Helping Your Clients Pay Their Tax Bill

The most important aspect of the CPA’s interaction with clients is education. You know tax law, they don’t, and for that reason, your clients may not know what information you require or how to avoid larger tax bills and penalties. Your number one responsibility is to educate them, so they give you the information you need when you need it in order to provide them with the very best service.

 Estimating tax bills for business clients

If your client has an established business, he or she probably already knows that the IRS expects quarterly payments of estimated income tax, as well as self-employment taxes if they are a sole-proprietor, contractor, or partnership. Those new to business, however, may not be aware of this. Communicate to them the penalties that the IRS could impose if they do not pay quarterly estimates. Paying quarterly also decreases the tax burden at the end of the year, making April 15 a little less intimidating. 

Helping clients prepare for tax day

Whether your tax client is business or personal, no one wants to be hit really hard with a heavy tax burden. Help your clients properly estimate their income and work with them throughout the year to find deductions to further decrease their tax bills. By offering this kind of guidance, you will become a trusted advisor who helps them make wise tax decisions that could significantly impact their wealth. 

Employed clients have the option of choosing how much they want to be withheld from their paychecks for taxes. Talk to your clients about strategy: would they rather pay as they go and have a very small tax bill or a refund, or would they rather hold onto their money until they file? Some clients may prefer that they, not the federal government, earn the interest on that money. 

If clients choose to withhold less than you think they will likely owe, instruct them to keep that money, untouched, in a separate account so it’s ready to pay when it’s time to file. 

What to do if they can’t pay

Hopefully, the clients you’ve had throughout most of the year will be ready to pay their tax bills when it’s time to file. However, you may get a new client who simply doesn’t have enough cash to pay his or her taxes. Communicate to your new client the importance of filing on time and paying as much as possible, in order to avoid penalties and keep interest payments to a minimum.

Many people who don’t have the money choose to simply not file. However, this is a serious mistake, and it’s important that you educate them on this fact. The penalty for not filing is TEN TIMES greater than the penalty for not paying: 5% of their taxes vs. 0.5% per month! This is a frightening number that can often help clients realize the critical importance of filing taxes or an extension on time. Even when filing an extension, they need to try to pay something on their taxes. 

If you have time before April 15, help your client brainstorm ways to make money between now and then – sell things online, like on eBay or Craig’s List? Do some side work? Sell an unused vehicle? A business client might consider a short-term loan if the business is expecting a large financial payment shortly after taxes are due.

If necessary, you can help your client negotiate with the IRS. When a taxpayer shows good faith, the IRS is often willing to create a reasonable payment plan and in some cases, wave penalties. In extreme cases, the IRS could temporarily delay collection or offer a compromise. 

Education and communication secure committed clients

You are the champion for your clients, the expert who guides them through their tax preparation and guards them against the somewhat frightening IRS. By advising and educating your clients and showing them ways to save money, you will secure your clients for the long term and increase your word-of-mouth referrals, which produce the best and most loyal customers.