Accountants reveal their tactics for avoiding the last-minute jam
On March 31, anyone who hasn't filed their taxes yet might reassure themselves that two whole weeks remain. Accountants see it differently and act accordingly: To encourage people to file early, certified public accountants and tax preparers offer discounts for early filers, raise fees for latecomers, and even employ a few scare tactics.
Anil Melwani, a CPA and founder of 212 Tax & Accounting Services, starts with a carrot—a 10% discount to clients who hand in their documents or come in before the end of February. About 25 percent of clients take advantage of the discount, he says. He also sets an early deadline for clients who want returns filed by April 15. This year, they had to turn in their forms by March 21, 10 days sooner than the March 31 date he used in prior years—after too many clients were showing up in April. Some accountants set deadlines even earlier. Marilyn Niwao, a CPA and president of the National Society of Accountants, tells clients that if all their tax information isn't in by March 15, their returns may require extension, which means a more costly return because she'll have to estimate the tax due.
Melwani's goal is to encourage clients to file early. Still, if someone comes in around now and he can't help, he may enable some procrastination. "I generally don't like to advertise it, but if you're owed a refund, you can wait to file for three years from April 15, 2015, and there's no penalty," he says. There's no need to file an extension—you're basically penalizing yourself by not getting the money due you in a timely manner.
Taking that option can backfire, though. One wealthy client of CPA Marc Albaum didn't file returns for several years, though he made quarterly estimated payments all along. "He just couldn't get his paperwork together, or had a fear of getting his paperwork together," says Mr. Albaum. When the client finally filed, he found he'd been paying too much in his estimated payments, but it was too late to collect a $1 million refund. "He wasn't happy, but he understood it was something he did, and it was the price he paid," says Mr. Albaum.
In addition to that good, if unlikely, cautionary tale, Mr. Albaum also uses the stick approach, letting clients know that the later their information comes in, the higher his fee. Procrastinators who come in around now could pay as much as 20% more. He also makes sure that clients know about the severe penalties for filing late if they owe money. The late return penalty is 5% of what's owed, plus interest, if a filing is one month late; 10 percent for two months; 15% for three months, and so on—up to 25% in the fifth month. After that, the rate of increase drops and by the seventh month, the rate is 26%, he says.
In extreme circumstances, some CPAs resort to pleading. One year, Barry Kleiman, principal at Untracht Early, was expecting his first child, and his wife's due date was Oct. 9. He had one client who always filed for an extension and then procrastinated further until October 15 to file. Mr. Kleiman appealed to his client's sense of family, asking him to send in any outstanding tax information promptly—and he did. Mr. Kleiman's daughter was born on Oct. 15. "We joke that she waited for me to finish tax season before arriving," he says.
