Monday, May 24, 2021


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.


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