My 50th
tax filing season, which, as it always does, began for me on February 1st,
ended on May 17th. It actually ended on
May 16th, as I never work the last day (click here to learn why).
For the
second year in a row, and, as far as I know, only the second time in history, the
initial tax filing, and paying, deadline was extended.
The big
issues this season had to do with reconciling the first two Economic Impact
Payments to determine if a client qualified for a refundable Recovery Rebate
Credit and the impact of the retroactive income tax components of COVID relief
legislation passed in early March.
It was truly
the rare federal return that I could complete in one sitting. I either had a question about the return –
most having to do with the Economic Impact Payment – or I had to wait for IRS
guidance on tax issues related to the COVID relief legislation. Despite my specifically asking clients to
tell me what, if anything, they received in EIPs in my January letter the
majority ignored this request.
And often
clients did not send me the same information for 2020 that I had requested when
preparing their 2019 return. My advice
to my clients, and any taxpayer using a tax pro, is when gathering the information
to prepare the current return look at
the previous year’s return and make sure all the information needed for the
previous return is included in what you give me, or your tax pro, for the
current return. And please read carefully
and completely my January client letter, or any similar correspondence from
your tax pro, to see if there is any new information that is needed for the
current return.
While the Recovery
Rebate Credit was good for many clients – putting more money in their pockets –
the fact that the IRS worksheet for the credit reconciled each of the two
Economic Impact Payments separately, rather than combining both payments, was
stupid (for the government) and financially imprudent (again for the
government). If a taxpayer got more than
they were entitled to in the first payment but less than they were entitled to
in the second payment, the first payment excess was not applied to the
second payment shortage.
For example,
if a taxpayer got $200 too much in the spring of 2020 but $200 too little in
January 2021 it was not a wash.
The $200 overpayment from 2020 was ignored and the taxpayer got the full
$200 shortage for 2021 as a refundable credit on the 2020 Form 1040 (or
1040-SR). While the reality is between
the two payments the taxpayer got exactly what he/she/they was/were entitled
to, the taxpayer actually ended up with $200 more than he/she/they was/were
entitled to.
The logic of
some of the stimulus payments was often confusing. In many cases the first payment was calculated
based on the taxpayer’s 2018 AGI and the second payment based on the taxpayer’s
2019 AGI, and I could reconcile how these payments were calculated, but not in
all cases. A surprisingly large number
of clients who were entitled to the second payment based on 2018 or 2019 income
did not get a check. And in the case of
a couple of married taxpayers who always file jointly, whose 2018 and 2019 AGI
was clearly way above the income threshold, one spouse got a $600 check.
I do believe
the second payment, received in 2021, should not have been reconciled on the
2020 return. Like the third $1,400
payment, while based on actual 2020 AGI, it should have been reconciled on the
2021 return prepared next year.
The IRS
announced that the processing of 2020 returns claiming a Recovery Rebate Credit
would take longer than “normal” returns and refunds on these returns would be
delayed. As of this writing I have not yet
heard from any clients claiming this credit about IRS issues or inquiries – but
it is still early.
The affect of
the exclusion from income of the first $10,200 of 2020 unemployment benefits,
part of the legislation signed into law by President Biden on March 11th,
on other tax deductions and credits is still confusing and unclear. Specific guidance on whether the exclusion is
added back in calculating household income for the Premium Tax Credit, for
example, was never issued. I held up
completing returns where this applied as long as I could, but finally assumed
it was not and calculated the allowable credit accordingly. I was, however, truly pleased that taxpayers
who received an excess advance premium credit during the year did not have to
pay back this excess on their 2020 return.
Thankfully
there were no auto, computer, equipment, or weather issues of consequence for
me this season. The only concern was the
slowness of the Post Office in delivering work to and from me and payments to
me. The attempts by Trump and his lackey
DeJoy to destroy the postal service to sabotage mail-in ballots last year has
had continued lasting effects.
Once again, I
was actually happy to be “stuck” at home during the season, leaving my condo
only to go to the Post Office, the bank, the supermarket, and restaurants. And the deadline extension actually worked out
good for me – I only had 6 GDEs for 4 clients (2 GDEs related to the children
of these clients) this year due to late receipt of tax “stuff” and missing
information.
The excessive
backlog of correspondence and 2019 and amended 1040s (and 1040-SRs) resulting from
the IRS closing its doors for too many months in 2020 is causing delays in
processing current returns. I hope that
the IRS will pay interest on 2020 refunds that take too long to be issued, as
it did with 2019 late refunds.
On the state
tax front, I continued to use, and appreciate, the new “New Jersey Online
Income Tax Filing” system, which began last year, to electronically submit directly
to the NJDOT free of charge almost all of the NJ-1040s for my clients. Using this system, I can include attachments
and request direct deposit of refunds.
If only the IRS had a similar system (those of you who know me are aware
that in my 50 seasons I have never used flawed and expense tax preparation
software to prepare federal returns – all my returns are prepared manually - so
I cannot electronically submit federal returns).
And I
continued to use, and appreciate, the “enhanced” fill-in forms available at the
New York State Department of Taxation and Finance website. While I could not electronically submit
returns directly to the Department, the returns must be printed and submitted
via postal mail, this system does all the mathematical and tax calculations.
A message for
Fidelity Brokerage Services regarding an issue that has been ongoing for the
past few seasons – don’t be so cheap!!!!!
The Tax
Reporting Statement that it sends to investors via postal mail does not include
“Supplemental Information” such as the individual sources of dividends and
distributions reported on Form 1099-DIV and other important information. The information on the individual dividend
sources is important to calculate income from US government obligations that
are exempt on state returns and state taxable municipal interest. You must go online to get this additional
statement. No other brokerage house that
I know of does this – all of them include all information – required and
supplemental - in the paper statement they mail to investors. And clearly some brokerage houses do a better
job of providing supplemental information than others.
Clients send
me the incomplete statement they received in the mail from Fidelity. When preparing their return, and knowing that
dividends from mutual funds are included in the total ordinary dividend number,
I have to email them and ask them to download the online statement and email or
postal mail it to me. This causes delays
and a waste of my time.
So that was
the 2021 tax filing season. Once I
finish the GDEs I will be “officially” retired!
Don't worry - I will continue to write THE WANDERING TAX PRO in retirement.
TTFN
