in tax planning decisions. By using behavioral coaching, automation, or simplified decision-making frameworks, financial planners can help their clients overcome these biases and make more effective tax planning decisions. And of course, if you have any questions about the considerations outlined in this video today, feel free to ask your wealth advisor here at Mission Wealth. Thank you.