THAT WAS THE TAX SEASON THAT WAS 2015

Before it began the 2015 tax filing season, for filing 2014 tax returns (my 44^th season as a paid tax preparer), was expected to be the worst tax season ever, at least by IRS leadership.

“The filing season is going to be the worst filing season since I’ve been the National Taxpayer Advocate,” said Nina Olsen.

And IRS Commissioner John Koskinen predicted that the 2015 tax filing season “will be one of the most complicated filing seasons we’ve ever had.”

Why?  To begin with the idiots in Congress once again waited until literally the last minute to extend the perennial “tax extenders” for tax year 2014, which would, despite IRS assurances to the contrary, almost assuredly cause processing delays.  The IRS budget was cut - also attributable to the idiots in Congress - and, of course, taxpayer service took the hardest hit.  And the cuts came just as the IRS began its new added responsibility of administering the Affordable Care Act, aka “Obamacare”. 

As a result of Obamacare taxpayers had to indicate on their 2014 Form 1040 (or 1040A) whether or not they had “adequate” health insurance coverage, and could be subject to a penalty if they did not.  It was suggested that tax preparers would need to spend excessive time on “due diligence” to verify that their clients did indeed have adequate coverage.

Taxpayers who acquired insurance through the Obamacare Marketplace and received an “advance premium credit” to help pay for their insurance during 2014 had to calculate the correct amount of the credit to which they were entitled as part of the filing of their tax return and reconcile the actual credit to the advance credit.

As it turned out, at least for me, the tax filing season was no worse, or better, than any other.

To begin with, for the past 40+ years the tax filing season has always started for me on February 1^st.  And this season was no different.

For the most part I was able to tell whether or not my clients had health insurance coverage without even asking the question.  I could tell from the DD entry in Box 12 of Form W-2, or a reference to Section 125 pre-tax health insurance coverage in Box 14.  Or the deduction for Medicare Part B premiums identified on Form SSA-1099.  Or the amount of the “above-the-line” self-employed health insurance deduction listed on the worksheet of a Schedule C filer.

For the very few clients where the above did not apply all I had to do was ask.  I had no legal or ethical responsibility to personally verify a client’s coverage.  A simple yes or no answer was enough.

I only had a handful of clients who did not have the required coverage, and most were able to avoid the penalty via the “unaffordable” exemption.  Only two clients had to actually pay a penalty.  And only three clients had received an advance premium credit (one a GDE). 

The two that I did during the season initially received erroneous 1095-As.  One client received a corrected form – after holding up the preparation of the return for at least a month – and one has not yet received a correction.  I prepared the second return with the incorrect information so as not to hold up the client’s refund, and will amend for an additional refund when the corrected 1095-A finally arrives.  

Other than the two Obamacare items there was really nothing new for 2014 returns.

The new reporting requirements for Form 1099-B have been around for 4 years now, so more transactions were considered to be “covered” this year.  And overall 1099-B reporting by brokerage houses continued to be more consistent and easy to follow.  

I was happy to take advantage, where possible, of Lines 1a and 8a on Schedule d, which allowed me to enter totals for covered transactions without adjustments and avoid listing each sale individually on Form 8949 or supplemental statements thereto.  However, I do wish that the IRS would allow these lines to be used if the only adjustments to be reported are category “W” (for wash sale) - as a $1.00 wash sale adjustment on one transaction currently forces me to cut and paste dozens of pages of sales on supplements to Form 8949.

And I continue to believe that brokerage houses should be allowed the option of reporting the cost basis of “non-covered” sales to the IRS on Form 1099B if the investment was purchased by the same firm that is reporting the sale, expanding the use of Lines 1a and 8a.

It seemed that the initial Consolidated 1099 Tax Reporting Statements from brokerage houses were mailed out later than usual this year – with some houses totally ignoring the February 17^th deadline – and the sometimes multiple corrected 1099s also arrived later.  I was notified by a client’s broker of corrected 1099 statements for two accounts on March 24^th, literally the day after I had hand-delivered the finished 1040 to the client, with news of another corrected form for the same account a week later.  One of the corrected statements contained absolutely no changes, but the others did.  I chose not to revise the finished return, but instead will file an amended 1040 after I am done with the GDEs.

The extended deadline for issuing the initial 1099, and the apparent need for multiple corrections, started with the introduction of the “qualified dividend” back in 2003.  The financial industry has had more than a decade to create software that would properly identify qualified dividends on a more timely basis.  I see no reason why we should still have to wait until mid-February for certain 1099 statements, and then wait until mid-March or later for corrected statements.

The stock market apparently did great in 2014.  Dividends and capital gain distributions, and gains on investment sales, were substantially higher for many clients – resulting in some hefty balances due to Sam and Chris.  Most of this increased income arrived in late December, so there was no “warning” during the year.  One client received over $25,000 in dividends and capital gain distributions from a single mutual fund in late December.

When breaking the bad news to these clients I reminded them of what my mentor, Jim Gill, always used to say – “If you owe taxes you must have made money somewhere.”

The increased investment income also raised an issue for clients who make estimated tax payments.  Do we schedule higher 2015 estimated payments using the “safe harbor” method, or base the payments on more “normal” returns?  In a couple cases the increased investment income kicked AGI over the $150,000 mark, which makes the 2015 “safe harbor” 110% of 2014’s total liability.

While NJ state tax law did not change, I now had to attach a signed NJ-1040-O “opt-out” form to all manually prepared NJ-1040s, as well as keep signed copies on file.  I do not use flawed and expensive tax preparation software, and never will, so I cannot submit all NJ returns electronically.  Whenever possible, and unless the client specifically opts out, I use the NJWebFile system, which allows me to submit NJ-1040s directly to the Division of Taxation online, but this system has many limitations, and I am often forced to submit manual returns.  I was pleased to learn that the ability to claim excess Family Leave Insurance contributions was finally added to the NJWebFile system, allowing me to use it for more returns this season.

Beginning with the 2014 NJ-1040 the Division of Taxation allowed taxpayers to submit filled-in NJ-1040s online.  This initially appeared to be an excellent alternative option for me.  But I discovered that a separate username and password/pin was required for each individual submission.  I used this new option for three returns early in the season and then stopped.  I had no intention of having to create and keep track of dozens of separate and distinct usernames and passwords.  Hopefully the Division of Taxation will change this policy in the future and permit multiple submissions from a single username and password.

This new requirement added more time, and paper, to the process of completing many NJ-1040s.

Of course the NJ Division of Taxation could always follow New York State’s lead and exempt tax preparers who do not use software from the electronic filing mandate.  I won’t hold my breath.

Also new for the 2014 NJ-1040 - homeowners were required to enter on their return the Block and Lot numbers of the residence for which they were claiming a property tax deduction or credit.  NJ has not asked for this information since the early 2000s, when the Homestead Rebate application was part of the NJ-1040 filing.  In many cases the client included the postcard from the city, borough, or township that indicated the property tax assessment, and the block and lot numbers, with their “stuff”.  For others I had to dig through past years’ return copies in my files to search for the numbers.  This, too, added more time to the NJ return completion process. 

Thankfully there were no “technical difficulties” involving my computer or printer, my car, or the weather to contend with this tax season.

As usual I ended the season with too many GDEs (the “E” is for extension – and the GD is for exactly what you think it is for).  Though less were due to workload.  I was again “more better” at self-enforcing FIFO – first-in, first-out. 

More than 2/3 of the GDEs I mailed out on April 14^th were submitted because the client’s package was received after my new earlier deadline (my January client letter instructed “If you want me to complete your tax returns in time for the April 15th deadline your stuff must be in my hands - not postmarked - by end of business on March 21st”), or because there was missing, or no, information.  It is my hope to finish all the GDEs for which I have all the necessaryinformation by April 30^th.

I do need to thin the herd going forward to cut down on GDEs, and in preparation for my eventual retirement after completing 50 tax seasons.  Sadly the herd was thinned a bit this year by the passing of several long-time clients, originally of JP Gill.

As usual the tax season ended for me not on April 15^th but on April 14^th.  For those of you who do not know why, fellow tax-blogger Peter J Reilly from Forbes.com explains here.  And on April 16^th I headed to the Jersey shore to recover.

So there it is.  That was the tax season that was.  It certainly wasn’t the worst, or the best, in my 44 years.  Any questions?

TTFN