Back In The Race: Should You Let Your Clients Pay You In 2016?

It can offer you tax benefits, but you need to consider your client's present and future circumstances.

Some of my clients pay me on a monthly basis. When it comes to cash flow, from January to November, my policy is to collect as much money as possible as soon as possible. But in December, in the spirit of the holidays, I sometimes give my clients the option of deferring payment until January, for two reasons.

First, I do so as a courtesy to my good clients who are on a budget. December is the one month where they would like to splurge on food and gifts. Good and happy clients tend to be repeat clients. So I see no need to be the Grinch by calling them on Christmas Eve asking for payment.

The second reason is to avoid income taxes. If I can defer receiving the income until January 2016, I don’t have to report it on my 2015 income tax return.

Most of my clients appreciate the gesture for obvious reasons. But while it’s great that they have some extra cash for holidays, that means less money for my holiday plans. This also means that I am working for free in December and prolonging payment plans.

So if you are thinking about doing something similar, be sure to use a lot of common sense. I extend this courtesy only to clients who pay on time, every time, without complaints. I do not do this for a client who is always late on payment and gives all kinds of excuses for doing so. I also don’t do this for clients who constantly complain about my bill. These cheapskates will take advantage of every opportunity to avoid paying you.

Also consider your client’s present and future circumstances. Is your client heavily in debt (or about to be) and seriously considering bankruptcy? If so, then it would be a bad idea to give him a holiday freebie.

Another thing to think about is whether the client is close to being paying your fees in full. If the client is almost done paying your fees, I think it is better to get the money as soon as possible and be done with it.

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Business clients typically want to pay me as soon as possible. To them, I am a tax-deductible business expense. They send me a 1099 anyway so I think there is no point in negotiating. Non-business clients, on the other hand, generally are not allowed to get a tax write off for attorneys’ fees. So they may be indifferent about paying you now or in January.

This post is, of course, not tax advice. For those interested in the tax benefits of deferring income, I suggest consulting a CPA or other tax professional for more details, unless you want to be on the receiving end of a tax audit or an unexpectedly high tax bill in the future. This is just what I have seen from my experience.

The end of the year holidays are one of those few occasions where we attorneys have a chance to show our clients that we are humans and not just sharks. While it may be a nice gesture to allow a client to pay his bill in January, you may end up giving a rogue client a chance to stiff you now or later.


Shannon Achimalbe was a former solo practitioner for five years before deciding to sell out and get back on the corporate ladder. Shannon can be reached by email at sachimalbe@excite.com and via Twitter: @ShanonAchimalbe.

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