Our Taxing Times

How's Your Withholding?

It's been a month since the reduction in federal withholding as part of the Making Work Pay Credit(MWPC). Now is the time to take a look at your tax situation and see where you will be when you do your taxes next year.
The idea behind the Making Work Pay Credit was to give taxpayers extra money that they will spend and help boost the economy. But in helping the economy, some taxpayers will find that they will owe more or get less refund that usual. The first issue is the basic problem with withholding, more than one income. A single taxpayer with one job should not have a tax surprise. The same with a married couple with only one working or both working but at least one of them claiming single on their W-4. A Couple of examples, but first a disclaimer - These are rough examples and both assume a full year of the lower credit. They are also very simple.
Sue has two jobs. The first she makes $300 a week and the second $150 a week for a annual income of $23400. in 2009, she will be taxed on $14050 and the tax will be $1690.
Under the old system, she would have had $41 a week withheld ($31 and $10 (Single 0)) for an annual withholding of $2132 and a $442 refund. Under the MWPC withholding, she will only have $23 a week in withholding ($22 and $1) for $1196 + $400 credit = $1596 and a balance due of $94.
Joe and Jane have their W-4 set as Married 0. One makes $400 a week and the other $250 a week for $33,800 a year and $15,100 taxable income and a tax of $1510. The withholding under the old system ($25 and $10) results in $1820 in withholding and a refund of $310. Under the MWPC withholding, their withholding drops to $10 a week for $520 a year plus $800 credit -$1320 and a balance due of $190.
These examples highlight why it might be a good idea to check your withholding with your tax professional. A simple change can make a big difference. If in the second example, the taxpayer with the lower income ($250 a week) would switch to Single and 1 the extra $5 a week would result in a small refund ($70.)
Other situations where the Make Work Pay Credit may hurt a taxpayer:

• Dependents - they can already have witholding issues but since they don't qualify for the MWPC, this could be worse in 2009.
• Pensioners - they don't get the credit unless they have earned income but the changes in witholding effect the withholding on their pension. Add the fact that many of them use that withholding to offset other income (interest and dividends) and a nasty surprise could wait them next spring.
• High income - there is a phase out of the credit at $75,000 for individuals and $150,000 for married. But that income phaseout is based on all income on the return not just wages. A taxpayer can qualify for lower witholding but lose the credit due to other income on the return. 

I am sure there are other triggers, but my biggest concern is for the working people and retirees who don't qualify for other credits that will offset the reduced withholding. They expect a refund and really can't handle another bill. There is time to prevent this but they need to have their tax professional look at their withholding.

The Morning After

It's not a real holiday but the National Day of Rest for Tax Practitioners should be. This is not a day to expect any preparer to be too energetic or even interested in taxes. All completed returns and extensions have been filed and I am just waiting for acknowledgements. Then tax season will be over.

Not really, not now. When I worked for a HRB franchisee, when I walked out of the office on April 15th I was done. Any late returns and extensions where handled by the summer help and except the last 2 years I was there, that wasn't me. I didn't think taxes until fall classes.

Today is a day of rest. Tomorrow I have returns to finish (no need for extensions.) There is a payroll to do and March books for another client to finish. Monday I will start the back years for several clients and work on the info I have for my long list of extensions. But there is a lot of non return work too. I need to get re-introduced to the duster and vacuum cleaner. I don't want to think about the filing and archiving that needs to be done. CPEs need to be bought and studied and journal reading caught up. This is also the best time to order supplies I know I will use, big discounts. And it's time for a website/blog update.

But today, it's waiting for acks and maybe a short nap.

Too Late

It is about noon on April 14th. If you haven't gotten your taxes done yet, I really don't want to see your return today or tomorrow. Sorry, it's nothing personal. I'm tired and I have more than enough to do the next couple of days. If you want to stop by on Thursday, great. The hours will be 10am to 5pm Monday to Friday. Ok, if you want an extension I will be glad to to that for you but remember that an extension only gets you out of filing not paying.

To be honest, unless this is a very simple one, you don't want me rushing through a return. For the last 14 weeks I have been working 7 days a week, 10 to 12 hours a day. I'm an one person shop for all but a few weeks. Besides doing all the returns and e-filing. I am the one answering the phone, making appointments, doing payrolls and bookkeeping (including mine,) and dealing with all the signatures and scanning. It's part of the job. It also means less sleep and rushed meals at odd times. It is being nice when the client is being nasty or telling their life story. The goal through all this is April 16th, The National Day of Rest for Tax Practitioners. 

For the last couple of years, I have had the policy on no appointments on April 15th. You can stop by with your return but I reserve the right to file an extension and finish the return at my convenience. Right now I am waiting info on 4 big returns and have several appointments this afternoon. And I am sure I will have a few regulars in tomorrow. But I also have 20 returns to be picked up and papers signed. Several were drop offs so I will have to go over the return with the client. The phone will ring all day with questions about extensions and where to send vouchers. There will be lost vouchers and other emergencies. Then all the e-filing will have to be done to meet the deadline. 

You had the option to be in before April 15th and chose not to do so. The only option I have is not to encourage your tardiness and not inconvenience other clients to help you.

Thank You

As April 15th approaches, I wanted to take a minute to thank my clients for a good season. I am always astonished by the interest you take in me and the business. I am grateful for the continuing business and the referrals. If I haven't seen you yet, remember you are always welcome, even after the 15th. I look forward to seeing you all next year.

Bad Clients

I will admit I have bad clients. Not bad because of temperament, job or lifestyle. I can handle clients who get mad about their tax results, don't bring me in everything I need, try to get my price reduced, lie to me a little. That is part of the job. But when they carry it to far, they become a bad client. And I am less likely to work on price with a bad client or take them back next year.
The line between good and bad seems to be stupidity. Mostly, bad clients think I am stupid. I can be played. A client telling me what that guy at work deducts on his taxes isn't going to make me allow him deductions for which he doesn't qualify. Throwing in my face that they could have used Free-File is not a way to get my fees reduced. I am not so disparate for income that I will take a small payment when I earned a larger one. Don't tell me that the Notice to Levy is the first you've heard about that tax problem. I know better.
Other bad client tricks include playing cute and putting me in the middle of non-tax disputes. Nothing is worse that a couple fighting at my desk. Or using me as the bad cop when disciplining their children. And keep me out of divorces and inheritance fights if you want to stay off my bad client list.
Right now I am seeing a lot of the playing cute BS. Brownie points are not earned by waiting until the last minute. And it is just made worse by thinking you are cute and unique as a procrastinator.

Annual Reminder

Your failure to plan is not my emergency!

I am tired! I have heard it all. Excuses, complaints, and whines of every sort. I will do my best to work with you but I do not owe anyone extra services because they couldn't get their act together.