Discussion:Seeing more clients with financial distress.
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Discussion Forum Index --> Tax Questions --> Seeing more clients with financial distress.
| 1 April 2008 | |
| Hey Guys,
Is it me or are there more tax payers tapping into their 401ks and IRAs to meet months end? Last year I had 3 clients that tapped into their retirement savings but this year I had 11 so far. I serve a very small demographic area.... | |
| 1 April 2008 | |
| The premise of my practice is people in financial distress. | |
| 1 April 2008 | |
| I see many more - tapping every thing they have - Home Mtg - CCards - Student Loans - Pensions - they simply do not have the Cash Flow to afford the high cost of living. | |
| 1 April 2008 | |
| I will tell you with absolute certainty that from what I see and hear, the economy is in far worse shape than anyone realizes. In fact, tax professionals are probably some of the best "economic forecasters" if the press had the sense to realize to talk to us. And California is, without any doubt whatsoever leading the way. It's really, really bad here. The California Association of Realtors put out the worst news last week. Statewide, home prices are down 26% from the median one year ago. When you look city by city and county by county, you'll find that some areas like San Francisco, San Mateo and Santa Clara counties are relatively fine, but others like the Central Valley counties of Merced, Madera, San Joaquin & Stanislaus are getting slammed and some of the areas around the Los Angeles basin and Sacramento are getting killed as well. In large measure this is due to the incredibly high number of foreclosures which is destroying all the housing prices in the areas affected. If five homes in an areas are being foreclosed upon and you happen to be trying to sell your home anywhere nearby...good luck. | |
| 1 April 2008 | |
| And so now a house that is worth $200,000 that was bought for $300,000 is now on the market for $225,000. Low interest rates and relaxed lending standards caused the problem. I am not crying for anyone who benefitted from the excess and are now wanting a government handout. | |
| 1 April 2008 | |
| If you have an economy addicted to debt and loans, and then suddenly it's not easy to get a loan, things can get ugly. Apply pin to bloon! We should have known this was coming when the question on everyones' lips was "what is my credit score" (which if it's good, gives you the privilege (?) of acquiring more debt), rather than "what is my net worth."
By the way, just wait until some of these people go to speak with a bankruptcy attorney, and the reality of the new 2005 Bankruptcy law revision hits them in the face. A perfect storm. | |
Death&Taxes (talk|edits) said: | 1 April 2008 |
| Everyone with a job talks about their '201K.' Use to be a 401K but you know how it is.
Keep the stimulus in this country: buy Budweiser or Coors. | |
| 1 April 2008 | |
| Texas RE values are holding steady. Guess its our turn. There is even some oil drilling going on. I do see financial stress, it shows up in more places than one, people cannot slow down enough to enjoy life. Some truly cannot afford a tank of gas. Worrisome stuff.
What I am also seeing is brokers churning accounts when they think they can. I have had two widows come in this year so far, accounts churned over 1.8 times, unsuitable investments, and high cost/equity ratios. Guess the brokers are feeling the pinch as well. It bothers me when widows are treated this way. Neither of them had realized they had given discretionary authority. This is a result though I think more of lack of ethics in the workplace. | |
| 1 April 2008 | |
| I should've been keeping count, but know the number is above 5% that were dipping into retirement or outright cashing them out last year from my client list.
Of course they never talk to us first before making those decisions. I even showed one of them where they literally doubled their AGI from the previous year, and the tax cost that they caused. Assuming that they didn't really need all of that for cash flow purposes, the last $10,000 in retirement money taken could've saved them $5,000 in taxes. Showing them that that last $10k cost them 50% made them mad at me, rather than a lightbulb going off and saying - 'ok, next time we'll talk to you before making such a big financial decision.' That's what I get for taking time out of tax season to try and educate a client. | |
Michaelstar (talk|edits) said: | 1 April 2008 |
| MD - so much fun when they shoot the messenger....... There are times I just keep it to myself and save myself all the hate and discontent. Crazy! | |
Donniecastleman (talk|edits) said: | 1 April 2008 |
| I'm seeing a ton of people with a BOATLOAD of interest, I guess they all signed up for this interest only scam and now they're paying for it, I see people losing their homes by next year, which really sucks. Some of my tax clients are leaving town because they can't afford it anymore, just grabbing and go and letting the house go to the bank. | |
| 1 April 2008 | |
| And many of these people will prepare their returns and find out they cannot possibly pay the tax and get scared and not file. They will let it go for two or three years until the SFR's kick in and they get into full collection mode. And then these poor people will be forced to get help and most of you won't help them because they are high risk. This my friends is where these people come from. | |
| 1 April 2008 | |
| Another point is that, if personal bankruptcy is a route some take, that 2005 revision requires the last 3 years tax returns be attached to the BR petition. Keep in mind, this is not for the purpose of bankrupting on taxes, it is a general requirement now to attach these returns. So, that should in itself russle up some off season work. | |
| 1 April 2008 | |
| For those wanting the IRS' take on the 2005 Bankruptcy revisions, take a gander at this: http://www.irs.gov/newsroom/article/0,,id=150241,00.html
Note what it says about Ch. 13 and the filing of tax returns. Quote: "In order to have their plan confirmed, Chapter 13 debtors must also file all tax returns with the IRS for the four-year period before the bankruptcy petition." The debtor must establish filing by the first meeting of creditors. Most debtors now are forced into Ch. 13, since the law has made it much harder to file Ch. 7 now. In the past, the vast majority of filers did a 7, many who start a 13 are unable to complete the payments. No exception was made in the new law for medical bills even! How the tax return requirement is working out in actual practice, I don't know as I have not filed a BR for anybody since the new law took effect. | |
| 2 April 2008 | |
| It's even more fun when your clients don't qualify for 13 because they have more than $350K in unsecured debt. Then, it's an expensive 11 or nothing at all. One good piece of news. In the Northern California District of Bankruptcy Court, they are going to be experimenting with a streamlined and much less expensive 11 according to a friend who is a very good BK attorney. | |
| 2 April 2008 | |
| We got so many things going on at once: too much housing inventory, plus the unwillingness to make loans at the margin, only A-1 credit/income need apply. But, it's not just real estate. There has been a turnover in jobs, and a shrinking middle class. 1 out of 10 on Food Stamps in Ohio is just astounding. And these people losing their manufacturing jobs at 25hr are not getting new jobs at 15hr. The are getting minimum to 10hr. That's working poor, unless you put your kids to work too. Keep in mind, when the middle class folks lose a good job, the local dry cleaner, florist, tax preparer, and candlestick maker hurt too...
And, you folks in Ohio, don't come South. You come to Atlanta without a college degree, and you'll be lucky to get 10hr without some skill. And the cost of living ain't cheap here no more! | |
| April 2, 2008 | |
| Most of my clients seem to be OK for last year, but are crying the blues about "no work in the summer pipeline". I have a lot of small contractors as clients. Our business/economic climate is usually 6-12 months behind the norm, so I'm expecting this summer to be rough a lot of my clients. I probably won't see the gory details until next tax season....I planning on losing some business. Good thing about this profession; even when things are bad the tax returns still have to be done reporting HOW bad. But that doesn't mean they'll use me, or any preparer. More DIY'ers perhaps? | |
| 2 April 2008 | |
| There was a discussion earlier this year that referenced a news article about Americans tapping into their retirement more this year. I recall the first reply post was that it was logical now that they can't use their house as a bank anymore. Sad, but true. The next night I got my first client who had done just that. I'm amazed that the lenders that pushed exotic mortgages could do so legally. Who would have dreamed that negative amortization would not only be legal, but that so many would go for it? I can't believe they would if they really understood that they would move backward. The thing that still amazes me most about the financial distress, is that more often than not, they are clients that can afford to avoid it, but they insist on living beyond their means. While the next client makes half as much, and is squeaking by just fine.
I like Lancer's term of 'churning'. Every year I get retirees' statements from Edward Jones, etc, where there are dozens of transactions, but the client never 'sold' anything. More rip-off artists. | |
| 2 April 2008 | |
| I had one this year; lost her (well paying) job in an employment dispute and took out 46K to live on. Unemployment ran out too. Told the broker to withhold enough in taxes to cover the bill. Broker w/h $4800. And she had some basis in the IRA too, but trying to tell her the guy barely took out enough to cover the penalty, much less the income tax. And CA has a penalty too.
Of course I live on the same amount when I'm working.... | |
| April 2, 2008 | |
| In March the median price of a single-family home on Oahu rose 4.8% to $628,000 from February, after taking a small dip. Aloha Airlines just folded and put 1,900 people out of work, but the state's unemployment is still the lowest in the nation. There are "help wanted" signs all over the place. Still, some people are prematurely saying we're in a recession here. If we have enough people saying we're in a recession, people will believe it and start acting like it as well.
As far as mortgages go, it's not entirely the brokers' fault. When we were looking for a place (considering home purchase for the first time), I told the realtor what our budget was. She kept telling us about homes that were within our budget but without considering the monthly maintenance fees, which run $300 - $600 or more per month. Of course, she did have a broker who was all set to give us a loan based on our "stated income," which was merely what I said it was. | |
Death&Taxes (talk|edits) said: | 2 April 2008 |
| Home prices went up, Natalie? That is news; lots of people here would be spreading palms in the streets if they could hear that. Know what I notice this year: how few, none actually, clients have insisted on getting returns as fast as possible because they are refinancing. Someone must have turned off the spigot.
I keep saying that whoever we elect this November will be the next Hoover, the person there when the ceiling fell. | |
PHIL MOODY (talk|edits) said: | 2 April 2008 |
| What I see:
More people funding their retirement to the max. More Roths. When I ask about their home price decline, mostly what I hear is..."so what, gotta live somewhere.. I'm not trying to sell anyway.." Renters are complaining about the high rental rates. Now that spring in springing, see many new motorcycles and boats around here. These are not junkers either. The major ones I see hurting are the car dealers. There is complaints about the price of gas, and milk. (bottled water is still OK). Maybe we lag behind the country in the economy?? Did you see the lady truck driver on CNN? Bought a new 6 bedroom home, now can not afford the payments. She must have been making alot more than the truck drivers I know (and taxpreparers). | |
| 2 April 2008 | |
| People just love to go over their heads. I told a client that its going to cost him 700k over 30 years to pay off his 320k house and he said I was crazy =) | |
| 2 April 2008 | |
| I also find it funny how other countries always blame us. "Due to lack of American demand, our exports and job growth are diminishing". | |
| 2 April 2008 | |
| We now have 2 clients that are recently married, but they want to file Injured Spouse for their spouse's prior debt. They don't want to get divorced, they just don't want to be responsible for the debt. So give them all the tax benefits of MFJ (including the kids), but don't expect the government to keep the refund. | |
| 2 April 2008 | |
| Well, you seemed to have grasped the concept of Injured Spouse. | |
| April 2, 2008 | |
| And I've had ONE ! request for a 'comfort letter' this year. Down like a million percent from last year.... | |
| April 2, 2008 | |
| Yes, D&T, housing prices on Oahu rose. Rents are also high. | |
| April 4, 2008 | |
| Well, another article came out yesterday that said home prices went down from last year. It all depends on what month they are making the comparisons to. | |
| 4 April 2008 | |
| A petition for "Relief from an Innocent Spouse" is where the Injured Spouse (if thety qualify) requests the Commissioner to Allocate (to relieve) the Injured Spouse of Joint Tax Liability - the side benefit of this little used relief - is that "Stays" and collecion action the IRS may be taking. | |
| 4 April 2008 | |
| WPCPA, you seem to be using Innocent Spouse and Injured Spouse interchangeably. They are not. Injured Spouse has nothing to do with a joint liability. "Allocate" and "relieve" are not the same thing. There is an allocation in an injured spouse case and relief granted in an innocent spouse case.
Finally, I think the divorce is the "Relief from an Innocent Spouse". | |
Death&Taxes (talk|edits) said: | 4 April 2008 |
| Just when I think everyone is going down the tubes, I do three this week where two have W-2s over 2.3M and the third has tax-exempt income of 86K plus an AGI of 222K. Of course, the two 2 Million Dollar men march to the beat of stock options. | |
| 5 April 2008 | |
| I don't want to say that my 600 or so returns are an average of my area, but my clients seem to be doing pretty good. I don't think I had any clients this year dip into retirement for living expenses,not that I can remember anyway. I haven't had one single client this year draw unemployment. The only businesses I've heard complaints from are car dealers and truck drivers. My truck trivers & car dealers have had very bad years, but other than that it seems like my other clients have had pretty good years. | |
| 5 April 2008 | |
| My favorite was a client who bought a house 2 yrs ago for $650K in a new development. 2 months ago, he bought the house down the street (same floor plan) for $400K and told the bank he was going to rent it. He proceeded to move into the new one and walked in the bank, threw them the keys and said,"you can have that one." With the new debt forgiveness law, he came out $200K ahead (he had $50K of equity in the old house).
I saw this coming when they passed that law, but didn't think I would ever know anyone to do it. Fascinating! | |
| April 5, 2008 | |
| Capt - Isn't that fraud? I would think if the bank made the loan on the grounds that the second house was to be rented, they'd have legal recourse. | |
| 5 April 2008 | |
| If not fraud, you'd think they could sue him for breach of contract since it sounds like he has the means to pay the mortgage, but chose not to. | |
| April 7, 2008 | |
| Well, I guess it's official, at least according to an article in today's newspaper -- "Economy in Hawaii on Life Support." The experts have it all pegged. Guess I'd better start putting cash in the mattress. | |
