As a tax professional, efficiently managing your workload and providing timely service to your clients is crucial for the success of your practice. One way to achieve this is by encouraging your tax extension clients to file earlier, thus avoiding the last-minute rush that often leads to increased stress and potential errors. In this insightful article, we will share valuable strategies and best practices for motivating tax extension clients to submit their documents ahead of schedule, leading to smoother workflows and improved client satisfaction. By implementing these effective techniques, you can foster long-lasting relationships with your tax extension clients and solidify your reputation as a proactive, well-organized tax expert in a competitive industry.
Why It’s Important to File a Tax Extension for Your Client
It’s essential to ensure that your clients have filed their taxes on time, as they are already past the deadline according to the tax code. Additionally, have you gathered all the necessary information to accurately estimate their taxes due? It’s likely that you haven’t received all the required details.
For a valid tax extension, taxpayers need to provide an estimated amount of tax due. When completing Form 4868, it’s quite common for individuals to enter zeros on lines 4, 5, and 6; however, using zero as a placeholder is not acceptable.
If your client estimates zero—even if it seems accurate at the time—and later ends up owing $10,000 when they file their taxes, the IRS may consider the form improperly completed. Consequently, the IRS can invalidate the extension and impose penalties on your client as if they never filed for an extension in the first place. This situation can lead to a significant financial burden for your client, so it’s crucial to avoid such errors.
Do it Right
Instead of owing interest and penalties of about 1% per month (or a fraction of the month), your clients will owe 5% per month (or the corresponding fraction) on the unpaid 10k.
Your clients’ problem? Yes.
Your problem too. Here’s why….
Joe filed an extension that was recently challenged by an IRS auditor. Joe was stuck with penalties.
Keep Good Records
In another situation, when Marilyn was cited by the IRS as not having filed an extension, she pointed the finger back at her tax preparer, whom she said had filed for her. Upon checking, the IRS found no evidence of an extension filed. This may or may not have been the case, but either way, non-existent tax preparer records would have been valuable.
These situations and others like them have precipitated copious discussions with accountants about potential preparer penalties for not advising the taxpayers how an extension works.
As for filing and proof thereof, our best advice is also to keep meticulous records on all your client meetings.
Four Requirements
There are four requirements for a valid individual income tax extension in Treasury Regulation Section 1.6081-4(b):
- Fill out Form 4868.
- File it on or before the date the return is due.
- File it with the IRS where indicated.
- Show the full amount of properly estimated tax.
If your clients (or you) file an extension without making an estimate of the tax when the information was available, the extension can be held to be invalid.
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