Discussion:Why is it clients can't wrap their heads around estimated payments?

He comes by late Monday. I've already done my calculations and they show the payment as the one I calculated in April. He looks at me and says, "I don't understand. I only worked two months and I have to come up with the same amount?" I told him the calculations I gave him in April were for the entire year, I pointed that out to him, but I was late for my 8 y/o daughter's softball game, tired and in no mood to argue. Of course you know what's coming next from him, "I don't have that kind of money right now."

I told him he would likely be penalized for underpayment of estimated taxes next year for not paying enough. "But why?", was the response. "My dad does his taxes in Turbo Tax (insert eye roll here) and he just punches in the numbers and it tells him what to pay." I thought about tearing my hair out, but I didn't.

I just asked him, "What can you afford?" He told me. We filled out the vouchers for those amounts. They were only $1,300 short of what I originally told him from April for both Fed and State.

That's twice this guy has done this and twice I have tried to educate him on he has to save his money. All my other clients, except one who has extreme income swings, does it.

Why are some thick-headed?

Tom

Later on, of course, they get to bitch about the penalty too.

"I recommended the minimum amount. The minimum amount is based on the lower of the previous years' tax or the whole of this year's income; so what you make in any one quarter is not at issue; it's what you will make over the course of the entire year. Since you can not safely predict with any degree of accuracy how much money you will have made by 31 Dec, the safest minimum estimate is using last year's numbers. Your free to pay more or less than the minimum amount, but if you pay more, you didn't need to, and if you pay less, you may owe penalties next year for not having paid the minimum. You are even free to pay nothing at all now and double next time if you prefer, but again, if you do, you will be subject to penalties for not having paid the minimum."

One thing I often say to clients, especially those who find saving difficult and complain about the amounts, is "recognize that the word 'penalty' is pure semantics. What you have is an interest charge similar to that on the credit cards you use, and usually cheaper than most pieces of plastic. So, choose your poison."

Most small business people have the idea that they are in business for the sole purpose of not being bothered. They consider it an effrontery to be troubled by having to withhold the tax, even by way of an estimate. It's a reminder to them that they still belong to the assemblage of humanity we refer to as "the American people"; and which the businessman (even the small industrialist) refers to as the "little people" or "the rabble".

The only way to cure them is to have them raked over the coals by an impersonal (and incomprehensible) letter from the IRS demanding satisfaction, coupled with several punative audits by governmental shock troops dressed in polyester doubleknit. This induces a sort of trauma that seems to bring them back into the tribe.

Sounds like a "typical" client to me. We have a lot of problems with estimates here at my firm, especially when it comes down to filing their tax return and they missed an estimate and forgot to inform us.

The thing that gets me through the day is the fact that they were as savvy as they should be they probably wouldn’t be a clients at all. They would do it themselves.

Eric

Plus, and I assume this will change, in the past, the penalties were never always sent, sometimes the client won the no penalty notice sent lottery.

But I like the credit card analogy better.