IRS Tax Season!

It's tax season. Most of those who were expecting a refund have already filed and  probably are spending that money, helping our businesses and economy flourish.

The rest of us procrastinators, who are dreading that final determination of just how MUCH we are going to pay the IRS, are waiting for the last minute. This year we get 2 extra days, until April 17, thanks to some obscure (to me, anyway) holiday in Washington D.C. which normally falls on April 15th. In 2012, it falls on a Sunday, which gives all those D.C. workers a holiday on Monday the 16th, meaning that the rest of the country gets until Tuesday April 17th to file our taxes and to mail off that check for owed taxes. 

Since many people aren't familiar with D.C. happenings, at our tax office we expect a rather humdrum Monday and Tuesday. Clean up. Maybe I'll file my own taxes (late, natch) on  the 17th.

The IRS requires all paid tax preparers to ask questions this year of ALL clients regarding off-shore accounts. Do you have over $10,000 in foreign accounts? Do you have signature authority over a foreign account or trust of over $50,000? I have yet to hear of anyone saying yes to these questions.

Did you know if you have a foreign account with less than $10,000 that you are required to report to the IRS your income on that account? Penalties are imposed if you have an account over $10K and you don't report it, but the IRS expects you to report ALL foreign income on your return. I am not a betting person, but I would not hesitate to bet that many expats have an account that may be earning a bit of interest in an account well under $10k but that they aren't reporting that little bit of income. 

The IRS put a new set of "filters" on their servers this year that accept electronically filed returns. The IRS wants everybody to file electronically: it's more accurate, requires fewer employee handling, and was supposed to be faster. The filters are said to "find" more anomalies, mistakes and red flags sooner than a year or two after one has filed.

What actually happened was a severe slowdown around February 7th/8th in return processing. The IRS website "Where's My Money" began the season with a statement regarding preparation processing taking "7 to 10 days". Once the pipeline got hung up, the website closed down to traffic briefly, then when it was again functional, the site restated the time frame as "10 to 21 days". Reality for certain customers was a refund wait of 4 to 6 weeks for apparently no reason. It seems that the IRS didn't accurately plan or prepare for the influx of so many returns so fast after Jan 30th, when all wage earners are supposed to receive their W2s. Your government and mine at work. Slowly.

Processing appears to be back to normal at the time of this writing (March 14th) but could clog up again easily during the last weeks of the season. While I don't think this will bother too many people who need to pay the IRS more money, it seems to me that the government department in charge of collecting taxes all year long should be able to effectively plan for processing the returns that they require us to file. 

I'm still working on my own tax return and that of my mother, who passed away last year. Her return is not a complicated one, but I determined that both the Social Security Administration and the Federal Pension people sent incorrect 1099R forms. A recipient must survive the entire month to be able to receive a month's Social Security wages, so the payment sent to her in September was required to be refunded to the SSA because she died in August. The Personnel Payroll payment sent to her in August was automatically withdrawn once I notified them of her passing. It seems the payment for August was actually for July but she is required to be alive the entire month AFTER the payment. Nevertheless, both 1099R's included the payment that was given back to them. Of course, they  had no intention of correcting this mistake until I notified them of it, and I am awaiting corrected documents so I can file correctly.

Did you know if you don't owe any tax, you are not required to file a return? Most people file, anyway, just to collect any taxes that have been withheld. If you don't file, and you DO owe tax, you are assessed a penalty for not filing and then interest on the money owed. No penalties or interest if you didn't owe any money, and if the IRS owes YOU money, they won't pay you any interest or penalties on the money you claim.

In our office this tax season we have seen a number of clients who haven't owed any tax for a few years, and haven't filed, either. They come into our office with reams of documents. In many cases, we file a return for them for the current year, plus the past 3 years. The IRS will accept returns and amendments for only the prior 3 years, unless you have been deployed in the military, in which case you get a break and can go back farther. 

This tax season we are ALSO visiting with many people who suspect that their prior year returns were incorrect, or they are certain that the prior returns were wrong, due to a nasty gram sent to them by the IRS. Once we've reviewed their filed return along with the IRS findings, many times we determine that the IRS has incorrectly determined that the person owes too much money. In one case, a person with a rental property incorrectly determined the depreciation on the rental for the last 3 years and we found $848 in additional tax refunded to him for EACH of the last 3 years. In another situation, a person (doing his own taxes on Turbo Tax) did not accurately declare stock sales of around $80,000, and the IRS wrote him a letter stating that he owed another $20,000 in taxes on the sales.  YIKES! this poor person was in a panic, but not to worry, a quick call to the brokerage house to get the basis (purchase price) of each piece of sold stock allowed us to correctly document the Schedule D for investment sales on an amendment to his return. He actually only owed about $300 in back taxes, and we submitted the 1040X along with the broker statement. Whew. that was a nice thing to be able to do for someone.

My dad used to say, I'm off to the salt mines. Well, me, I'm off to the computer/paper mines. Contact me if you need help with your taxes - I can help.