How Far Will Clients Go To Avoid Taxes, by Sue Bergin

When we don’t like something, it’s human nature to go out of our way to avoid it.  This seemingly innate behavior applies to our financial lives as much as it does in other aspects of our existence.

When it comes to taxes, many people will go to great lengths to avoid payment.

On an ordinary day, many Americans travel far and wide, sometimes crossing state lines, to avoid paying taxes on items like clothing or gasoline.  For other purchases, consumers will wait for just the right time, like when a store has a sale or the unofficial sales tax-free weekend holiday—an event that prompts impulse purchases and creates a mini economic boom that rivals Black Friday in the 17 states that observe tax holidays.

As counterintuitive as it may seem, consumers seem fine with spending more than intended as long as they aren’t paying the government.

According to a recent study, 29% more Americans said they’d travel 30 minutes to save 8% on a tax-free item than the amount who would travel the same distance for an ordinary 9% discount.[1]

The study goes on to say that four times as many Americans would rather invest in a bond that offered a $120 annual tax-free return than a bond that offered $160 but required a $40 tax.

The payment of taxes is one of those instances where emotion and psychology influence investing decisions.  As the study authors point out, taxes are often perceived as representing a loss of personal financial freedom, expenditures without a fair return, or funds wasted by inefficient politicians.

Whenever you can remove the emotion from the equation and help your clients focus solely on the facts, you can guide your clients toward better financial decision-making.

[1] Axe the Tax: Taxes Are Disliked More than Equivalent Costs Abigail B. Sussman and Christopher Y. Olivola, 2011

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