How do you price or do you price extensions?

[AZ-Tax]

In my first couple years of the business, I was givng away FREE e-filed extensions not only to repeat clients but new clients only to find out 50% of the new clients never came in to get their taxes prepared by me. Live and learn. Today, repeat clients are still free and since the only ads I run is in 2 church parish bulletins each 5 miles from me in opposited directons, I offer all parishioners of both churches free e-filed extenstions. I charge anyone else $25 and I credit that $25 towards their tax preparation fees.

I am curious on your extension policy

[Koss]

Pay the client?

It has been suggested that in some cases it might actually make sense to offer a small discount on the fee for doing the return if the client will agree to an extension.

I would rather do that than lose the client to someone who isn't as busy.

But if you're ready to do the return, and the client isn't, that's obviously a different story.

I think what you're going to find is that for those of us in private practice, most do not charge for an extension, or that it hinges entirely on why the client needs an extension.

If the client is simply procrastinating, or taking way too much time to produce data that you requested a long time ago, and/or the extension itself involves some real work in terms of calculating estimated tax liability in order to avoid significant penalties and interest, and you want to modify the client's behavior or fire the client, then I can see where it makes sense to charge for an extension.

When it's beyond the client's control, or it's someone that just always shows up on April 9, every year, with a really complicated return, and they know and you know that they will need an extension...

Hey, I think it's better for us. It allows us to spread out the work beyond the traditional boundaries of the "filing season." In theory, it should allow you to do more returns.

BMK

[geekgirldany]

I don't charge for extensions on current clients. But then again I had a few of them not come back me last year. New clients I will charge them $25 before e-filing.

[erchess]

My Extensions

I agree with you that I don't want to do extensions for anyone who is not going to have me do their return.

In my mind, in my area, $25 would be about right for someone who didn't mind doing lots of them for self preparers. And I don't know about you but I have talked to people who in their minds are capable of doing their own returns but have no idea how to file for an extension. Since I don't want to do extensions for people who are not going to be my clients I charge $100 for the extension for a new client but it is good toward the eventual cost of the return. I have stopped charging existing clients that fee.

I am slow again. When I began to write neither Koss nor Dany had posted. I think Dany found out the cost of doing them free when it is for the client's convenience. I think Koss makes an excellent point - it does very much matter why the extension is even thought about. On the other hand I'm not totally in agreement with my friend. If the problem is that I am busy and I did not have an announced drop dead date (If your last info reaches me after this date you go on extension or go elsewhere) that has passed, then it might make sense to ask the willing to trade a fee reduction for going on extension and being my top priority after the original deadline. If the problem is that the client has not been given necessary information, I still have the concern that they may go elsewhere for the return. In my mind either their being a prior client or their plunking down a c note good toward the return price reduces that concern to a manageable level. As for the client who is always late, he's going extension without a fee but also without apology if I find that most convenient.

[JohnH]

I don't charge for extensions because I see them as income-producing, since they enable me to prepare more returns than I would normally prepare without them. However, I seldom have a situation where someone wants me to file an extension and then they go somewhere else. Maybe that's because I won't file the extension without having their info in hand - the estimate of tax due on the extension needs to be "reasonable", and at the very least the withholding figure needs to be correct.

If they just want an extension without furnishing me their documentation or without making any commitment, I'll just offer to email or snail mail them the link to the extension forms because I don't want to be associated with a potentially invalid extension.

But I can see how it would be possible to get extension requests and then see the clients go somewhere else using a different operating method. In that case, I think the wise policy would be to charge for the extension and apply the charge to the prep fee.

[erchess]

invalid extension?

I thought the IRS had announced that it would no longer bother people over estimates of what they would owe or over payments with the extension?

[JohnH]

Under the "General Instructions" on the Form 4868, here is what it says:

Qualifying for the Extension
To get the extra time you must:
1. Properly estimate your 2010 tax liability using the information available to you,
2. Enter your total tax liability on line 4 of Form 4868, and
3. File Form 4868 by the regular due date of your return.

Here's the link if you want to verify my cut & paste: http://www.irs.gov/pub/irs-pdf/f4868.pdf

The operative words are in #1 above - "properly estimate your 2010 tax liablity". This means that the IRS can retroactively deny the extension if it was not filed with a proper estimate of the tax liabilty. I've only seen an extension retroactively denied once, and that was in an audit - may years ago. The taxpayer had filed his own extension showing zero tax liability, zero tax withheld, and zero tax due. He was a real estate agent and he owed several thousand dollars when the return was finally filed. He was audited for other reasons, but when the RAR came back, the auditor assessed a late filing penalty because the taxpayer "failed to properly estimate his tax liablity on the 4868".

After having seen that, I've always taken the view that a proper estimate is an important part of the extension process. It makes no difference how much is paid with the extension (it doesn't even have to be accompanied by any payment at all to be valid), but the entry on Line 4 needs to bear some resemblance to reality. When there is doubt, I always estimate high because there's no downside to doing so. And based on my experience with that audit, I think that's the best thing to do whenever preparing a 4868. I also follow the same logic for "Total Payments" on line 5 - that figure is almost always knowable when the 4868 is being prepared (unless there are lost w-2 forms, 1099-R's, or some other strange phenomenon)

[Jiggers]

$50 for all extensions. Not so much for the time it takes to do it, but for the hastle in getting the information in to calculate it, then getting a check from them to send to the IRS, then getting the rest of their information after April 15th.

Add to that the following if the return is not done by 6/30:

$10, total $60, for the return if done in July or August.

$50, total $100, for the return if done in September or October.

[kpangelinan]

No charge here...

I've never charged for extensions especially since I efile all of mine.