It is almost time! 10 days from now the IRS will open their E-file system for 2021 tax returns. In all of the chaos of the past two years, I thought it would be helpful to share some insights, small as they may be, into the world of tax filing during a pandemic and beyond. Today kicks off my 10 Day Countdown, check back each day for more tips and tricks.
Day 1: Lessons Learned
I have always tried to live by the adage “when life gives you lemons, make lemonade.” While we have been holding on and hurrying up to wait, I do not think I am alone in feeling buried under 2 tons of lemons with no juicer in sight. The world of tax preparation is no different. The speed at which laws have changed, the number of temporary regulations put into place, and the documentation necessary to prepare a tax return has complicated an already complex system.
One lesson our office learned during the 2021 filing season was to ensure the stimulus payments were reported correctly. Due to the economic impact payments (stimulus payments) being a temporary regulation, the IRS was not able to write an error reconciliation into their computer system. This means if a return reported a different number than the database showed, the return was taken out of the “automatic processing” pile and placed in the enormous “process by hand” pile.
This would have been helpful to know before we started filing returns.
The most shocking lesson learned was that Congress hates tax preparers – ok not really, but they obviously have not been eyeball deep in tax returns in mid-March or they would not have made retroactive change to the taxability of the unemployment compensation on March 13th. They also must not work for the IRS when they decided to have the IRS “just make the adjustment” for everyone instead of processing these amended returns. Which has not proven useful based on the enormous backlog of returns needing to be processed. As of today, the IRS reports 51,000 unprocessed tax returns along with a continued effort to review and process corrections due to the UEC exclusion.
The Taxpayer Advocate Office has stopped taking new cases and will not assist anyone waiting on a refund, amendment, or response to a notice. The practitioner line is taking 2 hours to answer if you are lucky enough to get into the que for the day. As frustration continues to mount, let’s focus on what we can control.
#1 – Documentation is our best friend
The IRS is sending out letters regarding the amount of Advanced Child Tax Credit was received and the amount of your third stimulus. If you are anything like me, you put both documents in a “safe place.” If you are also a tax pro like me, you will not process a tax return without this information – see lesson learned above. Believe it or not, the IRS has tools available on their website to find this information. More to come on these tools in a couple of days.
#2 – Expect the unexpected
While pending legislation is a norm in Washington, the Build Back Better bill could cause quite a stir. Within its massive text, there are provisions to the tax code that are retroactive to the date the bill was introduced, September of 2021. 2020 broke my crystal ball and I cannot make any predictions of how, when, or what will be passed into law. All I know is the word retroactive gives me nightmares! We will be keeping a close eye on the progress this bill makes through our legislative system.
Check back tomorrow for more details regarding reporting the Advanced Child Tax Credit and third stimulus payment.