This year’s tax season, the first post-COVID, began on January 23 with anticipation of a return to normal.
Tax preparers entered with two hopes, according to Roger Harris, president of Padgett Business Services and former chairman of the Internal Revenue Service Advisory Council: “The first is that we are back to normal, whatever that means in a world post-COVID,” he said. “Secondly, because of new hires and the understanding of the IRS, the problems we had in the past will be a thing of the past. The IRS already had new hires in the mix before the Inflation Reduction Act so there should be an additional 5,000 personnel on board by President’s Day, so hopefully this will make for a better experience for everyone.
“There really isn’t a lot of new legislation, and most of the COVID-related legislation is gone,” he noted. “So we’ve come back to the triangle of clients, tax preparation, and the IRS, and hopefully we’ll all do our jobs well this year.”
“The service has onboarded staff, worked through the backlog, and improved its technology,” said Chad Hooper of the Professional Managers Association, a group of IRS managers. “As the National Taxpayer Advocate’s most recent report illustrates, these efforts have resulted in notable improvements in taxpayer services. But we all know the problems persist.”
One of the results of the end of COVID-related benefits will be lower refunds this year, according to the IRS and tax experts. Taxpayers will miss the stimulus payments that many received as a refund credit that was given, essentially, as a tax refund. In addition, the expanded child tax credit returns to its previous levels.
“Families with dependents may see lower refunds on their 2022 returns, as the 2021 tax law changes that expanded child-related credits have now expired,” observed Tom O’Saben, director of the tax content and government relations at the National Association of Tax Professionals. “For example, the 2021 child and dependent care credit increased to $8,000 for one child. In 2022, the credit returns to 2020 levels (adjusted for inflation). dollar limit of eligible expenses is $3,000 for one eligible person or $6,000 for two or more.”
“The Inflation Reduction Act extended the $500 lifetime limit for personal residence energy upgrades by one year, that year being 2022,” O’Saben noted. “This life limit still applies for 2022, but it is improved from 2023. We should ask customers if they have replaced a water heater or furnace with a new high-efficiency unit so that they can count it in their lifetime limit. And if they are considering further improvements, they should know the improved annual credit available in 2023.”
An example of possible savings, according to O’Saben: Suppose a taxpayer plans to replace all the windows in his house at a cost of $40,000. If the work is completed within one year, the credit is capped at $1,200. However, if they spread it out, they can get $1,200 for each year in 2023, 2024, and 2025. Windows and exterior doors are the best example of something that can be done gradually to spread out the credit – items like a furnace cannot be spread out.
Taxpayers who accepted a qualified COVID-related plan distribution in 2020 have three years to reinvest some or all of it into another qualified plan. If they took the distribution on October 1, 2020, the reinvestment period started the next day, October 2, 2020. The end of the three-year period is therefore October 2, 2023.
For example, if the taxpayer received a COVID-related distribution on October 1, 2020 of $100,000 – the maximum he could take – the taxpayer had the option of reporting everything in the year received or it would be pro-rated on three-year period. If the taxpayer received an inheritance of $50,000, they have the option of reinvesting it in another qualified retirement plan before October 2, 2023. The taxpayer could then file an amended return for 2020 and reduce the income of the $50,000 which have been reinvested.
“It could be a light bulb moment where the taxpayer says to you, ‘Well, my aunt passed away,’ and they had taken the cast in 2020,” O’Saben suggested.
He advised preparers to use the file optimization tool that most software packages have to see if a couple should file jointly or as a married filing separately. “There are circumstances where it may be advantageous to file separately,” he said.
The ERC holds firm
The Employee Retention Credit is one of the last COVID-related programs still available, Harris noted. “This could either present the opportunity to still get credits for some, or challenges for those who have already received their money,” he said.
Employees who did not claim the ERC when it was offered can always amend their claims to take advantage of it, O’Saben observed. Employers who filed Form 941, “Employer’s Quarterly Income Tax Return,” in 2020 and 2021 have until the end of 2024 and 2025, respectively, to file amended returns that retroactively claim the credit. Once a business claims the ERC, it must amend its business statement for the period claimed from 2020 or 2021 and reduce its payroll expense by the amount of the credit.
The credit is available for salaries until September 30, 2021, observed Tim Speiss, tax partner at Top 100 Firm EisnerAmper’s private client services group.
“In order to be eligible for the credit, the employer must meet one of the following conditions,” he said:
As a result of COVID-19, the employer was required to fully or partially suspend operations in any calendar quarter in 2020 or 2021 due to orders from a government authority restricting trade, travel or group meetings; Or,
The employer experienced a significant decline in gross revenue in the calendar quarter compared to the same quarter in 2019; Or,
They have seen a decline in gross receipts of 50% in 2020 and 20% in 2021.
According to Ed Renn, senior partner at law firm Withers Bergman, the ERC is “grossly over-commercialized”. “In many cases, third-party marketers create potential problems for ineligible people. They take very aggressive stances that are likely unsupported.”
“The bottom line is that if you don’t have an income cut and you’re not shut down, you probably shouldn’t claim the ERC,” he warned. “They take crazy positions. It’s always possible to fix it, but I expect there will be major investigations and audits. You can call it what you want, but it’s bullshit. fraud.”
O’Saben disagrees with many advisers who urge taxpayers to file early. “I slightly disagree with that position,” he said. “So many taxpayers want paperless statements. Many documents won’t be mailed because the taxpayer has chosen not to use paper. A typical response from taxpayers when they give you their information is, ‘I don’t haven’t received anything else. “”
To prevent criminals from receiving refunds from taxpayers before taxpayer filing, he recommends using the Identity Protection PIN available from the IRS to protect against fraudsters. The problem of tax-related identity theft has grown exponentially in recent years, according to John Gilmore, research director for private security firm DeleteMe.
“Fraud organizations have professionalized and become technologically sophisticated and can now execute what was previously ‘individual fraud’ using hacked and online datasets [personally identifiable information] to file thousands of fraudulent returns simultaneously with ‘bots’ – scripts that search for specific PII, fill in blanks and can submit forms,” he said. “The industry has become more vertically integrated, with specialists who each do OSINT [Open Source Intelligence gathering]packing/selling data, fulfilling and refunding wash transfers/debit card. »
“Any ‘new program’, ‘new credit’ or politically motivated spending that incentivizes rushing money through less secure agencies leads to targeted mass exploitation,” he said.