THAT WAS THE TAX SEASON THAT WAS 2021

My 50^th 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 11^th, 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

MISLEADING INFORMATION

The income tax filing season begins on February 1^st - at least it has for me each year for 49 years.  The 2021 tax filing season begins on February 1st.  

Bloggers and journalists are falsely indicating that the tax filing season begins on February 12^th.

February 12^th is the date that the IRS will begin accepting and processing paper and electronic tax returns.  Period.  This is later than usual due mostly to late enacted tax legislation.

Taxpayers should not put off contacting their tax professionals with 2020 tax information if they have truly received everything needed to properly prepare the return. 

Time is a precious commodity for tax pros from February 1 through April 15.  Do not make their job more difficult by waiting until February 12 if you are not missing for any forms or information.

TTFN

THAT WAS THE TAX SEASON THAT WAS 2020

It’s finally over! 

My 49^th tax filing season – I started as an apprentice tax preparer in February of 1972 preparing 1971 tax returns – was the only time I am aware that the initial filing deadline was extended, 6 months from April 15 to July 15 as a result of the COVID-19 pandemic.  Taxpayers had until July 15 to file their 2019 returns and pay any tax due, and to make the first two quarterly 2020 estimated tax payments.

While the season officially ended July 15^th, it ended July 14 for me.  I never work the last day of the initial filing season (see here to learn why).

The big change in federal tax forms for 2019 returns was the return to sanity.  The completely ridiculous “postcard” format of the 2018 return was gone!  The 2019 Form 1040 was most definitely “more better” – and returned to a more logical flow of information.

There was a new Form 1040-SR for senior filers, created for no other reason than it was required by the Bipartisan Budget Act of 2018, which was word-for-word and line-for-line exactly the same as the “regular” 2019 Form 1040 except it had bigger print and included a Standard Deduction chart.

The previously 6 supplemental schedules to the 1040 were reduced to 3.  Schedule 2 and 4 were combined in the 2019 Schedule 2, Schedule 3 and 5 were combined in Schedule 3 for 2019, and the information previously reported on Schedule 6 was returned to the 1040.  The 2019 Schedule 1, like 2018, reported additional income and adjustments to income, the 2019 Schedule 2 reported all additional taxes, and the 2019 Schedule 3 reported nonrefundable credits and other payments and refundable credits.

There were no auto, computer, equipment, or weather issues of consequence this season.  And there were no real changes to tax law – except for the last-minute retroactive extension of the infamous “extenders”, which affected very few of my clients.       

The excessive federal under-withholding FU from last season was not evident this year.  In most cases the federal income tax withholding of my clients was fixed, I expect by clients requesting additional withholding.  At the beginning of the year the IRS issued a totally new W-4 for 2020, doing away completely with the concept of “withholding allowances”.  I will have to wait until next tax season to see if this new W-4 format caused any problems.

I have been working at home for more than a dozen years now – so the pandemic “stay at home” order issued at the end of March did not adversely affect my practice.  To be perfectly honest, I was glad that I had a reason not to go anywhere – at least from late March through mid-April.  I was also not financially impacted by the pandemic.  Money continued, and continues, to come in, but much less was going out.  My business and personal expenses were reduced.

I did miss my annual recuperative trip to the Jersey shore in April, and found that by June it was difficult to get motivated to continue to deal with 1040s and I had to battle a severe case of “manana disease

The biggest issue of this tax filing season for taxpayers was, and continues to be, the excessive IRS delay in issuing refunds on manually-filed federal income tax returns – which all my federal returns are.  This was a federal issue only, as NJ refunds were issued to my clients relatively promptly.  The IRS offices were closed from the end of March until the end of June.  Nobody was opening the mail and processing manual returns, amended returns or correspondence during this period.  When the offices re-opened there was a ton of unopened mail to deal with, including a substantial backlog of manual returns to process.  The office closures also affected the IRS “Where’s My Refund” tool – the Service had no idea if a manual return was received, so clients could not check on their refund status here. 

There was nothing I could do, or can do, to expediate the processing of a return or the issuance of a refund.  And I had, and have, absolutely no idea when refunds would or will be issued, or any way of finding out. 

To compensate for the delays the IRS announced that it will pay interest on refunds from April 15, 2020 to the date the check is issued.

There was a major processing change for my NJ returns this year.  I was initially concerned when I learned that NJ did away with its NJWebFile system, which I had used to electronically submit many NJ state returns and request direct deposit of refunds in the past.  I discovered that this was replaced with a new “New Jersey Online Income Tax Filing” system, which allowed me to electronically submit all 2019 NJ-1040s free of charge at the NJ Division of Taxation website without the need for separate email addresses and passwords for each return.  The limitations of the old NJWebFile system no longer existed.  And I could request direct deposit for all state refunds.  I used this new system for almost every NJ return I submitted, except for some that had a balance due.  Because I used this filing method my clients received their NJ refunds promptly.   

I continued to use, and truly appreciate, the New York state “enhanced” fill-in forms, which did the math and calculated the tax for the IT-201 and IT-203.  There were no issues with NY returns and no delays, that I was made aware of, for NY state refunds.   

Despite the extended deadline I still ended the season with 7 GDEs (the “E” is for “extension”).  I prepared about 16 less sets of tax returns this season.  Some clients chose to move on to a new preparer in anticipation of my retirement after next year’s tax filing season.  Some told me they were moving on and some did not.  There were a handful of deaths, not unusual considering the age of many of my clients.  (I was especially saddened by the 2020 passing of two long-time clients, originally of Jim Gill, one apparently related to COVID-19.)  And, as announced this January, I no longer prepare the returns of the grown children of clients who do not live at home.

So that was the 2020 tax filing season.  One more season to go before I officially “retire” – after having completed 50 tax filing seasons!

TTFN

THAT WAS THE TAX SEASON THAT WAS - PART TWO

Issues continued with NJ taxpayers who no longer receive 1099-G forms for unemployment income and withholding in the mail – they are only available online.  Unlike the 1099-G forms for state tax refunds, also no longer mailed, these forms are not easy for me to access online.  And, while I know that a client had a state tax refund, I do not know if he or she received unemployment if not told (sometimes there is only a one- or two-week carryover from a previous year’s claim and the client forgets).

On the plus side, the Form 1098-T sent to college students by universities is finally no longer the equivalent of tits on a bull.  The 2018 Form 1098-T actually provided the information necessary to calculate the education tax credits – “the total payments received by an eligible educational institution in 2018 from any source for qualified tuition and related expenses less any reimbursements or refunds made during 2018 that relate to those payments received during 2018”.  Previously these forms only told us what the college billed.  I don’t give a rat’s hind quarters what the college billed during the year – I need to know what was actually paid.

I did not have to deal with any clients who did not have “appropriate” health care coverage for the year, and did not have to calculate the shared responsibility penalty for anyone.  However, there were a few more who had to pay back some, or all, of the advance premium credits they received during the year.  In most instances I had the victims make deductible traditional IRA contributions to either reduce their household income and the amount required to be paid back, or to reduce their income tax liability and lessen the net amount due.

This year the cafones in Congress added the “Head of Household” filing status and the newly created “Other Dependent Credit” to the items that require excessive additional “due diligence”, and certification of compliance with this additional due diligence on Form 8867.  As with the other items on Form 8867 I did absolutely nothing new or more than I would normally do, and normally did before the institution of the excessive due diligence nonsense, when claiming these items on a client’s return.

The biggest issue of this tax season was the occasionally disastrous results of what I called “the IRS withholding FU”.  As I explained to clients in my explanatory memo, last February the IRS revised the federal withholding tables to reflect the reduced tax rates.  But they did it too “liberally” – on purpose I believe so it would look like the GOP Tax Act benefited taxpayers more than it really did. 

Taxpayers did benefit from the lower rates of the Act, but the perhaps $50 per week more in their paycheck was usually more than the actual perhaps $25 tax savings.  The additional $25 or more per week had to be paid back when filing their 2018 return.

In addition, since the Act did away with the deduction for personal exemptions as well as many itemized deductions, the concept of the withholding exemption no longer applied.  Individuals who claimed additional exemptions for a spouse or dependents or for excess itemized deductions and did not revise their withholding for 2018 were royally screwed.  The increased amount and availability of the Child Tax Credit for dependent children under age 17 helped in some cases – but often not enough.

Almost every taxpayer whose withholding was based on the federal tables – and not a flat amount as with most IRA withdrawals and Social Security benefits – was under-withheld.  This was especially disastrous with multiple sources of withholding – like two-income couples, taxpayers with more than one job, and those receiving both pension and W-2 income.  I had clients owing $4,000, $9,000 and $20,000 because of the IRS withholding FU.

This problem will continue until the IRS figures out how to properly structure the withholding tables to properly reflect the new law.  In the meantime, my advice to EVERY taxpayer is to claim “Single-0” or “Married but withheld at the higher Single rate-0” for EVERY source of income subject to withholding.

Thankfully the IRS somewhat “relaxed” the safe-harbor for avoiding the penalty for underpayment of taxes - going from 90% of current year liability to 80%.  But this may not be enough for many taxpayers.  There should be no penalty for taxpayers relying on withholding for 2018 returns.

As for the state returns – this season we not only had a new federal 1040 but, for the first time in decades, a revised Form NJ-1040 and supplemental schedules and totally rewritten NJ-1040 instruction book.  However, unlike the new federal 1040, the 2018 NJ-1040 was changed for the better – thanks, I think, at least in part, to the fact that Jake Foy, former head of the “NJ Taxation University”, is now in charge of reformatting forms, instructions and correspondence to make them more “user-friendly”.

I used the new online fill-in NJ-1040 and supplemental schedules when I could not use NJWebFile.  I wish NJ would make this online filing option available and accessible for more filers.  The NJWebFile system has not been revised since its inception.

I continued to use, and truly appreciate, the New York state “enhanced” fill-in forms, which did the math and calculated the tax for the IT-201 and IT-203.  This is an excellent online system.  I wish the online fill-in NJ-1040 and supplemental schedules were similarly “enhanced” (Jake, are you listening?).

I got a new “designation” this year.  Previously the son of a long-time close friend and client had called me “Master of Taxes”.  This year a long-time client bestowed on me the title “Supreme Tax Expert”.  So, while not an EA and certainly not a CPA, I am a MOT and STE.  These titles appreciated, although not necessarily earned.

So that was the 2019 tax filing season.  Thank God it’s over!  Now – on to the GDEs.

TTFN

THAT WAS THE TAX SEASON THAT WAS - PART ONE

And another one gone, and another one gone.  Another one bites the dust.

Another tax filing season that is – my 48^th.

I got through all of the tax season, and I'm here!

The season ended with only 26 GDEs – the same as last year.  Although I actually prepared 16 less sets of returns by season-end than last year.

Once again, thankfully, no auto, computer, equipment, or weather issues.  And no word of any IRS or state refund or processing delays or FUs - so far.

And. also once again, I was truly “locked behind closed doors” for the entire season.  I did not plug my phone in unless I was expecting a specific call, which was rare.  I got spoiled last season and again this year truly enjoyed working through the day – which began between 3 and 4 AM and ended just after 4 PM - without the interruption of the telephone.  I did, of course, constantly check my email accounts, and responded promptly when appropriate.   

Regardless of how long a person has been in “the business” there is always the challenge of changes in tax law resulting from new legislation, often illogical and inequitable and reflective of the ignorance and agendas of those who actually write and pass tax law.

It took a while to get used to the flow of the ridiculous new “postcard 1040” and the accompanying new Schedules 1 through 6 (although I only used 1 -5).  The old Form 1040, which had evolved over decades, was, like Mary Poppins, “practically perfect”, with a logical flow of information.  There was absolutely no reason to change this format.

The idea of a tax return that fits on a postcard is a gimmick – and a gimmick totally lacking in legitimacy and with no basis in reality.  It is very literally impossible to have an individual income tax return that fits on a postcard under our current Tax Code. 

The new 1040 is not a “postcard”.  It is a 2-sided 8½ x 5½ size form.  This is truly stupid.  The new format should be a 1-page 8½ x 11 form.  And the 8½ x 5½ + or – sized Schedules 1 through 6 should be two 8 ½ x 11 forms – one for Schedules 1 and 3, since these Schedules are the most commonly used, and one for Schedules 2, 4, 5, and 6.  Or 1 through 6 on a 2-sided form. 

The new form 1040, in order to fit into the half-page format, condenses some information that, in my opinion, damages the logical flow of information.

As expected, very few of my clients were able to itemize for 2018.  Since almost all live in New Jersey or New York they were substantially affected by the new $10,000 limit on the “SALT” deduction – some losing $10,000 - $20,000 in allowable itemized deductions.  The few clients who could itemize were those with excessive medical expenses, single filers with mortgages, and couples with recent new home purchases.

But, due to the “SALT” deduction cap, 2018 is the last year I will have to claim as taxable income the prior year’s state income tax refunds.  For the few who could itemize the $10,000 limitation did away with any tax benefit from deducting state income taxes.  A related side benefit of the Act – clients deducted the state income tax withheld and paid in 2017 when rates were higher, and claimed the refund received as income in 2018 when rates were lower, for example deducted at 25% and taxed at 22%.  So, the result was they are net “in pocket” the rate differential - in the above example $30 for every $1,000 of state refund.  Not a lot – but better in the taxpayer’s pocket than the government’s.

The tax law change from the GOP Tax Act that had the most potential for agita was the elimination of the itemized deduction for “home equity debt” mortgage interest and the resulting need to correctly separately identify “acquisition debt” interest and “home equity debt” interest.  Actually, it had been important to separately track acquisition and home equity debt prior to the Act, but not as vital due to the $100,000 home equity debt threshold.  As an aside, I do not know of any taxpayer, client or otherwise, who actually did this in the past.

Another aside, while I oppose the $10,000 limit on state and local property taxes and income or sales taxes, I wholeheartedly support limiting the deduction for mortgage interest to acquisition debt interest.

Last year I advised my clients of the importance of keeping separate track of acquisition debt and home equity debt going back to their original purchase mortgage, provided instructions and worksheets on how to do it, and offered to do it for them during the year.  No client contacted me about this issue during 2018, and no client provided me with information on the source of their 1098 interest with their 2018 “stuff”.  They totally ignored this issue.

Luckily most clients were not able to itemize for 2018, so the issue only applied to a handful of returns.  For some, since I keep copies of every return I have ever filed for current clients as well as some back-up documentation, I was able to easily determine or estimate the amount of acquisition debt interest. 

Because of the “pecking order” for applying principal payments I could go back to the first refinance of their original purchase mortgage (if I had the closing statement in the file) and identify the amount of the original mortgage principal that was paid off via that refinance.  If this was $98,000, and the 1/1/18 principal balance of the current mortgage (listed on the Form 1098) was $206,000, after multiple refinances and consolidations over the years, and the fixed rate of the current mortgage was 3.65% I would know that the correct itemized deduction was $3,577 and not the $7,000+ reported on the 1098.  If they had borrowed to make a “substantial improvement” in the past – say $25,000 to remodel the kitchen – the allowable deduction would be higher.

While the inability to itemize did make some returns simpler, it did not substantially reduce the time involved in preparing, checking and compiling most returns

There was a disturbing change this year in the Fidelity year-end consolidated tax statements.  Those sent to taxpayers in the mail did not include detail on the dividends paid.  You had to go online and print-out the statement to get the complete report.   

While all of the consolidated year-end tax statements provide the same basic 1099 information, the supplemental information provided by the brokerage houses in these statements varies.  TIAA-CREF without a doubt has the absolute best supplemental information – with literally all the information needed to properly prepare federal and state tax returns available.  Morgan Stanley does good providing information on exempt income, foreign income and USGO percentages for mutual funds and individual state percentages for municipal bond funds, but I wish they would have sub-totals for each investment’s separate dividend income.  Fidelity provides the least amount of information in their statements, and now even less.

To be continued . . . . . .

TTFN

THE 2019 TAX FILING SEASON

Public Law 115-97 – officially “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018” - also known as “The Tax Cuts and Jobs Act”, but best described as the GOP Tax Act - takes effect with the 2018 federal income tax returns that have begun to be filed. 

This new law has drastically changed the United State Tax Code.  For tax years 2018 through 2025, or until new tax legislation is enacted, the GOP Tax Act will affect every income tax return filed.

The GOP Tax Act is the Republican equivalent of the Democrat’s Obamacare.

Both Acts were based on a good concept that dealt with a legitimate issue – making adequate health care more affordable for and accessible and providing needed tax reform.  But the main purpose of passing both Acts was to get an early legislative victory for the Party’s newly elected President.  Both were written hastily and poorly, the GOP Tax Act practically overnight, without serious thought or discussion.  And were voted on hastily, without serious debate. 

In both cases, none of the members of Congress who voted on these Acts, from both Parties, actually read the legislation they were voting on.  They were told how to vote by the leaders of their respective Parties, and for the most part the members obeyed.

And both Acts contained some good and some bad, perhaps more bad than good.

Obamacare required insurance companies to provide coverage for pre-existing conditions, and provided taxpayers with a tax credit directly applied to monthly premium payments to reduce the out of pocket cost, but created an excessive financial penalty for not having health insurance coverage, added the NIIT surtax to investment income and created other nickel and dime taxes, fees and charges, and made health insurance premiums age-based.

The GOP Tax Act did contain some simplification via the elimination and limitation of tax deposits, some good and some bad, increased the Standard Deduction, reduced tax rates, and effectively did away with the dreaded Alternative Minimum Tax, but it also contained much new and unnecessary complexity.  It was neither tax reform nor tax simplification.  Thankfully the popular title properly identified it as “tax cuts” and not “tax reform”.   

The Act will make the preparation of some Form 1040s simpler, but also make many more involved and more costly.  Taxpayers in many situations should not be surprised when they discover the fee to prepare their returns is higher than in past years.  

Taxpayers should also not be surprised if their refunds are smaller than expected, or if they actually owe money with the filing of their 2018 Form 1040.  Many have been under-withheld, some seriously.  The Government Accountability Office recently reported that, based on simulations run by the Treasury Department, taxes for at least 30 million Americans — 21 percent of taxpayers — are being under-withheld.

The new withholding tables issued last February were a bit too “liberal”, so workers would think the GOP Tax Act was actually putting more money in their pockets.  And the loss of the personal exemption deduction and many itemized deductions makes previously submitted W-4 forms no longer appropriate.  The IRS has provided some token relief for this under-withholding by revising the calculation of the penalty for underpayment of estimated taxes.

As I have said in the past, the more I learn about the GOP Tax Act the more I find –

(1) There is still a lot we don’t know yet about how many of the provisions of the Act will be interpreted and implemented.

(2) Because the Act was basically written overnight, the wording of the law is often defective, confusing and unclear.  “Technical corrections” legislation is clearly needed.

(3) It is very obvious that those who actually write tax law and the members of Congress who vote on it have absolutely no concept of the practical implementation of the tax legislation they write and pass, or of the actual preparation of tax returns.

So, good luck with the preparation and filing of your 2018 Form 1040.  And be sure to return here after the end of the filing season to read my annual “That Was The Tax Season That Was” post.

TTFN

THAT WAS THE TAX SEASON THAT WAS - 2018

I survived my 47^th tax season . . . .and I’m here!

This season I got an answer to the question posed by the Beatles decades ago (at least for me) – you still need me, and some of you still feed me, now that I am 64!

Once again, a successful year.  I ended the season with only 26 GDEs (by now I expect you know what this stands for) – similar to the previous 2 years.   And once again not a single GDE was due to my workload!  Every single return received in my hands by March 18^th, with all the necessary information, was completed and returned to the client, as were quite a few received after that date.  

Also again, no auto, computer, equipment, or weather issues.  And no word of any IRS or state refund or processing delays or FUs - so far.

I was truly “locked behind closed doors” for the entire season.  I was up at my desk each morning between 4 and 5 AM during this time, and when February 1st came around I forgot to plug my phone in at 9 AM each morning.  After about a week I got spoiled – I enjoyed working through the day without the interruption of the phone (even though I have always screened calls) – and never plugged the phone in (unless I was expecting a specific call).  I did, however, constantly check my email accounts, and responded promptly when appropriate.  I found that, from my point of view, not having the phone on did not adversely affect the preparation of returns.

After preparing each tax return this season I also calculated the tax on 2017 income and deductions using the new tax law and rates of the GOP Tax Act, to see how clients would have fared if the Act had been effective for 2017.   I found that most would have paid less – ranging from $2.00 to several thousand – but a handful would have paid more.  I included the result of my calculation in my “The Word” explanatory memo that accompanied finished returns.  One thing I learned from this exercise is that many returns will be much simpler next season and beyond, because I found many clients would no longer be able to itemize under the new law.  I am NOT complaining.  

Obviously, I will still need to report gains and losses from investment sales on Schedule D and deal with the special qualified dividends and capital gains tax rates, report rental income and expenses on Schedule E, and calculate credits for college tuition.  But there will be a lot less Schedule As, and many clients will be filing the equivalent of a short form.

The one change from the GOP Tax Act that was effective for 2017 – returning the AGI exclusion threshold for medical expense to 7½% - did indeed benefit quite a few of my clients.

Taxpayers could no longer remain silent on full-year health insurance coverage, as they could last year, and I actually had to calculate a pro-rated Obamacare individual responsibility penalty for 2 clients (my first time using this procedure).  A handful of clients had to reconcile advance premium credits, and I was able to save a married couple $1,500 by having them make a $1,000 deductible IRA contribution (to be explained in a future post).

I continued to do absolutely nothing more or different for returns claiming the American Opportunity Credit and the Child Tax Credit, other than include IRS Form 8867.  As the season progressed I considered, to save time, creating a pro-forma Form 8867 with my name and PTIN and the questions on Page 1, and the last question, all answered ‘appropriately”, so I would just have to enter the client name and number and answers to the credit specific questions when the form was needed.  I will definitely do this next season.  As you probably know by now, I strongly oppose and denounce (as I do arrogant arsehole Donald T Rump) the additional excessive due-diligence requirements for these credits.

The ridiculous retroactive one-year only extension of several expired tax benefits that the idiots in Congress included in the “Bipartisan Budget Act of 2018” signed by Trump on February 9^th did not cause any problems for me.  I did not, and will not, have to amend any 2017 returns to include these extended benefits.

On the state side, I used NJWebFile to electronically submit NJ returns whenever possible, and permitted by the client, and used the state’s somewhat enhanced fill-in form when needed, and took advantage of the excellent NY state truly enhanced fill-in Forms IT-201 and IT-203.  Of course, all my federal returns were prepared manually.

Like last year there was a delay in the beginning of processing returns by the IRS – the Service began processing returns on January 29^th, later than last year’s January 23^rd start date.  But, of course, I did not begin to prepare returns until February 1^st.  And for the first time  in history the April 17^th filing deadline (once again the 15^th fell on a week-end and the 16^th was Emancipation Day, a legal holiday in Washington, DC) was extended to April 18^th when, as fellow taxblogger Kelly Phillips Erb explained in her post “Don't Panic: After IRS Problems, Taxpayers Get An Extra Day To File” –

“Following computer system issues which appeared early on the April 17 tax deadline, the Internal Revenue Service (IRS) has announced that taxpayers will have an additional day to file and pay their taxes. . . . The system issues were discovered early in the morning on Tax Day. Despite these problems, some taxpayers were able to file and pay their taxes online. However, since millions of taxpayers were expected to file at the last minute, out of an abundance of caution, the IRS has extended the deadline.”

As usual the season ended for me the day before the original deadline – on Monday, April 16^th – with the mailing of the GDEs.  I actually prepared my last Form 1040 of the season on Saturday.  The additional day meant nothing to me – I left for my annual post-season recuperation at the Jersey shore on the morning of April 18^th.  

It seems that I prepared about 20 less sets of returns during the season this year.  A couple of clients, aware of my announced retirement after 3 more seasons, did seek out a new more local preparer, telling me so, and I lost some clients due to death.  And I expect I did not hear from a couple because they no longer need to file a return (although I do invite clients in this situation to continue to send me their “stuff” anyway and I would verify that they did not need to file, which I did for a handful).  I did not accept any new clients – keeping true to my policy – although I did do a first return for one or two dependent children of existing clients.

So, there you have my commentary on the 2018 tax filing season.  I end with my usual question for fellow tax pros – did I miss anything?

(I am truly showing my age with the title of this annual post.  I remember as a child in the mid-1960s watching the American version of the popular British satire THAT WAS THE WEEK THAT WAS – aka TWTWTW – the grandfather of Comedy Central’s THE DAILY SHOW.  It was hosted by David Frost and featured Phyllis Newman, Henry Morgan. Buck Henry and Alan Alda.  The first line of this post is a hat tip to Stephen Sondheim, adapting a lyric from an iconic FOLLIES song.)

TTFN

THAT WAS THE TAX SEASON THAT WAS - 2017

Another tax filing season down – 4 more to go till I can say I have prepared 1040s for 50 tax seasons. 

 

Another successful year – I ended the season with only 22 GDEs (the “E” is for “extension” – you can guess what the “GD” is).  This is lower than the 24 from last tax season, which at the time was the least amount of GDEs since I took over my mentor’s practice in 1999. 

 

13 were because the client’s package, or all the needed information, was received well after my deadline for timely filing of March 18^th - many received in April (actually one package arrived in my PO box on April 19^th).  Only  2 were “red-filed” – I needed more information to complete the return.  And 7 were requested by clients who did not send me any 2016 tax info yet.  I expect that there is one more from a client who had not contacted me at all yet – they usually submit their own GDE application and send me their “stuff” in the summer. 

 

Not a single GDE was due to my workload!  Every single return received in my hands by March 18^th was completed and returned to the client, as were several received after that date.   

 

So once again my filing season ran smoothly.  There were no car, equipment, computer, or other issues.  The weather did impact the season on one occasion – for the first time since I moved to NE Pennsylvania the snowfall was much more here than in NJ.  A 30+ inch blizzard in mid-March literally buried my car and I could go nowhere for almost 2 weeks.  I have always said that I welcomed a huge snow storm in March so I could catch-up without interruption – and I got my wish this season.  

 

I had no issues with late-issued corrected Consolidated 1099 Tax Statements from brokerage houses this year.  The returns of several clients who usually had to wait until late March to send me their “stuff” were done earlier than usual.  And more cost basis information was provided, to both taxpayers and the IRS, for long-term transactions.

 

The IRS did much better processing returns this year.  I have not heard of any excessive refund delays or other processing FUs so far.  NJ announced in January that no refund, regardless of how submitted, would be issued until March 1^st, due to additional identity verification - and I advised February filers with refunds of this fact.

 

Despite an advertised slight delay in the date the IRS would begin processing returns (Monday, Jan. 23, 2017) the season officially began for me, as it always has, on February 1^st.  I can could on the fingers of one hand the number of returns I have prepared before February 1^st in the past 45 years.

 

Thanks to the PATH Act (nothing to do with the subway from NJ to NYC) the IRS was required to hold tax refunds until Feb. 15 for taxpayers who claimed the Earned Income Tax Credit or the Additional Child Tax Credit.  This did not affect my clients – as I have a truly minimal number of clients who claim these government welfare benefits.

 

While I continue to oppose the excessive additional “due-diligence” requirements for tax professionals preparing tax returns of clients requesting an Earned Income Credit, and beginning with this season the American Opportunity Credit and the Child Tax Credit, and the existence of IRS Form 8867, I was happy that the form was reduced to 2 pages this season and wasted less of my time to prepare. 

 

I did absolutely nothing new, different, or additional this season regarding EITC, AOTC, and CTC claims than I have done in past years.  The Form 8867 was only a minor time-wasting inconvenience this season.  My biggest issue with this form was having to remember to include it for taxpayers claiming the Child Tax Credit.

 

Most of my clients have been with me for decades, often before the birth of their applicable dependents, so I am well aware of their situation.  And I have always asked clients for college Bursar’s or other financial statements in addition to the Form 1098-T to verify the correct amount of qualified tuition, fees and expenses when claiming tuition tax benefits.  While Congress, doing something right for a change, did require colleges to properly complete the Form 1098-T beginning with tax year 2016 returns, the IRS gave in to whining from the schools and continued to allow the 2016 Form 1098-T to be as useful as tits on a bull.

 

As most of you know I no longer accept ANY new clients.  If I did I would refuse to accept clients who would be requesting an Earned Income Credit.

 

The Obamacare “shared responsibility penalty” was not an issue for me this season.  Nor was the advance premium tax credit reconciliation.  There was only one client who would have been subject to this penalty – but the IRS announced that it would not delay processing of returns that were “silent” on full-year health insurance coverage (did not check the box to verify full-year coverage and did not include Form 8965), so I completed the return without checking the box and without completing Form 8965.  The IRS may ask for this form later in the year – and I will deal with the issue it that occurs.  I continue to believe it is wrong to require a taxpayer to pay someone to assess an IRS penalty.  

 

Forms 1095-A, B, and C arrived earlier this season, though the late receipt of Form 1095-B or C would not hold up my preparation of a return.  Information on W-2s and Social Security statements and client representations are enough for me to indicate full-year health insurance coverage.

 

On the state side – I continued to be extremely pleased with New York’s new “enhanced” online Form IT-201 and IT-203 “fill-in” (but manually filed) forms.  The “enhancement” automatically did the math and actually calculated the tax – saving valuable time.  I used the new enhanced process for all of the New York returns I prepared – and continued to add to my invoice a $5.00 “New York State Tax Preparer Extortion Fee Surcharge” for all clients with NY state returns.

 

I also continued to use NJWebFile to electronically submit NJ-1040s directly to Trenton free of charge whenever possible (unless specifically forbidden by the client’s request).  However there are still too many situations where this option is not available.  When I had to manually prepare the return for the client to mail I used the online “Fill-In” Form 1040, which did some math but did not automatically calculate the tax (I wish NJ would initiate a system similar to the NYS “enhanced” process).   I did not encounter any issues with NJ returns – yet.  But it is still early.

 

The delayed filing deadline – April 18 instead of April 15 again this year – really did not add much work time to my season.  I stopped working on 1040s April 14, and actually completed most of the GDE forms that afternoon.  As you may know, I never work on 1040s (or 1040As) on the actual filing deadline day (click here to see a post from fellow tax-blogger Peter Reilly explaining why).

 

As is my custom I took time off after the 18^th to recover at the Jersey shore.  As you read this I am back at my desk working on GDEs at a more leisurely pace.

 

So another tax filing season is added to the history books.  Let’s hope the next 4 seasons continue to be similarly smooth-running and problem-free.

 

I end with my usual question for fellow tax pros – did I miss anything?

 

TTFN