JohnH

Jack: I remember your having posted something about this a few weeks back. It is a tragic situation, but good to know your daughter is safe now. It's difficult to imagine what you have been through and what bert73 is dealing with as well. As for the interest and penalties, I consider them peanuts and all my clients agree when I explain it to them. I say all my clients agree, because by default anyone who doesn't agree becomes somebody else's client (and somebody else's last-minute headache). Interest is 8% per year and FTP penalty is 1/2 of 1% per month. That's a total of 1.2% per month on the unpaid balance, or 14% APR in total. (I consider the FTP penalty to be no different than interest, since neither is tax deductible). Not advisable to borrow money at these rates on a regular basis, but when the ox is in the ditch you have to react to the reality of the current situation. Now if they want to be SURE they don't pay any penalty & interest, they can vastly overpay the estimate and get a refund when the return is filed. On the other hand, if they want to hold onto the money for a month or so, they'll pay $12 per month per thousand of tax owed. As I said, peanuts in the total scheme of things, especially for someone who already isn't paying much attention to detail. The extension accomplishes avoidance of the 5% per month FTF penalty, which really is the main thing. IRS is very clever by splitting the assessment into penalty and interest. The word "penalty" is loaded with negative meaning, so they spook taxpayers into worrying about it, when in fact it's just additional interest. Tax preparers should not be so readily spooked.

I say #2 is by far the easiest to resolve. Pick a date and say everything that comes in after that date automatically goes on extension. My date is usually Mar 20 (although this year I moved it to Mar 8 for personal reasons). Stick to this rule without exception, no matter how important the client or how urgent THEY think their situation might be. You're the expert and therefore the one who needs to be making that decision, not them. By filing the extensions as soon as the returns come in, you eliminate Apr 15 as a date having any significance. Then as you approach Apr 15, you can double back and work on some of those returns you aleady have on extension and maybe get a few of them out by Apr 15. This frees you up to concentrate on special situations and to handle any true emergencies (as defined by you). It also makes Apr 15 just another work day, rather than some silly mad dash to the finish. Listening to the way some preparers describe Apr 14-15 reminds me of the wacky scenes in the comedy film "It's A Mad Mad World". Unless you enjoy marathons, exhaustion and mistakes, you'll find this a better way to operate. Most clients really are not impressed by a tired, harried, cranky tax preparer telling them how foolish they are to wait until the last minute. They generally resent being reminded of their own lack of attention & preparedness and will appreciate being told this can be handled cooly and professionally. If they don't appreciate your efforts to make up for their procrastinating ways and they choose instead to sit at HRB for a few hours just in order to get SOMETHING cranked out by Apr 15, you don't need them as a client.

Yes when they come in that late they should be grateful for anything we can do. But something in the back of my mind keeps telling me that if I accept the info, then I may be accepting some potential liablity if things go south. So to be safe, I always make sure that any withholding and estimated tax payment info I have in my possession goes on the 4868. I may estimate high when running the "Estimate of Total Liability" amount on line 4, especially when they aren't submitting any payment or submitting a nominal payment, because there's no downside to a high-side estimate. But I do feel better entering the "knowables" on the extension form on line 5, just to avoid potentially running afoul of the instuction to properly estimate the liability "using the information available to you". I'm probably being overcautious about all this, but on average I generally file 40 or so extensions (about 60 this year) so I don't want to get tripped up by a minor oversight.

You can use all zeros on the extension and it will still be valid for filing purposes. Only problem is, if they get audited and the numbers are wildly different, the auditor can retroactively deny the extension - probably would. But if there's no audit, almost anything on the extension form will sail right through. It's a big chance to take and I wouldn't do it except in an extreme emergency, but an extension that is potentially voidable is better than doing nothing.

"Really don't need any more of this crap. sigh. " You're right! We really, really don't need any more of this crap & yelling. Signed, "The Cat"

You mean you didn't meter a few extra envelopes before you went home yesterday? In my experience most of the MIA's generally have refunds, so any of them who do show up probably don't have any problems. The other thing I tell them is that if they owe, the 5% per month clock is now ticking, so they need to minimze the damage by getting their info to me as quickly as possible. Most people with common sense would rather pay 5% than 25%, but then I contradict myself - if they had common sense they wouldn't be showing up after the 15th, would they?

Done here. 61 extensions filed (about 10 - 12 of them just protective), so roughly 50 returns left to do in the coming weeks (and the largest amount of billing yet, since those tend to be the more complicated returns I handle). Looking forward to tomorrow since there will be less interruptions and a more leisurely pace than usual around this office.

Mike: For what it's worth... I paper file but I picked up a new clergy return this year whose prior preparer did efile for 2008. His return showed exactly what you're describing - an entry on line 7 which included the H&U allowance (in this case it was erroneously included on the W-2) and then a negative entry for the H&U allowance on Line 21. The Lined 21 notation simply said "H&U Allowance reported on Line 7 in error". The e-flinging paperwork was included in his copies, so I'm assuming it flew.

Doesn't this happen every year, or is it just my imagination? If I did efile, I think I'd switch to paper the last week just to avoid this type of hassle. Guess I'll have to figure out what to do by next tax season anyhow - personally I'm still hoping for an opt-out form or a small fine I can just add to the client's bill & keep paper filing.

I usually begin filing extensions for anyting coming in around Mar 20, but this year I pushed the date back to Mar 8 because of an illness of an elderly family member who died Mar 24. I have about 40+ extensions filed and two returns (which are already on extension) to finish the morning of Apr 15 just because they're easy and the clients are close by. After lunch, I'll spend part of the afternoon reviewing all my extensions to be sure I didn't miss anyone, and then go out to dinner with my wife & some close frieds to celebrate the end of a very difficult tax season. The nice thing about extensions is I'm not dog tired and still have plenty of work to do in the coming weeks, along with the income those returns represent. Tomorrow's just another normal work day for me, as is Friday the 16th. Thank God for extensions and for clients who don't mind getting them.

Speaking of parrots: A young man's mother was now living in Miami Beach and he didn't get to see her as often as he would like. His father was no longer around and he felt saddened for his mother being lonely. So for his mother’s birthday, he purchased a very rare parrot, trained to speak seven languages. He made arrangements for a courier service to deliver the bird to his dear mother. After a few days he called. "Hey Mom, what do you think of the bird?" "The bird was delicious, I even saved the leftovers to make some stew." "You ATE the parrot? That bird cost me $1,000. It was a rare breed and could even speak seven languages!" "Oh, excuse me. If the bird was so danged smart, why didn't it say something when I put it in the oven?"

Keep in mind that even if it's legal & acceptable in your state, the client needs to know there can be a stiff price to pay in the coming years. Even a small claim can wipe out the account balance (or reserve) and cause the rate he pays on future employees' earnings to skyrocket. I've seen employers go form a .25% rate to 5,6, or 7% rates for several years following a single claim. The effect on large employers isn't as dramatic, but for a small employer it can come back to bite them as a very expensive surprise. Not saying he shouldn't do it, but he needs to know it isn't free money.

I agree with jainen, although I'd still like to see the 2008 law changed just for the benefit of a couple of my clients.

Another reason I've refused to do FTHB credits during tax season. Too many land mines.

I head about this earlier this month and I don't think it's a scam at all. It needs to be treated with the seriousness that it deserves. We need to be on the lookout for this sort of thing and warn others about it. I went out and bought a dozen wallets and have spent over $300 on gas driving between Lowes and Home Depot just in the past 10 days.

Very good Rita. Very, very good. :)

I feel every bit as safe as I did when Jimmy Carter was in office. Now that his second trerm is well under way, it's deja vu for me.

Dear Client: I need the name and phone number for your mechanic and your hairstylist. They both obviously know much more about taxes than I do, since you always take their advice over mine. I want to know where they earned their Economics degree and their tax training because I want to burn my diplomas and enroll at the schools where they matriculated. (And if either of them actually knows the definition of the word "matriculated", I'll prepare your returns free for the next 10 years). Sincerely,

Good point Gene. I do the same thing - haven't filed my personal return before October in over 35 years. And I do tell clients that just like you do. If I were not in the business and got my info to a tax preparer after mid-Mar, I'd probably pass up one who DIDN'T want to file an extension. The last thing I want is a tired, bleary-eyed tax preparer working on my info under deadline pressure. An overworked, harried person is not the one I want doing my return, even if I'm the one procrastinating by getting it to them late in the season. (I also tell client the foregoing).

When IRS began eliminating the signature lines on corp & personal extensions, for me it was confirmation that they are just as pleased with extensions as some of us. I had been telling clients for years that filing an extension doesn't increase your chances of an audit (it may actually decrease them slightly). Now that S-corp penalties are so severe, I file extensions on 1120S returns even if we plan to finish the return by 3/15, just as a precaution. I begin filing extensions on personal returns in mid-to-late Mar (this year I began filing them on Mar 8 due to the illness of a family member). The extension effectively takes Apr 15 off the table and it basically becomes just another day in the week.

My thoughts exactly. Seems he doesn't meet the test of having "paid" the property taxes, but yet if he had paid with a credit card then it would be deductible. If he later defaulted on the credit card he would forgiveness of debt income at that time. (Of course, he'd probably meet the insolvency test and still wouldn't owe tax on the debt forgiveness). Using the credit card analogy he would still have been entitled to the deduction for the property taxes at the time they were paid and the debt forgiveness would be a separate issue - totally unrelated to the deduction. Following the logic, if his rich uncle paid his property taxes then neither of them would be entitled to the deduction. So does the lender stand in the place of the credit card company or his rich uncle? I'm probably over-analyzing this....

I asked because I just saw my first one last week. I filed an extension to give me time to think about it. The client is under the HAMP program, which greatly reduced his monthly payment due to a drastic interest rate cut. The loan was already in trouble and there had been no payments into the escrow account for a long time, but the lender paid the property taxes - I assume to prevent problems with the county. The escrow account showed a negative balance roughly equal to a full year's property taxes and insurance.

What if the escrow account goes negative due to the loan being past due?

It's called the "Deason Rule" if you care to learn more about it. And I think you figured out exactly right - the idea is that clergy work-related expenses have to be adjusted downward according to the ratio of taxable income to non-taxable income. Makes sense when you think about it, as you obviously did.

He's missing a golden marketing opportunity. He should set aside a couple of hours one day and sell 4 cent car washes "So I can pay my taxes". Or maybe 4 cent car washes to the first 20 customers on a couple of days. Customers would line up, everybody would have a good laugh, and he'd get publicity much more valuable than the loss on the car washes. Maybe he should do this on Apr 15.