The mood of tax professionals at the end of this year’s filing season was one of mixed emotions.
“Going in, we all hoped this would be more of a traditional tax season compared to the last two years,” said Jim Guarino, managing director in the tax practice at Top 100 Firm Baker Newman Noyes. “The good news is that it was what you would consider a somewhat normal tax season.“
“The fact that it was not drawn out for a more prolonged period like the last two seasons was a good thing. We all would like more time, but most of us are really just glad that it has come to an end,” he added.
Roger Harris, president of Padgett Business Services, agreed: “We’re happy that it’s over. Even a perfect one is good when it’s over, and this one is certainly no different. There were challenges, but we knew what they would be at the beginning.”
“There have been some tax seasons when I questioned my intelligence for choosing this profession, but this one didn’t give me that feeling,” he said. “The taxpayers were about the same, they acted like they always do, some were good and some were bad. Some I hoped would not come back, but they did.”
One of the reasons this season felt so much closer to “normal” was the prior two COVID-affected seasons that preceded it. “In 2020, when we talked to taxpayers, everybody seemed to be in a funk,” he said. “Last year was similar. But this year there was the feeling that things were getting back to normal.”
Behind the numbers
The year-to-date tax season statistics shed some light on the season, according to Mark Steber, senior vice president and chief tax information officer at Jackson Hewitt Tax Services.
“They’re a little odd compared to prior years, but these years are unusual,” he said. “As of April 1, the overall volume is down by 2%. However, the self-prepared volume is down more, at 3%. That’s not really that surprising, if you think about how complicated the 2021 filing season was. [2020] was the most complex tax year in decades, so this year, many taxpayers opted not to do it themselves.”
It’s interesting that tax refunds were up both in volume and size of refund, Steber observed. “It’s not a huge percentage of volume — a 1.7% increase — but the increase in the amount is 11.35%. We expected that, because of the credit amounts available. We were a little surprised in the number of returns lagging, but we’ve gotten busier the last two weeks. Our own statistics pretty much mirror those of the IRS, and we expect that to continue all the way to past April 18 activity.”
And given the fact that we’re already a third of the way through the current year, it’s not too early to think about next year, Steber suggested.
“Next year will be fundamentally different,” he said. “We will revert back to the 2020 rules on a lot of things, so taxpayers might have a different refund experience. It will be equally as complicated as the 2021 tax year, except there won’t be so many gig refunds. This is because the Child Tax Credit, the Dependent Care Credit, and the Earned Income Tax Credit for singles will be back to 2020 norms, and the charitable deduction for nonitemizers will be gone. It helps to prevent refund shock when you tell your clients they may not be getting as big a refund next time.”
“An important lesson of tax season is that — surprise! — e-filing works,” he said. “E-filing is now the norm, and it goes a long way to solving problems we saw last year with paper returns. We may see some of those at the end of filing, because late filers are also paper filers.”
“Another lesson that bore fruit is the need for accuracy,” he said. “If you don’t know your stimulus payment, don’t put it on the return. This year a lot more people are filing accurately so there’s not so much mismatch at the IRS.”
The aftermath
For Beanna Whitlock, of Whitlock Tax Service and former IRS director of national public liaison, tax season may be over but client issues keep coming in.
“The biggest issue was taxpayers not remembering if they received Economic Impact Payments,” she said. “We discuss the scenario about automatic deposit, check or card, and they say ‘No,’ they didn’t receive it. Then sure enough, they did. They got money but didn’t know what it was for.”
“As far as the advanced Child Tax Credit, they had no idea what that was — just more free money,” she said. “Clients are already asking, ‘Why didn’t I get the refund you said I would get?’ or ‘The IRS says I owe money — how can that be?’ It’s another season why Elvis the Tax Pro can never leave the building.”
In one case, the taxpayer was living with a woman who earned no income and has a child. “He claimed both as ‘other’ dependents and gets the Child Tax Credit, but oh no, the woman got the advance so she has to give it back — limited to $2,000 since she has no income,” she explained.
Whitlock’s favorite issue this year concerned the Advanced Premium Tax Credit: “The taxpayer’s income exceeded 400% of the federal poverty level so they have to give it back for the 2021 tax year,” she said. “They didn’t have to repay it for the 2020 tax year, and the insurance salesman told them they wouldn’t have to do so for 2021 as well. If Congress wants to give IRS the authority to regulate return preparers, why not let them go after brokers, insurance salesmen and others who are quick to give tax advice?”
Credit where credit is due
The unsung heroes of tax season may be the administrative staff.
Baker Newman Noyes’ Guarino credited his staff for helping to make tax season survivable. “I just don’t know how anyone gets the job done without having great teammates,” he said. “A lot of our clients are receiving their tax information from us electronically, and to preserve their privacy there is some level of encryption or dual authorization for them. A lot of times, especially if this was their first time to receive information electronically, it was very challenging. Our staff was able to walk them through the process to open up their file. Once they were able to get their information they were happy, but until then it was very frustrating for some of them.”
Despite the challenges, frustrations, and late nights of tax season, one client experience made it worthwhile for Guarino.
“I was reviewing the client’s tax information; there was something that just didn’t seem right,” he said. “The client had a Form 1099 with a series of security sales. The gain on these sales was significant, but what didn’t make sense was that they were all short-term capital gains. He received a bunch of stock options and sold them within a day or two of owning them. According to the Form 1099, he had $150,000 in short-term capital gain, and would owe close to $50,000 on state and federal taxes. By asking the right questions and doing some investigative work, we found that his W-2 reflected as income the difference between the street value of the options and what he paid for them. The statement was technically correct but on the surface there was no way of knowing he was taxed already on the gain. He was ready to write a check for the $75,000 but was very happy to keep it in his bank account.”
“The statements were accurate as far as the employer and the investment people were concerned, but we, as tax advisors, knew that there was more to the story,” he added. “This is where we had to show our value.”
