Estimated Payments & Withholdings: Avoiding Surprises for Your Clients

What I know for sure is that nothing impacts trust more than taxes. Helping clients avoid a massive refund, or worse, an unexpected tax bill, can make you their hero. But if they do owe, guess who tax preparers (not me) love to blame?

“Because your advisor did X, you now owe Y. If they hadn’t done X, this wouldn’t have happened.”

Regardless of whether this is true, a surprised client is often an upset client. Instead of letting that happen, take the proactive approach—do what clients wish their tax preparers would do:

• Help them make estimated payments (if needed).
• Adjust their withholdings to avoid underpaying (or overpaying).
• Ensure tax bills are paid from the right source.
• Encourage setting aside funds early to avoid last-minute scrambles.
• Help them avoid IRS underpayment penalties (yes, even if they got a refund!)

Clients like to say they prefer to owe rather than give the IRS an “interest-free loan”, but let’s be honest—almost everyone would rather get a refund than face an unexpected bill in April.

This doesn’t have to be complex tax math; you can start by just helping them get closer: “One of the benefits of working with our team is that we will assist your tax preparer in making sure you don’t get hit with surprise tax bills in April. Is that OK with you?”

Your help can be as simple as make sure your annual 1099 letter is accurate and timely, that you are helping with withholdings on IRA and other qualified account distributions, that you are setting money aside for taxes on non-qualified accounts for dividends and capital gains and that you are the one letting clients know that without form W-4V their social security will literally having NOTHING withheld during the year even if it’s taxable.

Here’s another gem from what works in the real world vs. the theory of the “optimal outcome”: Q4 estimated payments are due by the 1/15 of the following year, but having clients pay by 12/31 of the current year will reduce confusion. Any chance we can take to help make sure tax planning gets applied to the correct year is worth taking.

Happy Tax Planning!

Steven Jarvis, CPA

P.S. We’re making our final push to the tax deadline, but on May 7th, we’re diving back into helping great advisors like you do even more for their clients on taxes. Sign up for our CE-eligible webinar and learn what every advisor should be doing to help with tax planning after the tax deadline has passed.