Can't prepare accurate return for deadline...

[equinecpa]

I have a self-employed 1040 customer whose income taxes I've been doing for a couple of years. They brought me their bank statements and receipts, but didn't bring me any income information. I finally received a figure from them for income a couple of weeks ago.

My problem is that by using their totals for expenses and income information, the return shows they made about $200,000 from a business that normally only broke even. Their bank statements only show a few personal draws and the balance hasn't increased over the year so I'm sure they've missed some expenses in tallying up their receipts.

Our problem is they are out of town, and won't be back until Monday. I don't have time to do the whole year of data entry from their bank statements by the deadline and thus we have no idea what they actually made.

I don't want them to get stuck with a frivolous return penalty. Is it better to not file a return on Monday and wait until we've recalculated income or should we do a best estimate, of income estimating high and then reducing later if income is actually less?

What would you do?

Thanks

Carolyn

[JohnH]

Have you compared total bank deposits to the income figure they gave you? That might highlight if the total receipts figure they gave you is abnormally high (although cash received and not deposited could also help explain it.)

You could also look over the checks & debits on the bank statement and verify any large amounts. Loan payments, for example, would help explain cash outflows which are not expenses. So would capital equipment purchases.

If you know the history and are fairly sure they are honest with their numbers, you could compare this year's gross receipts and line-by-line expenses to prior years in order to focus in on expenses which are abnormally low this year. This might even give you a way to pull a reasonable estimate.

Finally, you could leave a message on their voice mail which might get them working on it first thing Monday morning after they get back. Something like, "Hi folks. Right now our figures are showing you with $200K in profit and about $48K in taxes due. Call me if you get time and we can talk about it. By the way, the return is due today."

[veritas]

Guaranteed

Finally, you could leave a message on their voice mail which might get them working on it first thing Monday morning after they get back. Something like, "Hi folks. Right now our figures are showing you with $200K in profit and about $48K in taxes due. Call me if you get time and we can talk about it. By the way, the return is due today."

motivator!

[Uncle Sam]

Can't Prepare Accurate Return

I would wait until they return, and finish and have them file after the deadline.

I have a similar situation.

A Schedule C client - who I get a lot of business from his other business entities - has
made numerous out of town and out of country trips this year, and only gave me his
Schedule C information last week - KNOWING he'd be out of town by the deadline.
All the stuff of his other entities that I work on throughout the year - he had (and I had
a completed copy for tax preparation) late January-early February.

He is located in the Hurricane Irene storm area where there's a 2 week extension - but
he won't even be back in time for that.

You can't help these last minute procrastinators after you keep in touch with them for
months to get the stuff to you before the filing deadline.

Why should you struggle to protect him when he didn't make an effort to assist you?

[equinecpa]

I have verified their income to deposits, so I know the revenue is at least close. Its the expenses that are out to lunch. Their bank balance decreased over the year, and I only see what would be about 30K in draws/capital pmts, everything else is small stuff.

I have already talked to them and they are going to do their best to figure it out but I'm not sure if it can be done in a day. I'm just trying to decide file and amend or just file a few days late...I don't want them to have to pay large penalties if for some reason they do end up owing a lot, but on the other hand I'm not sure what to enter on the return!

[JohnH]

Well, another way to look at it, and agreeing with Uncle Sam

Let's say you think they realistically are going to owe $2,000 at the most - their FTF penalty for one month will be $100. Scale it up or down as needed. All other marginal costs (FTP penalty, interest, etc) are relatively minor - probably around 1%. ( It isn't as though they are going to get hit with 25% right off the bat)

If they get their act together within a couple of weeks, the 5% - 6% is all it will cost them to file late. It might be worth that much to get it right, especially if you're pretty sure they won't show a huge profit after they actually do their homework which should have already been done.

I think your getting a good night's sleep is worth more than $100, so you probably shouldn't worry about it - apparently they aren't all that concerned.

[FEDUKE404]

Another viewpoint

While everyone is free to choose their own approach to late clients and how to charge accordingly, here is my own perspective:

If a client does not get information (especially for a complicated return with incomplete records) to me until early October, I frankly don't get bent out of shape trying to create a miracle by the filing deadline.

The return will be prepared and finalized whenever the client does get me the necessary information. I am not a miracle worker, and any resulting penalties and/or interest should rightfully fall squarely upon the client.

I also take a similar approach for April 15th. Don't come to me the first week in April and have a realistic expectation of getting an accurate and complete return finalized by the traditional deadline.

The only difference is that April has an escape clause, and for October the clock strikes midnight.

BTW: Clients who conveniently make themselves unavailable during crunch time gather even less concern on my part for going the extra mile!

Besides that, I might have already planned a weekend football trip and/or an outing to see the fall colors.....

Just my 2¢ worth.

FE

[taxea]

if they owe that should have been paid back in April. I would prepare the return with the info they provided. That is what was given to you as accurate. If it isn't and they have to pay for an amended return maybe they will be more responsible in the future.

I am way past letting my clients irresponsibility become my own. \

On the other hand,,.,technically you can't file the return until they sign it so there is going to be a penalty any way you look at it and that is on them not youi.

[Jiggers]

I have the following sign over my interview desk for all clients to see:

"Bad planning on your part does not create an emergency on my part!"

Clients that can't get the information needed by certain due dates or constantly put off until tomorrow something they should have gotten to me weeks ago doesn't fly in my office.

I am still waiting for information from two clients. They may or may not show up Monday morning with the information. Neither will get their return e-filed, though they have been warned in the past about mandatory e-filing and telling them that I must have their information. They will get a paper return probably Tuesday or Wednesday at the earliest, maybe not even then. They will be mad that I won't see them today or tomorrow, Sunday, nor work on their returns then. But they will always come back next year, even though I try to get rid of them by increasing their fees considerably. Due to the complexity of their return, both will have fees in excess of $1,500 each.

[DaveO]

I took a little vacation to attend the Indy car race in Las Vegas last weekend. Sadly, that didn't turn out too well. I had called all my late filers to warn them I would be out of town and most got their stuff in. One had an appt with me Friday morning. I told him don't be late as I'm leaving at noon. He called at 4:30 and our office manager told him I was gone. He actually expected her to give him my cell phone, to what end I have no idea. It seems the harder we work for some of them the more they expect and the less considerate of our time they become. I'm going to cut them a lot less slack in the future.

[JohnH]

I'm sure he wanted your cell phone number so he could call to apologize for not getting his info to you sooner, to assure you that he understood his procrastination was the cause of this predicament, and that he expected you to charge him extra for the additional hassle after you get a chance to return to the task of finishing his work.

What other reason could it possibly have been?

[ChEAr$]

Besides that, I might have already planned a weekend football trip and/or an outing to see the fall colors.....

Just my 2¢ worth.

FE

Give yourself a little more credit now. What was 2 cents worth in about 1940 is now worth all of 27 cents.!

As I can attest from this time last year the colors near Ashville up on the parkway and in the Smokies are outSTANDING!

[ChEAr$]

There is a scene in the movie Fried Green Tomatoes. Two young girls have pulled into a parking space while Fannie Flagg has waited to back into the place. She asks the driver "why did you do that?" "Because with this small car I can. (something like that; I forget exactly.)
So Fannie Flagg backs her car into the teenager's car smashing the sides of it to smithereens. That driver can't believe it! "Why did you do that?"
Fannie replies "because I'm rich, overinsured, and I can."

Apologies to the screenwriter cause I know I got the lines wrong but that's the gist of it.

Oh.. the point.

April 15rh and I'm done. I book no extensions. Why? Because I'm rich and I can afford to do it that way.

However I must say this year I had one cause the fellow in Iraq was waiting to satisfy his 330 day residence rule.

Exception proves the rule?

[joanmcq]

The line is: Hey I was waiting for that space!
Girls: Face it lady, we're younger and faster!
Kathy Bates character rams her car again and again into the VW bug while the girls look on in shock
Girls: WTF!
Kathy: Face it, I'm older and have more insurance.

[taxxcpa]

Late filing

Getting back to the original question. How can you do anything except wait? They have to sign the Form 8879 before you e-file it. They have to sign the Form 1040 if it is paper-filed.

Without a signature, you have no choice other than to wait for them to return. Then they can let you know what they want to do.