My turn to vent

[JG EA]

Every year in late March the owing starts. And every year I feel the need to complain.

A few clients owed more this year than last. They want to know why. I explain - different things for different situations, but most are one of these:

We did your estimates just to avoid penalties, not to prepay your 2010 tax liability completely.

You had less withheld.

You made more money and your social security was also taxed at a higher rate.

Mind you we discussed in advance these things last year.

After I am done - yes but why do I owe?

I got someone new who got a refund in 2009 but now owes $500 in 2010. Interestingly their withholding is over $500 less. They want to know why - I explain - "But I got a refund the last three years."

This one is the one that really is upsetting me. A long time client, who has previously appreciated my service wants to know why his refund is less this year than last year. You made more money. But isn't there something that should have been done differently? How much did I save on the money I spent on - he names something on his taxes - I tell him how much - that isn't enough - there must be something to be done - it doesn't pay to be honest.

The reason for this last one is I think is the great number of people (all the tax gurus he runs into every day, barbers, carpenters, plumbers) who say to him if he did things really cleverly he wouldn't have to pay so much in taxes. I can tell he is dissatisfied. So I am going to do like the other poster and cut him loose.

As others have said there are people who really appreciate what I do and I don't have the time or inclination anymore to try and appease unhappy clients.

[Jiggers]

I lose more clients when the wife decides she wants a raise and gives herself one by changing her exemptions on her W-4 and when tax time rolls around and they owe because of it, she blows a gasket that it is my fault and that she didn't do anything like that.

I show her, in front of her fuming husband, the differences between this year's W-2 and last year's and that is the last time I see them.

They go elsewhere.

[BHoffman]

JG - I'm running into this too. Young couple who walked away from their house. No itemizing for 2010 and their income increased by a lot. Their income did away with some tax credits. Stunned. I must have made a mistake! Nope.

They cooled off eventually. They all usually do.

I'm seeing a lot of returns where they owe Fed because of the change in the tax tables and income is too high to allow the Making Work Pay credit. Lots of clients unhappy because their Energy Star HVAC was paid for by insurance proceeds and they were TOLD by the salesman that they were eligible for the tax credit. Everybody is looking for that Uncle Sam freebie. It's disgusting and I'm tired of it, too.

[Rae]

ditto ditto ditto.... it's been quite the tax season... so many people have strange scenarios.... AND the wonderful 'in thing', Roth conversions!!!

[Bonnie]

My Tax Slayer Pro software prints out a 3 year comparison that makes explaining all of this much easier to the customer. I can go over it with them and pretty much show them the differences and it helps them to understand. As far as I can tell they do seem to get it once they are shown the comparison. At least they tell me they do.

[Black Bart]

Deja vu too

Upper middle guys ($80-$120K and up) are the worst. After four or five consecutive years owing $1,500 to $5,000 around this time of year, they -- invariably -- stop, look across the desk, puzzled, almost pleading and say "...but, isn't there something I can do; something I'm not doing to keep from paying out like this? I have friends that get refunds...I hear stories about people getting $5-6-7K refunds...."

I haven't found a cure for it, because they don't like to hear:

"You're upper-middle people; you make too much money, your kids are gone taking the only decent credits (CTC & tuition) you had with them, somebody has to pay for this EIC money Uncle Sam's having us shovel out the door in ungodly amounts, you're in a high-salaried, tax-PAYING bracket and you're not withholding enough. None of the low-bracket Schedule C dodges are available to you."

None of that cuts any ice. They're curiously curious about why this keeps happening to them. The feeling is (as privileged class members are apt to feel) that, basically, they don't think they should have to pay taxes. And their unstated feeling/question is this: "We've got everything else covered; why can't we crack this particular nut? Maybe this guy doesn't know what he's doing and I should see a financial consultant at the brokerage."

I sometimes recommend rent houses to manufacture a loss, but they generally aren't interested in getting their hands dirty.

[Gary2]

Lots of clients unhappy because their Energy Star HVAC was paid for by insurance proceeds and they were TOLD by the salesman that they were eligible for the tax credit.

Now my memories are getting jumbled. I vaguely recall seeing where you couldn't claim the credit based on insurance reimbursement, but now I can't find it.

But my reasoning then and now, assuming we're talking about hazard insurance, it's that it's effectively taxable income and hence you can still claim the credit. We tend not to think of it as taxable, because it's usually applied against the casualty loss, but if insurance proceeds exceed the original basis (as it might with replacement-value insurance), there's a taxable gain.

[ChEAr$]

I lose more clients when the wife decides she wants a raise and gives herself one by changing her exemptions on her W-4 and when tax time rolls around and they owe because of it, she blows a gasket that it is my fault and that she didn't do anything like that.

I show her, in front of her fuming husband, the differences between this year's W-2 and last year's and that is the last time I see them.

They go elsewhere.

Ah, an all familiar situation. Husbands claims S - 0 plus some to be on the safe side, big refunds every year, so wife decides to change to M - 4. In cases where both are sitting in front of me for the interview (discourage "drop offs" since I can't look them in the eyes)
I always point out the disparity in withholding, esp when it this year they owe. Immediately I turn to the keyboard and print out on the spot a new W4 form and give it to wife, showing her where to sign before she turns it in to payroll department.

Of course I don't know till the next year whether she actually did..

[ChEAr$]

ditto ditto ditto.... it's been quite the tax season... so many people have strange scenarios.... AND the wonderful 'in thing', Roth conversions!!!

And that's another thing, Roth conversions. People get the idea that this idea is a panacea, and for higher income people it's a good strategy. But it doesn't fit all people.
Take a couple in the 15% bracket and who probably will be in that bracket until they retire, and even then maybe be in the 10 or even zero bracket, it makes more sense to keep contributing pre tax dollars and saving taxes now, esp if they can get help from Uncle in the form of the RIC. Chances are they will be lower than fiing requirement when they retire and a large ROTH will have availed them nothing.

Each case is different. Your mileage may vary.

[ChEAr$]

Bart, simply turn to your keyboard and print out new W4 forms for each of the couple claiming S-0 plus $17 per week, and illustrate how this will guarantee a refund next year provided nothing changes.

[Black Bart]

Good thinkin'/strategy, Harlan

Bart, simply turn to your keyboard and print out new W4 forms for each of the couple claiming S-0 plus $17 per week, and illustrate how this will guarantee a refund next year provided nothing changes.

however, my guys don't want to do sump'n like that -- what they want is a rabbit pulled out of a hat (at no cost, of course) to make taxes vanish.

Here's an example: Five years ago I was doing returns for the CEO of our town's leading bank; then retiring and (nicely) recommending me to successor CEO-2.

All was well at first; I did CEO-2 $200 cheaper than last tax prepper, withholding was right, and while he had some serious side-biz things goin', he made sufficient estimates.

Year Two: All same except...he makes no estimates. Tax due at filing-$10K + pen/int. Asks: "Why?" Reply: "Ahem...well, see; you didn't make your estimated tax payments...."

Response: "Well, still, I just don't understand owing this much tax (and this guy's the Grand Poobah of high finance hereabouts); I know other bankers in similar situations who get refunds..." blah, blah, blah.

Haven't seen him since. And so it goes...

[myerstaxes]

I have a new client this year who just exploded when I told him he owes over $5K...Mind you last year he came to me for a consult about receiving his deceased Mother's IRA's and I told him how to roll it over and what he needs to withdraw...He decided to take the LUMP sums from each of the three, AND he got $25K in unemployment without ANY withholding...This client went quickly from a 10% tax bracket to a 25% tax bracket and blames me for doing something wrong...Afterall he said, his sister got the same distributions and got a refund...UGH!!! I spent the evening going back and forth with him on email and next year...There WILL be NO next year for him...Adios!!

[myerstaxes]

My Tax Slayer Pro software prints out a 3 year comparison that makes explaining all of this much easier to the customer. I can go over it with them and pretty much show them the differences and it helps them to understand. As far as I can tell they do seem to get it once they are shown the comparison. At least they tell me they do.

Yes that works for repeat clients my Drake software does the same...But the new yahoo who comes in does not get it, even if you show him his last years' return (which I require at the interview), they still feel like you did something wrong...
New client today has a brand new job that is going to pay him upwards of $160K and wife works too...That will put them solidly in the $200K range...So he asks, (knowing he is in for a big tax increase) what about I rent out my house and buy a new one, aren't there some losses I can claim? I walk him through the PALs law and then he says I intend to rent to my daughter...Slapping my head, we then go through the related parties law...UGH, is the tax season over yet???

[Gary2]

Year Two: All same except...he makes no estimates. Tax due at filing-$10K + pen/int. Asks: "Why?" Reply: "Ahem...well, see; you didn't make your estimated tax payments...."

What did he do with the 1040-ES and envelope that you surely gave him last year along with his tax return?

[JohnH]

Obviously the dog ate them.
Next question is why can't he deduct vet bills for the dog? - it is medical expense, you know.