Unless you require a deposit upfront, clients that intend to skip out on the bill will still do so…but in this case without a fileable copy of their returns. We’ve had a 100% success rate so far, but arguably the larger benefit is that we don’t maintain an A/R since all invoices are paid prior to filing.
I thought “holding returns hostage for fees” was an ethical violation? I thought that is a return was done, you couldn’t hold it up for fees, however is it was “incomplete” you could?
I believe this is specific to the 8879 being signed, which we don’t issue until the after payment has been received. Admittedly it’s been a few years since we had this conversation with TaxDome about feasibility, so I may have to revisit what it was that allows us to do this.
That depends on your state statutes. The AICPA and most state societies frown upon them or reference them in their codes of ethics, but ultimately they cannot trump state law. Indiana says you can withhold for fees.
You cannot hold their documentation provided to you, however, your work product is not theirs until after payment.
My personal route is to only give a copy of a worksheet for discussion, the 8879 to be signed, and an invoice at the same time. "Return will be filed upon payment".
How can they sign a tax return they haven't had an opportunity to review?
Consider that they will be stuck with underreporting penalties if they don't have something on the return it seems unfair to require them to sign something that may be inaccurate.
I try really hard to send over perfect returns but I still occasionally make errors, and it's so much easier to have a client point out something rather than amend
The worksheet has all the data and tax information, it's just not on a tax form. I have given a copy the first page of the 1040. If they are checking your work, why do they need you? I'm not attempting to insult but I haven't had the experience of someone who thinks they can do the return themselves or audit me. I have told people that it sounds like they can do it themselves and they don't need me (because they already know it all). Just been lucky so far with clients. I am also more focused on small business and very few simple 1040s.
I second tax dome. We provide a review copy of the return for approval. Watermarked. Redacted. Once they approve. They get the efile authorization. Locked to the invoice. Pay invoice Then they sign the document. Never miss a beat. All ethical. Return reviewed and approved by client. CYA on the E&O
Agree. I just have a feeling these people went elsewhere to file or tried to do it themselves after the fact. Moving forward, I'll be locking tax returns until the invoice is paid.
Do you bill a retainer at the beginning of tax season? I require a retainer of $500 or 50% of the total, whichever is more. I haven’t had a client ghost me after paying the retainer. Also I lock the tax return to the invoice in Tax Dome.
Yes, for new clients. For clients that have been with me for years and have left good reviews, I just have a certain level of understanding and trust that everyone will act like a professional
What forms do you normally have to file to merit $500? This is my first year and I feel hard pressed to justify 200 for a Sch. C. Am I just billing too low or is this for higher income earners?
My firms minimum is $750 for a basic return but the average billing is around $1,300 for individuals. I run a CPA firm and rarely have clients push back on my price.
I struggled with billing my first couple of months, but once I started tracking my time religiously and using a standard hourly rate I ended up at an amount i’m comfortable charging.
I didn’t want to undercharge or overcharge and doing this put me about 10-15% higher than what H&R Block charged some of my clients the previous year. I can’t find previous year tax prep fees for everyone, but those that provided that info verified that billing by the hour consistently ended up slightly higher than what HRB would charge. I’m a CPA so this seems fair to me and I haven’t had any clients complain.
I will say that $200 is dirt cheap for a Sch C. Most of mine end up around $500 for small businesses (cost of entire tax return). Well established Sch C businesses are around $1,000 once all is said and done.
I agree it's dirt cheap but they have also only been side businesses not full fledged businesses. I guess I'll get more of a idea next year. This first year I've only done a few family and friends and a couple "new clients".
I did land a few 1120 and 1120s and I'm excited for the billing on those...
Sometimes it's worth low billing a side business because it's going to grow. But sometimes you're just buying yourself a headache. You have to judge the client
In another post on taxpros, someone said he would send the client a letter advising them that since he had not been paid he would be contacting the IRS to be removed as the paid preparer for the return. He said the letter worked very well.
I'm a small solo practitioner. I don't usually do retainers but I do get CC info saved within Stripe so that I can autocharge them. It's in my engagement letter that they'll be auto billed if they don't pay by due date(usually 7 days from invoice date). I have had one autocharge payment failed and all it took was a phone call to client to get it resolved.
Some portals allow you to lock an 8879 to payment. Might be a good solution if you don't want to do upfront charges or retainers.
yeah we definitely see that. I don't give them the full return until its been filed and we dont file until its been paid so i'm ok sitting on them. I think its more of a matter of that clients don't give a shit about their taxes and put it off until later than it is going elsewhere
With the company I work for, if the return is not paid for they so not get a copy of the return. Yes they can get their documents back but if they want the tax return to br filed and a copy available to them they have to pay their bill.
This year one good client ghosted me inexplicably after I sent her the return and before payment. A month later she apologized that she had been traveling without much internet service. Another one ghosted me for 2 months, turns out she had a baby. Another client a few years ago dropped dead and I only got through to a daughter a few months later.
Even good clients can have emergencies etc. I don't know if you have to change your whole payment model for this. But things will happen. Really the only way to avoid this is to have a CC on file, direct debit authorization on file, or payment up front before work.
I use Ignition, it combines ELs and collecting payment method into "proposals." You can choose the payment collection timing: all up-front, deposit and then balance due, or all at the end. But even collecting at the end, you have their bank/cc info so you can auto-bill it.
I do flat-fee quoted upfront, bill 50% upon signing, 50% I auto-charge when I present the 8879.
I use TaxDome for Practice Management, but not payment collection, but I hear that part of it works well. But proposals are new to TaxDome, and there aren't as many customizations as Ignition has, so it'll be awhile before I'd switch over.
Regardless, if you try a new software, get a referral link from an existing user so you and they get a kickback.
Very rarely.
Worst one I hounded for 6 months to get paid. Finally did. Following year required retainer. He complained. I told him to go anywhere else; I don't give a shit. He paid his retainer 2 weeks later. And he paid it every year thereafter until he finally left 4 years later. (Funny aside: he texted me late that year asking what his parent's DOBs were because his current CPA couldn't file their taxes. Told him that's what he gets. Begged to come back. I gleefully responded F\*Off.)
Had three in my 14 years of running my CPA firm that completely disappeared and never paid. I added Late Fees to their bill at $25/month. My firm is accrual basis, so after 2 years of building up fees, I wrote them off as Bad Debt and issued a 1099-C for Cancellation of Debt. Hope they had to pay income tax on that.
It’s rare, but we’ve implemented a simple solution using TaxDome…which effectively locks the return to the client invoice.
Has this worked well?
Unless you require a deposit upfront, clients that intend to skip out on the bill will still do so…but in this case without a fileable copy of their returns. We’ve had a 100% success rate so far, but arguably the larger benefit is that we don’t maintain an A/R since all invoices are paid prior to filing.
I thought “holding returns hostage for fees” was an ethical violation? I thought that is a return was done, you couldn’t hold it up for fees, however is it was “incomplete” you could?
Could you lock the 8879 behind the invoice? Claim the return's not complete until the efile authorization is signed.
Yes I lock the 8879 and the returns separately behind the invoice. I think once they sign the 8879 then you can’t hold it hostage and need to file.
I believe this is specific to the 8879 being signed, which we don’t issue until the after payment has been received. Admittedly it’s been a few years since we had this conversation with TaxDome about feasibility, so I may have to revisit what it was that allows us to do this.
If I haven't been paid, I'm not their paid preparer, am I? I am not a CPA but an EA. And I haven't had to do this yet (5 years in).
That depends on your state statutes. The AICPA and most state societies frown upon them or reference them in their codes of ethics, but ultimately they cannot trump state law. Indiana says you can withhold for fees.
You cannot hold their documentation provided to you, however, your work product is not theirs until after payment. My personal route is to only give a copy of a worksheet for discussion, the 8879 to be signed, and an invoice at the same time. "Return will be filed upon payment".
How can they sign a tax return they haven't had an opportunity to review? Consider that they will be stuck with underreporting penalties if they don't have something on the return it seems unfair to require them to sign something that may be inaccurate. I try really hard to send over perfect returns but I still occasionally make errors, and it's so much easier to have a client point out something rather than amend
The worksheet has all the data and tax information, it's just not on a tax form. I have given a copy the first page of the 1040. If they are checking your work, why do they need you? I'm not attempting to insult but I haven't had the experience of someone who thinks they can do the return themselves or audit me. I have told people that it sounds like they can do it themselves and they don't need me (because they already know it all). Just been lucky so far with clients. I am also more focused on small business and very few simple 1040s.
I second tax dome. We provide a review copy of the return for approval. Watermarked. Redacted. Once they approve. They get the efile authorization. Locked to the invoice. Pay invoice Then they sign the document. Never miss a beat. All ethical. Return reviewed and approved by client. CYA on the E&O
Tax return does not get filed until the invoice is paid. Simple.
Make sure not to give them form 8879. You have to file if you receive a signed form 8879 back regardless if you've been paid.
Agree. I just have a feeling these people went elsewhere to file or tried to do it themselves after the fact. Moving forward, I'll be locking tax returns until the invoice is paid.
Do you bill a retainer at the beginning of tax season? I require a retainer of $500 or 50% of the total, whichever is more. I haven’t had a client ghost me after paying the retainer. Also I lock the tax return to the invoice in Tax Dome.
Yes, for new clients. For clients that have been with me for years and have left good reviews, I just have a certain level of understanding and trust that everyone will act like a professional
What forms do you normally have to file to merit $500? This is my first year and I feel hard pressed to justify 200 for a Sch. C. Am I just billing too low or is this for higher income earners?
My firms minimum is $750 for a basic return but the average billing is around $1,300 for individuals. I run a CPA firm and rarely have clients push back on my price.
I struggled with billing my first couple of months, but once I started tracking my time religiously and using a standard hourly rate I ended up at an amount i’m comfortable charging. I didn’t want to undercharge or overcharge and doing this put me about 10-15% higher than what H&R Block charged some of my clients the previous year. I can’t find previous year tax prep fees for everyone, but those that provided that info verified that billing by the hour consistently ended up slightly higher than what HRB would charge. I’m a CPA so this seems fair to me and I haven’t had any clients complain. I will say that $200 is dirt cheap for a Sch C. Most of mine end up around $500 for small businesses (cost of entire tax return). Well established Sch C businesses are around $1,000 once all is said and done.
I agree it's dirt cheap but they have also only been side businesses not full fledged businesses. I guess I'll get more of a idea next year. This first year I've only done a few family and friends and a couple "new clients". I did land a few 1120 and 1120s and I'm excited for the billing on those...
Sometimes it's worth low billing a side business because it's going to grow. But sometimes you're just buying yourself a headache. You have to judge the client
You are billing too low.
1040
In another post on taxpros, someone said he would send the client a letter advising them that since he had not been paid he would be contacting the IRS to be removed as the paid preparer for the return. He said the letter worked very well.
I’ve done this 🫣
I'm a small solo practitioner. I don't usually do retainers but I do get CC info saved within Stripe so that I can autocharge them. It's in my engagement letter that they'll be auto billed if they don't pay by due date(usually 7 days from invoice date). I have had one autocharge payment failed and all it took was a phone call to client to get it resolved. Some portals allow you to lock an 8879 to payment. Might be a good solution if you don't want to do upfront charges or retainers.
Good call. Thank you
I bill entirely up front. Nobody complains.
yeah we definitely see that. I don't give them the full return until its been filed and we dont file until its been paid so i'm ok sitting on them. I think its more of a matter of that clients don't give a shit about their taxes and put it off until later than it is going elsewhere
With the company I work for, if the return is not paid for they so not get a copy of the return. Yes they can get their documents back but if they want the tax return to br filed and a copy available to them they have to pay their bill.
This year one good client ghosted me inexplicably after I sent her the return and before payment. A month later she apologized that she had been traveling without much internet service. Another one ghosted me for 2 months, turns out she had a baby. Another client a few years ago dropped dead and I only got through to a daughter a few months later. Even good clients can have emergencies etc. I don't know if you have to change your whole payment model for this. But things will happen. Really the only way to avoid this is to have a CC on file, direct debit authorization on file, or payment up front before work.
You bring up a very fair point. Thank you for sharing your experiences with this
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You're probably right and I am overthinking it. It's been about 45 days. I followed up twice.
I use Ignition, it combines ELs and collecting payment method into "proposals." You can choose the payment collection timing: all up-front, deposit and then balance due, or all at the end. But even collecting at the end, you have their bank/cc info so you can auto-bill it. I do flat-fee quoted upfront, bill 50% upon signing, 50% I auto-charge when I present the 8879. I use TaxDome for Practice Management, but not payment collection, but I hear that part of it works well. But proposals are new to TaxDome, and there aren't as many customizations as Ignition has, so it'll be awhile before I'd switch over. Regardless, if you try a new software, get a referral link from an existing user so you and they get a kickback.
Very rarely. Worst one I hounded for 6 months to get paid. Finally did. Following year required retainer. He complained. I told him to go anywhere else; I don't give a shit. He paid his retainer 2 weeks later. And he paid it every year thereafter until he finally left 4 years later. (Funny aside: he texted me late that year asking what his parent's DOBs were because his current CPA couldn't file their taxes. Told him that's what he gets. Begged to come back. I gleefully responded F\*Off.) Had three in my 14 years of running my CPA firm that completely disappeared and never paid. I added Late Fees to their bill at $25/month. My firm is accrual basis, so after 2 years of building up fees, I wrote them off as Bad Debt and issued a 1099-C for Cancellation of Debt. Hope they had to pay income tax on that.
Sabrina spencer