Main Street Practitioner Blog

As a tax preparer, sometimes you have to break the news to tax clients that they owe a large amount on their tax returns. Sometimes, they have no idea that this was coming and have not prepared for a large tax bill.  

NSA members weigh in on how to break the news gently and tips learned from trial and error and years of experience:

• Anticipate it. One of the things I do on every return is to compare it with last years. If I can't explain it to myself, I won't be able to explain it to the client.
  
  
• Compare the return to last year.  We need to remember not everyone is a numbers person.  A visual comparison may be easier for the client to understand.

• When clients have a large unexpected tax bill, it is important to explain the differences in prior returns to explain why the change. They may think you made a mistake. Frequently a large distribution makes previously untaxed social security taxable etc. So look at the differences and be ready. Remember, it is not your fault they owe tax. Remind them to contact you during the year, when they have changes to call you and plan ahead.

• When I am talking with my clients I make it a point to go over their prior years return and check it with the information that I giving me in the current year. Unless they have failed to give you something that would affect the current year you can usually be able to tell them if they are looking at a large payment due. I have been doing it this way for years and haven't "surprised" anyone. If they are a new client they should bring with them a copy of the prior year’s return.

• Depending on the client, sometimes I may use an "early warning system".  For example, I may phone with a question or clarification, then add "I'm not sure what you were expecting, but it’s looking like you may have a sizeable tax liability this year.  I have a few more items to work with and then I need to check everything carefully..."  Anyway, this provides at least a heads up for the client and some indication to me what their expectation is.

• As part of my interview with every client, I ask if their tax situation will remain the same for next year.  And I do encourage off-season contact for planning should something change.

• The comparison sheet from Drake is the second page of the clients tax return for my clients.  If they have a major change from the prior year I highlight the changes, put the sheet before the bill and go over every item with the client.  These comparison sheets have saved a lot of explaining over the years.  I find that most clients know, or have some idea, when they are going to have a large tax bill. 

• Over the years I have a little speech I give to all my clients, and it goes something like this.  No matter what you do in life, it may affect your tax return - if you get married, get a divorce, someone dies, you inherit property, IRAs etc, you refinance your house, you leave a job, take out a 401K distribution, have a child, buy a house, sell a house, sell other property such as a rental etc etc.  BEFORE you do anything, please call your Tax Professional because once you come in the following year to have your taxes done, it will be too late.

• Have tissues ready and options to pay the IRS. Remember, it is not your fault they owe tax. Remind them to contact you during the year, when they have changes to call you and plan ahead.

#ClientCommunication #practicetransition