The late start to this year's filling season has both good and not-so-good implications, according to Roger Harris, president of Padgett Business Services.
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"At least the changes -- the tax rates and the Alternative Minimum Tax fix - are permanent, so we won't have to go through this again next year," he said. "But we're faced with a late start to the filing season as a result of the late passage of the legislation. The earliest to file would be after January 30 for Form 1040s, but for those of us that deal with small businesses, we won't start tax season until late February or early March."
"What they settled on was to keep everything the same, unless you're in the $450,000 range. Other than tinker with the upper rates, if you don't hit one of the thresholds, everything is as it always was, and that's permanent and that's good. It just happened too late, and now we're faced with a delayed filing season," he said. "The key part is that, as tax preparers, we should start gathering data, we just won't be able to submit it to the IRS. The other impact is that a lot of people file in early January to get a refund, but now they had to wait until at least January 30 or later."
The delay in the start of tax season from January 22 to January 30 is one of the latest ever, noted Chuck McCabe, chief executive of Peoples Income Tax and The Income Tax School. Close to 80 percent, or 120 million returns, will be able to be filed by January 30, he indicated.
"There will be hardships for some preparers, as well as taxpayers," he noted. "We are a highly seasonal business, and we usually rely on early revenue to catch up on off-season expenses. The delay in filing will result in a continuation of negative cash flow for a lot of tax preparation businesses."
"And many taxpayers rely on their refunds to pay their bills, especially lower-income taxpayers who may have to pay rent, or make mortgage payments. When the money doesn't come in, it can cause serious problems," McCabe said. "My guess is that it will cause people to get their refunds two to four weeks later than last year."
CHECKING THE RULES
At the same time, there are not as many tax changes for 2012 as there will be next year for 2013 returns, McCabe observed. "We'll have a pretty decent filing season," he said.
As a result of the legislation, the preparer need not be the bearer of bad news at filing time, observed Bob Scharin, senior tax analyst for Thomson Reuters. "The part of it that affects tax filers are the permanent effect of the extenders and the AMT exemption amount. If these had not been acted on, a lot would have found themselves paying more tax and the preparer would have had to explain why."
"For high-income clients, preparers might want to pay attention to tax planning for 2013, including the amount withheld, withholding from paychecks and estimated tax payments. High-income clients could find themselves in the 39.6 percent top tax rate in 2013," he said. "Also, the phaseout of personal exemptions and itemized deductions, and the 3.8 percent tax on unearned income, may result in the need to increase withholding or estimated tax payments for 2013. The first estimated tax payment is due April 15, and withholding can be changed at any time through the employer, so it's a good time to figure out which client is likely to be affected by this."
"We have a deal with our clients," said Linda de Marlor, president of Rockville, Md.- based Tax-Masters Inc. "We tell them to come in early, and usually it takes two visits, so we get them in and then file the return as soon as we can. But there are a lot of reasons not to file early. For example, people that have a partnership usually don't have their K-1s. They wouldn't want to file without it, because they would have to amend their returns later. And there's a good chance that a human actually looks at an amended return."
A lot of people don't realize that they can't claim the household energy credit anymore, de Marlor said. "If they spent a bunch of money on storm windows, they can't deduct it, but of course when they sell they can add it to the basis." And her clients that were putting off getting married can now tie the knot without fear of the marriage penalty.
De Marlor said she has already gotten calls on why a client's paycheck is smaller this year. "When they see their paycheck going down, they call me. I've already warned the people in our office about the payroll tax - it used to be 6.2 percent but it was reduced by 2 percent, and now it's back up to where it was before at 6.2 percent," she said. "It's just going back to where it was in the past, but people don't remember the past, they just remember what they got last week."
PLANNING FOR THE FUTURE
The January 30 start is not that far off from the original January 22 date, noted George Jones, managing editor of the CCH Washington Tax Bureau and senior tax analyst for Wolters Kluwer. "Of course, the rub for all years is whether all the information has been received by that date," he said. "The deadlines for 1099s and W-2s are January 30, and, in some cases, February 15. At a hearing last year on the old-time tax system, the then-commissioner said he was considering processes where all the information returns would be able to be received and matched by January 15 -- that would be pie in the sky today."
"One tax planning issue to consider is if you're in the 39.6 percent bracket or even subject to the 3.8 percent investment income surtax, consider opting out of installment sale treatment," said Jones. "For example, if there was a sale last year and the contract provides for payment over more than a single year, the default treatment is to recognize income only when the payments are made, but you can elect to opt out of the treatment and recognize the income immediately. Of course, that means paying more tax up front, but it avoids the higher rates for this year and subsequent years for pass-through income."
Talk about audit triggers this year is focusing on substantiating charitable deductions, Jones indicated, "especially if claiming property rather than contributions in money. The service is concerned with situations in which taxpayers have been giving themselves more than the benefit of the doubt."
"Overall, if it were not for the computerization of tax filing, this year's filing season would be a mess because of all the changes in the forms," he said.