[IMGCAP(1)]Many real estate and venture capital partnerships and LLCs have investors that need their K-1 tax statements to file their individual returns. Depending upon the way they are managed, some never have their books up to date and ready for tax filing until late in the summer, while others are maintained monthly and are closed and ready for tax preparation the end of January or beginning of February.
In many situations fixed fees are agreed upon that we get regardless of the amount of time spent. Here is a little secret. We don’t get paid extra if we need to file an extension. Nor do we get paid extra if dozens of the limited partners or their accountants call us wanting to know when we will send out the K-1s and, if there is an extension, an estimate of the taxable income. So, I got an idea. Get the work out early (by March 15) and the calls would never materialize and extensions won’t exist. No extra time means more profits and time for other work. An unintended consequence is that you get an enhanced reputation for reliability and meeting deadlines.
We also try to do something else. We “upgrade” the assignment by suggesting that we review the accounting records as of the end of September or October to get an estimate of the income, make sure there are no surprises or transactions requiring research (which can be done then, rather than during tax season), and provide the partners with income estimates. We charge extra for this and also get a big jump on the yearend work so less work needs to be done in February or early March. Also straightening out any problems is easier and much less stressful in November or early December than during tax season when we are under the gun.
The takeaway is: Think about what is best for the client, and lots of times it is also best for you. Another thing is to examine what you do, the reasons and underlying causes, and eliminate unnecessary work.
Edward Mendlowitz, CPA, is a partner in WithumSmith+Brown, PC, CPAs. He has authored 20 books and has written hundreds of articles for business and professional journals and newsletters plus a Tax Loophole article for every issue of TaxHotline for 27 years. Ed also writes a blog twice a week that addresses issues his clients have at www.partners-network.com. He is the winner of the Lawler Award for the best article published during 2001 in the Journal of Accountancy. He has also taught in the MBA graduate program at Fairleigh Dickinson University, and is admitted to practice before the U.S. Tax Court. Ed welcomes practice management questions and he can be reached at WithumSmith+Brown, One Spring Street, New Brunswick, NJ 08901, (732) 964-9329, firstname.lastname@example.org.