Claudia Hill for Forbes: While many businesses wind down at year end, tax preparation firms all across the country are planning ahead for the busy season they anticipate starting early next year. Just how early is one of the biggest concerns they and the IRS are worried about. Here’s my crystal ball view of the coming filing season 2013.
} Taxmageddon & the Massive Fiscal Cliff prove too big for Congress to stop before year end. January 1 sees the return of higher tax rates, embedded marriage penalties in the tax rate structure, added taxes from the Patient Protection Act, and frustrated taxpayers wondering just how hard they will be hit.
} Stop-gap measures for 2012 only make it through Congressional action prior to year end; the bi-annual AMT patch is put in place, avoiding the potential that over 26 million taxpayers would find themselves with balances due rather than refunds next April.
} Brokerage firms’ willingness to provide “return ready” gain/loss/basis information will only slightly improve from 2012 filing season. IRS insists individuals use the complex and confusing Form 8949, Sales and other Dispositions of Capital Assets, created for integrating the new basis reporting rules into a worksheet format to merge into Schedule D, Capital Gains & Losses. IRS preparers to integrate the poor-quality information received in 2011 with Automated Underreporter notices to taxpayers.
} IRS will start using the additional information provided on Schedules C & E in audit-related inquiries. Examples: (1) Did you make any payments in 2011 that would require you to file Form(s) 1099? If so, were they? (2) Is rental income being reported consistent with comparable rents for the category of property reported by others in the same zip code?
} 1099-K will cause confusion for Schedule C filers and their preparers…especially for those clients who do their own QuickBooks. IRS moves forward with Automated Underreporter-type inquiries for those whose business gross income does not appear to be reasonable for the proportion of income reported by the credit card and/or pay-pal and ACH intermediaries.
} Filing season will have a late start. Following the December 17, 2010 late actions of Congress to pass “extender” legislation and patch the AMT for 2010, IRS was not able to accept tax returns that included itemized deductions until Valentine’s Day. That led to a very compressed and pressured filing season. Tax professionals might want to plan on taking a needed retreat in January. They may also want to take a close look at re-organizing client appointments to move less complex returns to early February.
} More clients will need extensions because the number of hours in the days between the late start to filing season and the April 15 deadline has not changed. Advice to return preparers: Don’t wait until April 15 to tell your clients you need to ask IRS for extra time. File the extension as soon as you realize it will be needed.
} With higher capital gains rates and the 3.8% add-on for investment income for higher earners in 2013, affected taxpayers will shift their portfolios to more tax-efficient investments. This will lead to more time-consuming return preparation.
} Population shift: States with no income tax will see an influx of wealthy residents. I just explained to a client how California Proposition 30 applied retroactively to all of her taxable income earned in 2012 over $250,000. It had been a particularly good year, and the “extra” was over $100,000. She thought it might be a good time to look into retirement in Nevada, Texas, or Washington.
} A prolonged vacancy in the top leadership position at IRS causes frustration for senior IRS personnel and a lack of focused direction at the agency. Commissioner Doug Shulman’s term came to a close on November 11. With the planned departure of Treasury Secretary Tim Geithner early next year, it may be well into 2013 before the IRS Commissioner’s position is filled.
} And, looking a year ahead, will the IRS implementation of Registered Tax Return Preparers and mandated minimal skill testing lead to fewer preparers available to serve the public? If the return preparer is unwilling to take or unable to pass the competency test, is it a problem that will eventually resolve itself for the better?
Lots of practitioners are making predictions on what is going to happen to taxpayers across
the board as we await the outcome of the fiscal cliff discussions. So far, it seems to be much
ado about nothing. Friday should have been the close of the 112th Congress, yet because no compromise has been reached, negotiations will continue next week. Claudia Hill’s article provides a look at her post fiscal-cliff discussions from the perspective of
tax preparers. I agree with much of what she says in that Congress will likely not be able to do
enough to avoid some of the implications of the fiscal cliff and that many taxpayers will see an increase in their tax rate in the year to come. While I also agree that the tax filing season may be compressed in 2013, I think that tax preparers who take a retreat during the month of January may be doing a huge disservice to their clients. Once the outcome of the fiscal cliff discussion has been determined, many taxpayers are going to have questions surrounding how the fiscal cliff affects them and will be turning to their tax advisors for answers. This could be a prime time for tax advisors to assist taxpayers in planning for 2013 and beyond. She also makes mention of the requirement by the IRS for paid tax preparers to be registered and to have demonstrated a minimum proficiency in the area of tax preparation though a series of certification examinations. Registered tax preparers will also be required to maintain a minimum level of continuing education after their certification has been obtained. I think this is a great step forward for those in the industry that provide these services. On the flip side, I think this could potentially create a need for qualified tax preparers to work longer hours to meet demand. Only time will tell. Regardless of the outcome of the fiscal cliff discussion, I believe the 2013 tax season could be one of the busiest in recent history for many of my fellow practitioners. Good luck out there!
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