Having been a return-preparing tax professional for the last 40+ years, I annually prepare a top-ten list of concerns about the filing season ahead. Earlier today IRS Commissioner Rettig announced that the upcoming filing season start date will be delayed. IRS will begin accepting tax returns on February 12. I can almost hear the groans across this country as tax preparers take a deep breath and shake their heads.
Besides this further compression of the time given to submit returns to IRS, I have identified the following tax season 2021 issues facing preparers and taxpayers for the months ahead:
1. Have we finished 2020 yet? I’m sure I was not the only tax professional making calls this week to clients who haven’t finished providing the information needed to complete their 2020 returns. Some were affected by deaths in their family, some were affected by the California Wildfires disaster. But I believe for some, they were simply overcome by apathy in the midst of the pandemic.
2. Has IRS finished opening the envelopes and cashing the checks from last year’s filing season yet? This continues to be an issue. I still have a small stack on my desk of notices clients have received we believe are not correct. IRS has told us, “Give us a few more weeks to process…” Our concern is whether we should resubmit information or elevate the case to protect the taxpayer from further IRS notices that that the taxpayers “have unpaid taxes” or that IRS intends “to seize (levy)” their property.
3. A few years ago, Treasury decided to ask IRS to create a “postcard size 1040.” It was not really possible to do so, and resulted in a two partially-used pages for the 1040 Form and five additional Schedule pages. The 1040 Form continues to evolve, or devolve as the case may be. This year it has become the standard two-pager with up to three attached Schedules. Not to mislead, the hundreds of assorted forms and schedules for specific types of income or disclosures still exist and there have been lots of changes you’ll need to review before you prepare returns.
4. If you received an Economic Impact Payment (EIP) last summer, did you remember to keep the letter that came along with it? You may need that information to prepare your 2020 return, since the payments must be reconciled on the 2020 return if the taxpayer might be qualified to receive an additional payment. These payments are not taxable to you, but your preparer will want to know you got the full amount you were entitled to.
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5. EIP’s have now stopped. Abracadabra…return preparers will find themselves doing a bit of magic as the EIP (or lack of it) becomes the refundable Recovery Rebate Credit. If you haven’t received the earlier payments you were entitled to, you will need to request it with the 2020 filing. Further, we now learn that some of the qualifications changed: for example, taxpayers who died in 2020 may not have qualified for an EIP, but they are entitled to Recovery Rebate Credits – only if their executors or personal representatives file a 2020 return requesting it. (You may recall the original IRS position was that the EIP payments sent to deceased taxpayers needed to be returned.) There will also be non-dependent students who had no filing requirement in 2019, didn’t file a return, and now won’t get the latest Covid-19 distribution. Most will qualify for the Recovery Rebate Credit, if they file a return.
6. Unemployment compensation is Federally taxable…Do most people know that? Some states tax it, too. The issue is that almost no one bothered to withhold income tax on those payments. I expect lots of people to be blindsided by having balances due IRS with the 2020 returns reporting unemployment compensation. Tax professionals may need to guide their clients on how to navigate the IRS collection process.
7. Delivering a “touch-free” tax preparation experience will be a challenge for tax professionals and their clients. Tax professionals will be offering secure online document storage systems, mail-in and drop-off procedures to help keep their staff and clients safe.
8. Know that the privacy of your tax information is of great concern to your tax professional. “Protect Your Clients; Protect Yourself” is a mantra for them. You should expect your tax professional to have considered the security of your information and transfers of documents in the context of the challenges you both face working remotely.
9. Staffing amid a pandemic is another major challenge. Safe-distancing within small offices as well as fears of returning to a work environment has affected the readiness of tax offices. Can tax professionals really be expected to get the job done before the March 15 pass-through business entity deadline and April 15 individual deadline this year? I know tax professionals will make best efforts to get the job done. They care about their long-time clients, their livelihood, and the tax system. As Oliver Wendell Holmes said, “Taxes are what we pay for a civilized society.” Tax professionals believe that.
10. Filing season will be tough, but we’ll be tougher. And once we get to the end of the filing season we will celebrate with business acquaintances and a 100% deductible business meal courtesy of the The Covid-19-Related Tax Relief Act.