Tax Talk
Tax Talk
Why all the stress?
You may be wondering why tax preparers and even bookkeepers seem more stressed this year. Remember that we have been through the same pandemic as you and we are also people, but there are other issues as well.
It started in 2020 with lots of businesses asking tax preparers (Enrolled Agents, CPAs and unenrolled preparers) and their bookkeepers about PPP loans, EIDLs and state grants. As these government programs to help businesses were rolling out, we were trying to keep up. Things were changing quickly and the expectation was that we had the answers. In reality, nobody had the answers. Many regulations and rules were being developed as the programs were being implemented.
It seemed that we were just starting to understand PPP loans when tax season started. I initially could not understand why people were asking to delay the tax filing deadline. We did have extra work gathering stimulus payment (EIP) information and entering that data and determining if PPP loans were loans or forgiven tax-exempt income or taxable for some states. For some complex businesses, there are still open questions which the IRS needs to provide some guidance. But overall, it didn’t look horribly bad.
Then I started seeing all the requests for help with deceased parents’ estates. With over 500,000 deaths, there are a lot more final returns, estate returns, and trust returns to do. Revocable trusts with assets included on 1040 forms revert to irrevocable trusts which require separate filings on form 1041. Also, the 1099’s from investment houses need to be manually split between the before death and after death income. Whoever is responsible for the tax filing needs to figure out where the deceased had their money, how to access the information and even where to find the 2019 tax return. Many adult children dug through their parent’s home looking for documents and wondering what they missed. Sometimes, by looking at the previous tax returns, the tax preparers discovers accounts that the children didn’t know about.
With low interest rates, more people refinanced in 2020 than I have ever seen in one year. Most roll their refinancing costs into their mortgage. After TCJA, the interest on any money taken out in a refinance that is not used for acquisition or improvements cannot be deducted. Therefore, we needed to prorate the interest. More work for tax preparers.
The IRS released a new form to deal with retirement distributions. If the client experienced COVID issues or certain federally declared disasters, this needed to be verified. Then the client had 3 options on how to handle the first $100,000 of distributions — pay back, pay taxes on 2020 return, or spread out across 2020, 2021, and 2022 returns. I needed to show them the options, explain each, and have them select one. Again, this takes time.
Then Congress passed the American Rescue Plan (in early March, during tax season) which included changes to how unemployment earned in 2020 was being taxed, i.e., retroactive tax code changes. The IRS software and the tax preparation software needed to be updated to reflect the changes. States then considered changes. (MA changed the law on April 2 allowing some unemployment forgiveness and tax-exempt treatment of forgiveness PPP loans.) It took a little longer for regulations (or even Q&As) to be released. Some of these returns had already been filed and needed to be amended.
Adding to this, every law change and regulation requires that I take time out of tax preparation and learn the changes. Clients were hearing quick news stories which resulted in them asking more questions. They were asking about PPP loans, stimulus checks, whether their child can claim themselves instead of being a dependent (generally, no), unemployment, etc.
Also the new law removed the pay back of overpaid ACA premium credits overpaid for 2020.
We also dealt with employee retention credits and credits for employees who were out sick with COVID or caring for a COVID patient. Some of these credits went through payroll tax reporting and some on tax returns.
All these tax law changes resulting in changes in our software. We had to wait for software updates before filing the other clients.
Some preparers were dealing with businesses with significant losses. There are rules about carrying back net operating losses (NOLs) before you claim the losses in the current year. In the midst of a crazy tax season, some preparers were amending past years returns to get 2020 correct.
The IRS was receiving over 500 calls per second during most of the tax season with a peak over 1,000 per second.
The 2020 tax filing season became much busier than in past years. It was long before I was happy to have been given the extra 32 days. I would say it is over now, but I still have clients who went on extension (not due to me), clients that haven’t gotten their refund after 10 weeks, and issues I delayed until after tax season which clients want resolved right away. I am exhausted.
Tuesday, May 18, 2021