by Roger Russell
The 2004 filing season heads into the homestretch with growth in nearly every category of filing, according to the latest figures released by the Internal Revenue Service.
At mid-season, electronic filing was running more than 10 percent over last year, with the biggest increase seen in home computer use, up 23 percent. Overall, return figures were also up over the same time period of last year, despite early-season predictions by the IRS of a smaller-than-usual increase in the total number of filers.
The increase in returns indicates that a number of last year’s non-filers are coming back into the system, according to Liberty Tax Service president John Hewitt. “There’s no withholding on unemployment benefits, so people walk out of our office and say that they’ll wait until they get the money and come back. Every year there’s 2 percent to 4 percent who don’t come back, but get back into the system during the next year,” he said. “This is exacerbated during a period of recession or high unemployment.”
Hewitt said that Liberty Tax Service has had 60 percent growth over last year’s return figures so far this season, with about 28 percent of the growth attributable to same-store sales.
Carrollton, Tex.-based GoSystem, a Thomson business, has had a 30 percent increase in e-filing so far this year, according to product manager Boyd Gackle. “Aside from the IRS being several weeks late with Form 1120 e-filing, it has been a very smooth season,” he said. “Although e-filing of Form 1120 is voluntary this year, we expect it to be mandatory within a year or two.”
The most frequent mistake this year has been the failure to subtract last year’s advance payment of the Child Tax Credit from the credit amount, according to the IRS. More than 900,000 returns reflected this error, while another 450,000 returns made incorrect calculations of the credit.
The biggest growth in filing categories this year has been in home computer use, according to the IRS. That growth is reflected in H&R Block’s figures, which show strong increases in its software and online segments, but more muted growth in its store locations.
“Our retail office business got off to a slow start, but it’s turned around and is doing better,” said company spokesman Bob Schneider. “The reason for the slow start is we didn’t aggressively promote the refund anticipation loans, which are the big factor for people filing early. When business was slow, it was slow in that respect, but when the RAL peak passed, the business started doing better.”
Intuit’s consumer product sales for TurboTax were up 18 percent, according to company spokesman Scott Gulbransen. However, the number of taxpayers taking advantage of the company’s offer through the Free File Alliance is somewhat lower than last year at a similar point in the filing season.
“There’re other companies out there, and our criteria for eligibility have changed,” Gulbransen noted.
CCH’s consumer product, Complete Tax, is also up. “By the middle of March we already filed more returns than during all of last year,” said CCH business development manager Dave Bergstein. “CPAs have private-labeled Complete Tax Pro on their Web sites, or have co-branded with CCH. And some corporations have it as a fringe benefit for their employees.”
Complete Tax is also part of the IRS-private industry consortium, the Free File Alliance. “Part of the IRS goal in Free File is to encourage people to do their own returns,” said Bergstein.
“We’re hearing about the alternative minimum tax a lot more this year,” said Jerry Connor, marketing manager for CCH ProSystem fx. “It’s typically an after-the-fact issue, but more people are being proactive and trying to minimize it through planning.”
“Other issues that have come up are Section 179 expensing and reporting issues on pass-throughs,” he said. “There was also some confusion at the beginning of the season on the ex dividend date for stock, but the IRS has said it will follow the lower rate.”
Holliston, Mass.-based enrolled agent Larry Novick has also seen more returns owing the AMT this season. “In the past, you always told your clients to prepay their fourth quarter estimate, but if they do and they get a state tax deduction, it’s added back into AMT taxable income,” he said. “That increases their chance of getting hit with AMT.”
“I’m tired of talking about the AMT,” said Fairfield, Conn.-based CPA Michael Knight. “It’s been growing for years, and now, all of a sudden, it’s everyone’s hot button.”
The AMT, first enacted in 1969, targeted less than 200 high-income individuals. Because inflation was not factored into the AMT when it was created, many Americans who were not intended to pay the tax are doing so today, according to Andrew Martin, manager of tax services for Fiducial. More than three million taxpayers will be hit with the AMT this year. “The main cause is increased exemption amounts and high state income tax deductions,” he said.
Claudette Huggins, owner of six Jackson Hewitt locations in southeastern Ohio, agreed. “We knew there was a possibility that more would get hit this year with the AMT, but we just did a return for a retired schoolteacher, and had to tell her she owed it. That seems a bit ridiculous.”
However, both Novick and Huggins said that the tax season is running smoothly. “Refunds are larger this year,” said Novick. “The last couple of years everyone was paying for their returns with a credit card. There’s been very little of that this year — the economy must be doing better.”
Huggins said that, after an initial rush, there was a slump. “Things got very quiet in the middle of the season. We’ll see a larger rush at the end than we’ve seen in the last couple of years. It looks like a lot of our clients didn’t want to wait in line, and decided to wait for the ‘quick money’ clients to get out of the way.”
When the weather is nice, business slows down, according to Huggins. “But when it rains or snows, the office fills up — people don’t like to sit inside doing taxes on a beautiful day.”
Even though more people are doing their own e-filing, according to Huggins, “When they slip up, they come to us.”
“A lot of taxpayers are confused about the advance child credit they received last year,” she said. “When they make a mistake and try to e-file, the IRS kicks it out of the system.”
Clay Center, Kan.-based accountant Randy Carlson said that he sees a bigger exposure to the AMT every year. “That’s the single hardest aspect of tax — explaining to a client why they’re liable for the AMT,” he said.
For Carlson, this season is his most successful yet. “Two of my peers say their business is up 19 and 30 percent,” he said. “It’s a big challenge, because this is a rural area and farmers file by March 1. They start coming in during February, so that’s a small window to squeeze in so much work.”
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