Tax Preparers always manage to know something about everything in business. Take it from an experienced IRS tax attorney, extensive business knowledge is part of the tax profession.
But what about bankruptcy for clients? You already heard that it’s bad for business! Right? And that bankruptcy is not even relevant to your clients? Any, isn’t bankruptcy like … financial ruin? Like a “last resort” that clients should never, ever, EVER … (sigh)
Let’s take 3 minutes. Here are 3 basics that the smartest tax preparers know about bankruptcy.
Basic #1 – Bankruptcy Work Is Really Good For Your Tax Business!
This is especially true for preparers with business-owning clients.
During the tax return prep, clients’ financial picture is open for your eyes. And whenever clients show you their overwhelming debt, you have received a wonderful opportunity to provide new services. Your wise referral to a bankruptcy attorney will earn you reciprocal work, referred right back from that same attorney. And lots of other work, after that!
You see, every bankruptcy case (Chapter 7 and Chapter 13 cases) will require completed, filed tax returns, for at least the last 2 years. Sometimes even more years are required by the attorneys and the courts.
Additionally, small business owners usually do not have financial statements prepared. Most business owners just use the tax returns as their official Profit & Loss, right? But the bankruptcy lawyer will need current income statements to prepare the case documents. That financial statement prep work is yours, if you want it. Better, if you desire, the savvy bankruptcy attorney will arrange to pay you directly for the preparation services you will provide.
This is Basic #1: You already have new, untapped work (and good revenue), from the same old clients. Bankruptcy referrals help to tap that revenue. Imagine that.
Basic #2 – Income Taxes Can Be Discharged in Bankruptcy (Penalties and Interest Too)
Ready to be a hero? Nearly every tax return preparer has clients with large personal tax liabilities. Advise such clients to connect with a lawyer that does tax planning – bankruptcy tax planning, that is!
You see, discharging taxes from Forms 1040 and 1120 are governed by several sets of technical rules. (Frankly, most bankruptcy attorneys don’t even know these rules!) But a tax and bankruptcy specialist can completely assess the business owner’s tax liability. That attorney can plan for eliminating all taxes eligible for discharge.
But be at ease. You, as tax preparers are not responsible for giving bankruptcy advice. You certainly are not expected to know these technical rules.
But when you see a client drowning in tax problems, you truly can be that hero. A strong referral to your preferred tax and bankruptcy attorney will earn you the reputation as a business problem-solver.
So that’s Basic #2: With counseling and planning, you can discharge income taxes in bankruptcy. Your clients will appreciate that option.
Basic #3 – Struggling Clients Want to Learn About Personal Bankruptcy
Most tax preparers expect to be queried for your financial knowledge. And you deliver, year after year, when clients seek your knowledge.
Think about this: For most small business owners, the tax return preparer is their “financial doctor”. When these business owners come to you, for their annual “financial check-up”, they want straight talk. That true insight becomes part of the return preparer’s strength.
I’ll explain. In the conservative accounting world, we were mistakenly taught that:
- “Bankruptcy is the last resort!” or
- “It’s the worst thing you could ever do financially!”
These beliefs are ancient and misleading. The woes of the 2007 mortgage bubble crisis taught us to learn financial survival. Personal bankruptcy can help a business owner survive:
- Debt is relieved;
- Cash flow is rescued;
- Creditworthiness is revived.
That was the design when Congress created the U.S. Code Title 11 (the Bankruptcy Cade). In doing so, your government enacted an entire body of law for a fair, legal debt relief instrument. And that is exactly what personal bankruptcy represents – a financial instrument. It’s a tool. Very much like a mortgage is a financial tool.
Just think, haven’t you ever known some old-timer that completely denounced mortgages? They’d say, “If I want something, I’ll save my money ‘till I can just buy the damn thing!” This earnest, ultra conservative thought was the mind-frame of the time … long, long ago.
Then along came mortgage financing, to make life easier.
Then along came bankruptcy debt relief, to make life easier.
You get the idea. The point is, during your clients’ annual “check-up”, your assisting struggling clients to consider bankruptcy as a viable financial solution is smart for you. Smart, because it shows clients true leadership, which sets you apart from the other return preparer down the street.
Basic #3: To struggling clients, openly discussing bankruptcy shows that you have true financial wisdom – a strength that your clients need from you.
About the writer: Attorney Jeffrey Anton Collins is a tax and bankruptcy specialist, and is a principal at Tax Law Offices. For IRS tax attorney services in Downers Grove and the rest of Chicago, contact Tax Law Offices today!