Monday, April 21, 2014
THAT WAS THE TAX SEASON THAT WAS
43 down – 7 to go!
The 2014 tax filing season (for filing 2013 returns) once again got off to a late start – also once again caused by the actions of the idiots in Congress. This time the delay was a result of the October 1 – 16, 2013 government shutdown. The IRS needed “time to program and test tax processing systems following the 16-day federal government closure”. The Service announced it “would start accepting and processing 2013 individual tax returns no earlier than Jan. 28 and no later than Feb. 4”.
And, once again, the delay did not affect me one bit. For the past 40+ years the tax filing season has always started for me on February 1st. And, as you should know by now, I prepare all my federal returns manually, so delays in processing electronically-filed returns don’t mean anything to me.
There was not much new that affected the 2013 Form 1040. Most of the few new wrinkles concerned taxpayers who are considered to be “wealthy”. These included the higher capital gains and top tax rate, the return of PEP and PEASE (at much higher levels), and the new Obamacare surtaxes – the additional .009 Medicare surcharge and the 3.8% tax on net investment income.
The bulk of my clients can be classified as “average middle class taxpayers”. However I did have 6 clients who were hit by one or more of the new punishments for ambition, success, and entrepreneurship. While the cost was not what I would consider substantial – it did add over $2,000 to the tax bill of some of these clients.
A change on the Form 8949 was truly welcomed. Some investors were able to enter “covered” sales directly on Schedule D and bypass reporting the details of specific transactions on Form 8949.
According to the Schedule D instructions –
“You can report on line 1a (for short-term transactions) or line 8a (for long-term transactions) the aggregate totals from any transactions (except sales of collectibles) for which:
· You received a Form 1099-B (or substitute statement) that shows basis was reported to the IRS and does not show a nondeductible wash sale loss in box 5, and
· You do not need to make any adjustments to the basis or type of gain or loss (short term or long term) reported on Form 1099-B (or substitute statement) or to your gain or loss.”
This new procedure was a godsend – as I did not have to waste as much valuable time “cutting and pasting” dozens of pages of 1099 detail as supplements to multiple 8949s. Unfortunately even as little as $1.00 in wash sale adjustments could void its use. The IRS should allow this procedure to be used if the only adjustment to cost basis is a wash sale adjustment that has been reported to the IRS.
And 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 this great new procedure.
Generally I did find that overall 1099-B reporting by brokerage houses continued to be more consistent and easier to follow.
I have also found that, for me, the new due-diligence requirements for claiming the Earned Income Credit are merely a pain in the arse time waster (having to fill out another form) and not really increased work. This is because I do not accept any new 1040 clients. I only did 2 or 3 2013 returns that claimed the EIC, and they were for long-time clients whose situation I was familiar with. I did not ask any additional questions or look at any documents. I expect in a year or so I will no longer have any EIC returns.
On the state tax front, I continued to submit NJ-1040s via the online NJWebFile system whenever possible, unless the client specifically told me not to so do. The print-out has slightly improved – it does not waste as much paper as in the past. But the cafones in Trenton have still not properly updated the software to account for excess FLI (family Leave Insurance) withholding or include the new NJ-BUS procedures. I was often forced to prepare manual NJ returns not because I wanted to, or because the client wanted me to, but because of the excessive limitations and restrictions of the system.
Like last year, there were no “technical difficulties” involving my computer or printer, my car, or the weather to contend with this tax season. And I developed a system to reduce my time spent at the Post Office.
I did not find any special “themes” to this tax season. In the past there have been years where it seemed every third client won something in the lottery, or refinanced the mortgage, or had something else in common.
Unfortunately I ended the season with 44 GD extensions. A handful were requested by clients who either had not yet gotten their “stuff” together and to me or who were waiting for K-1s (which also could be appropriately preceded by the initials GD). And I am sure there are some more filed directly by clients. There were less than 40 that were required due to workload and time constraints.
On the plus side this year I was much better in practicing the FIFO (first-in, first-out) system of return preparation that I preached. All returns received in my hands in the month of February were dealt with. No returns got lost between the cracks or in the shuffle. All time constraint GDEs were received during the last three weeks of March.
My January client letter clearly stated that all returns not physically in my hands by March 22nd would be automatically extended, and that I could not guarantee that returns received after March 15th would be able to be completed in time for an April 15th filing. The great majority of GDEs fell into these two date-related categories. Only literally a handful were received before March 16th.
I did discover a problem with the Post Office. Packages sent to me via regular first class mail occasionally took as long as two weeks to get from NJ to me here in the “boonies”. I sent back all completed returns via Priority Mail, and charged clients for the cost, originally because of the free tracking component. In next year’s January client letter I will instruct all clients to use Priority Mail to send me their “stuff”, to receive actual priority in delivery and for the free tracking.
I have thought about why there are so many mid-March mailings resulting in GDEs, and I do believe the main reason is because of the lateness of brokerage firms in sending out the Year-End Tax Reporting Statement. The IRS now does not require delivery until mid-February, and many send out at least one corrected copy as late as mid-March. Many clients, who a dozen years ago would send me their stuff in early or mid-February must now wait until March out of necessity.
This problem first began with the creation of the category of “qualified dividends”, which are taxed at a lower rate, back in, I believe, 2004. This is because, as is their custom, the idiots in Congress had to complicate the requirements for dividends to be “qualified”.
Whatever the reason, 40 GDEs, or even 20 GDE, are too many. Next season I truly need to find ways to aggressively “thin the herd” and to reduce the time I must spend away from my desk.
Of course the tax season ended for me not on April 15th but on April 14th. Fellow tax-blogger Peter Reilly from Forbes.com explains why (click here).
So there it is. That was the tax season that was. Any questions?