Recession Taxing for Filers : April 15: It is a depressing week for filers and those who help them cope with annual rite.
The 22-month recession has tax preparers feeling more like therapists than number crunchers this year.
Clients have come in crying, frustrated and angry. Personal income has fallen. Mortgage payments are just barely made. Pink slips may soon be in the mail. And despite the other problems, tax day comes regardless.
And this final week of the tax season can be depressing for tax preparers too. Clients who need quick refunds have come and gone, as many have taken advantage of speedier electronic filing to receive their money in as little as three weeks. Those who remain expect to owe the government, and they wait until the last minute to visit the accountants, certified public accountants and enrolled agents who prepare their tax forms.
This year, preparers said they are seeing more people who can’t pay, either because they have lost their jobs or their business has collapsed.
“The late ones are those who need to have a stiff shot before they have the courage to come to us,” said Michael Silverberg, a certified financial planner and enrolled agent at Applied Financial Concepts Inc. in Lake Forest. Enrolled agents are registered to represent taxpayers before the IRS.
But unlike past years, preparers have seen more client hardship.
“One of my clients owned a construction firm,” said Steven Sears, a Tustin-based certified public accountant and tax attorney with more than 1,000 clients. “He was worth a couple million last year. Now he’s worth zero. And he just got a divorce.
”. . .We have to be a little bit of a psychologist,” he added. “It requires sort of a bedside manner. We have to make them aware that it’s only money. It’s not the end of the world.”
If anything, tax preparers encourage their clients to file on time, even those who cannot pay by April 15, to avoid penalties up to 25% on the balance due.
“One woman broke down and cried,” said Robert A. Dudley, a Mission Viejo accountant. “She just literally bawled, the poor thing. It’s very, very sad. But I tell them that if they owe, say, $5,000, to send maybe $1,500.”
Even long-established businesses have been hit hard.
“The small businesses, the one- and two-man operations, or even (with) 27 employees, some have a 50% decline in revenues,” said Al Martinez, whose Placentia-based tax preparation and consulting service expects to complete about 450 returns by next Wednesday, 70 behind last year. “It’s kind of frightening.”
Not only do people face a tougher time paying the taxes owed, but they also might find more frustration in filling out the forms. In theory, people in financial straits would try to complete the forms themselves, saving the typical $50 to $300 tax preparers charge, depending on the complexity of the forms. The hope is that with less income, they would qualify to use the simple 1040EZ.
Dudley said his business was about 20% below expectation this year, even though he advertised in the Yellow Pages and sent flyers via direct mail.
“A lot of folks are trying to do it on their own,” Dudley said.
Even the BDO Seidman accounting office in Orange, which should complete as many as 1,500 forms for mid-size companies, has seen a slight drop in its client list, particularly among real estate and construction firms.
“As the clients suffer, one of the first things they cut is some of the consulting type of service,” said senior tax manager Alan Griffith. “They have to reduce their operating expenses.”
But a few tax preparers say the recession has not reduced their number of clients. People who have been laid off still itemize, deducting travel expenses during their search for new employment. Others have become independent contractors or consultants, and they need assistance to fill out more complicated forms.
Add to that recent changes in the tax laws. Clients are surprised over even minor modifications this year. Often-mentioned changes include the loss of consumer interest deductions and a cut in the state renter’s credit.
Tax preparers say that high-income taxpayers have also been somewhat startled to learn that they cannot take full personal exemption credits--$2,150 per dependent--after their income hits $75,000, if married filing separately. Also, the alternative minimum tax rate has risen three percentage points to 24%.
“The recession doesn’t alter the complexity of the returns,” said William C. O’Connor, Silverberg’s partner. “It just cuts their income. The tax problems are still there. . . . They still come back to us. One client, he was pretty destitute, but he still needs his taxes done.”
O’Connor’s firm--with about 550 clients--has seen business rise 11% this year, largely because of referrals, he said. Those who do try to make a go of it on their own often stumble. One of O’Connor’s clients tried to use Turbo Tax, a personal computer software program for tax preparation. He returned soon after getting the system set up.
“He got through the initial setup, but then he had to come in to us to understand it,” O’Connor said. “He tried to, but he couldn’t because of the complexity. It’s a sad testimony to the state of the tax laws but a happy testimony to the state of tax preparers.”
His firm expects only about 70 to 110 forms in this last week. Tax preparers say the bulk of their business this tax season was in February, for most taxpayers the earliest possible time to file for refunds after receiving their W-2 forms.
“They’ll need the money to pay the next month’s mortgage payment,” said Dudley, the Mission Viejo accountant. “I’ve seen some pretty sad cases.”
Even so, tax preparers say Orange County taxpayers are resilient and will come out of this as they have other economic downturns.
Tax Time Again In 1991, the Laguna Niguel district of the IRS, which includes Orange County, ranked second in number of tax returns filed and number of returns audited; it placed fourth in the number of refunds. Nationwide, there were 203.7 million tax returns filed last year. Returns Filed (In millions) 1. Newark, N.J.: 7.13 2. Laguna Niguel: 7.11 3. Chicago: 7 4. Detroit: 6.95 5. Philadelphia: 6.30 6. Los Angeles: 6.10 Returns Audited 1. Los Angeles: 52,817 2. Laguna Niguel: 41,406 3. Dallas: 41,108 4. Atlanta: 35,239 5. Chicago: 33,061 6. Ft. Lauderdale, Fla.: 28,514 Refunds Issued 1. Detroit: 3.18 2. Chicago: 3.03 3. Newark, N.J.: 2.93 4. Laguna Niguel: 2.89 5. Philadelphia: 2.64 6. Los Angeles: 2.55 Source: Internal Revenue Service, Laguna Niguel district PREPARATION PIE:
Two chains fight for No. 2 spot in tax service market. D2
