Delays in Filing Until mid to late Feb

[clay]

Will ATX software allow us to prepare the returns while we wait for the efile software to be updated?

Issue Number: IR-2010-126

Inside This Issue

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Tax Season Starts on Time for Most Taxpayers; Those Affected by Late Tax Breaks Can File in Mid- to Late February

WASHINGTON — Following last week’s tax law changes, the Internal Revenue Service announced today (Dec 23) the upcoming tax season will start on time for most people, but taxpayers affected by three recently reinstated deductions need to wait until mid- to late February to file their individual tax returns. In addition, taxpayers who itemize deductions on Form 1040 Schedule A will need to wait until mid- to late February to file as well. The start of the 2011 filing season will begin in January for the majority of taxpayers. However, last week’s changes in the law mean that the IRS will need to reprogram its processing systems for three provisions that were extended in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17.

People claiming any of these three items — involving the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction as well as those taxpayers who itemize deductions on Form 1040 Schedule A — will need to wait to file their tax returns until tax processing systems are ready, which the IRS estimates will be in mid- to late February.

“The majority of taxpayers will be able to fill out their tax returns and file them as they normally do,” said IRS Commissioner Doug Shulman. “We will do everything we can to minimize the impact of recent tax law changes on other taxpayers. The IRS will work through the holidays and into the New Year to get our systems reprogrammed and ensure taxpayers have a smooth tax season.”

The IRS will announce a specific date in the near future when it can start processing tax returns impacted by the late tax law changes. In the interim, people in the affected categories can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes.

The IRS urged taxpayers to use e-file instead of paper tax forms to minimize confusion over the recent tax changes and ensure accurate tax returns.

Taxpayers will need to wait to file if they are within any of the following three categories:

Taxpayers claiming itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted Dec. 17, which primarily benefits people living in areas without state and local income taxes and is claimed on Schedule A, Line 5. Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.

Taxpayers claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students — covering up to $4,000 of tuition and fees paid to a post-secondary institution — is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.

Taxpayers claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23, and Form 1040A, Line 16.

For those falling into any of these three categories, the delay affects both paper filers and electronic filers.

The IRS emphasized that e-file is the fastest, best way for those affected by the delay to get their refunds. Those who use tax-preparation software can easily download updates from their software provider. The IRS Free File program also will be updated.

As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure a smooth tax season.

Updated information will be posted on IRS.gov. This will include an updated copy of Schedule A as well as updated state and local sales tax tables. Several other forms used by relatively few taxpayers are also affected by the recent changes, and more details are available on IRS.gov.

In addition, the IRS reminds employers about the new withholding tables released Friday for 2011. Employers should implement the 2011 withholding tables as soon as possible, but not later than Jan. 31, 2011. The IRS also reminds employers that Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on IRS.gov before year’s end.

[OldJack]

>>The IRS emphasized that e-file is the fastest, best way for those affected by the delay to get their refunds.<<

Best only for the IRS.

[Pacun]

No big deal. Maybe more money for us (see number 3 below).

1.- We don't have many teachers (this credit is about $25-$75 anyways).

2.- If you qualify for the $4,000 tuition deduction, you qualify for other credits that are not affected.

3.- If client owns a house, file using the standard deduction if client needs the money badly. Then amend in

March.

If you have a person with all 3 affected credits, go to option 3 above.

[Don in Upstate NY]

2.- If you qualify for the $4,000 tuition deduction, you qualify for other credits that are not affected.

Not always. The deduction has a higher AGI phaseout than Lifetime Learning, and can be used for graduate school which the AOC can't.

[Pacun]

Not always. The deduction has a higher AGI phaseout than Lifetime Learning, and can be used for graduate school which the AOC can't.

Correct.

Those with higher AGI are not desperate for the money/refund. They can wait until mid/end February and their refund is most of the time low. Most of them have investment and are waiting for other documents anyways. I am talking about the ones with low incomes who file as soon as their W-2s are distributed.

[clay]

But will this prevent us from preparing returns? Will the forms be available and marked "not approved for efiling"? I just don't want to wait until mid-february to start preparing the returns.

Also, if we are able to prepare and hold, can you imagine the efiing problems when they open the floodgates?

[JohnH]

Between the likelihood that IRS may not make their target date and the even more likely prospect of work backlogs, this is a good year to have a firm extension strategy in place. I think I'm going to set March 10 as my cutoff date - anything coming in after that date automaticllay gets an extension. Then we can sort out what actually gets filed by Apr 15 without any undue pressure.

(I've also wondered if IRS might extend the Apr 15 due date for everyone anyhow, given their own time constraints. It should be easy enough to do administratively, and they can blame Congress for the delay.)

[mcb39]

Right now, my biggest concern is all the FAFSA people who NEED their returns done early to apply for student loans before all the money is gone. Big headache every year; bigger headache this year. Even if we can prepare the return, apparently as long is the form is marked "Draft", we cannot print. Just something else to make us look inept.

[Kea]

The due date is (slightly) postponed already. Per Pub 17, the due date is 4/18/11. This is due to the D.C. holiday of Emancipation Day. They are applying it to all tax returns, even if you don't live in D.C.

I'm kinda thinking about keeping this a secret from my clients. Think I can get the news media to help me? Not.

[JohnH]

If you use extensions strategically, the due date becomes a non-issue regardless of whether it's Apr 15 or Apr 18. I always tell my clients the last person they want working on their return in early April is a harried, sleep-deprived, cranky tax preparer. (I refuse to be one of those people). Better to take the filing date off the table entirely and get the return done without deadline pressures breathing down everybody's neck.

[Lion EA]

Your clients can fill out FAFSA with estimated information.

[mcb39]

Your clients can fill out FAFSA with estimated information.

Thanks, Lion...they are going to have to.! Merry Christmas.

[GeneInAlabama]

I encourage my clients to file extensions. I tell them if they don't get information to me by March 15th, I will file an extension for them and may or may not be able to get their return done by April 15th. Like John, I don't push myself. I like to spread my work out over the year. Also, for those who bring me their work in October, I don't worry about them. If I get it done by the 15th, fine. If not, I'm not going to worry about it. I had a massive heart attack a little over two years ago and spent 3 weeks in ICU. Nothing is worth worrying about. The world will be here tomorrow whether I worry about it or not.

[JohnH]

Gene: An experience like that will alter your perspective, won't it? I expect you'd agree with another of Winston Churchill's famous quips, "There is nothing more exhilarating than to be shot at without result."

[GeneInAlabama]

"There is nothing more exhilarating than to be shot at without result."

RIGHT!!

[Pacun]

FAFSA users can file and then amend. IRS is not postponing the start filing date for anyone. They said that if you are filing for those 3 credits/forms you cannot file. As I stated earlier, in most cases, the percentage of people who itemize, are teachers or students that pay less than 8K in higher education AND file before mid-Feb is very slim.

Also, I tell my people not to visit me before Feb 15th because everybody wants to have their taxes done the last week of January and the first week of Feb. This will give me a chance to tell my PITA clients to come back in a month because the IRS doesn't have schedule A ready. Hopefully they will not come back!!!

[clay]

IN NYS we have a STAR exemption that reduces their school taxes. Clients over 65 can have an enhanced (additional) STAR exemption. Individuals have to file for the enhanced STAR every year and must submit a copy of their tax return. Many towns want the tax return by March 1. It will be difficult to comply with that deadline this year.

[Pacun]

IN NYS we have a STAR exemption that reduces their school taxes. Clients over 65 can have an enhanced (additional) STAR exemption. Individuals have to file for the enhanced STAR every year and must submit a copy of their tax return. Many towns want the tax return by March 1. It will be difficult to comply with that deadline this year.

I always have problems with DC, my "state". I have workarounds every year. What I do, I don't waste time, I tell them that DC is not ready but I can file their Federal, which in most cases is the bigger refund (remember that we are talking about people who file early). I tell them that they need to come back in a month to have their DC efiled. I efile everything for the state since ONLY the first time home buyer and ITIN requests were not allowed to efile for Federal. None of those applied for DC. I had to wait for ITINs anyways and the other credit didn't affect DC filing. It works for me because DC can be efiled by itself.

If filing your state/locality is the issue, file that return only and wait for the federal. Amend you state/locality as needed and file the federal in March. I am sure your clients will understand after the media starts its own "panicking postings".

As long as your locality, have the amend "feature" you can find a way get the same results.For example, if you have a client who has 4K tuition deduction (and they need to lower their AGI), you can suggest that they can put 4K in an IRA before April 15 and file their taxes. If needed, you can amend and collect money back from the IRS or break even. Each case will be different. Who knows, maybe the client likes the idea of putting 4K in their IRA. They have until April 1st to make up their mind (I need the extra 14 days to amend if needed).

Is this the first time you guys experience this? We see it almost every year in the last 2-3 years. Even if the IRS has all the forms ready, ATX drags its feet with my state. All the time, forms are draft and not ready for paper filing or simply not ready for filing.

[clay]

I always have problems with DC, my "state". I have workarounds every year. What I do, I don't waste time, I tell them that DC is not ready but I can file their Federal, which in most cases is the bigger refund (remember that we are talking about people who file early). I tell them that they need to come back in a month to have their DC efiled. I efile everything for the state since ONLY the first time home buyer and ITIN requests were not allowed to efile for Federal. None of those applied for DC. I had to wait for ITINs anyways and the other credit didn't affect DC filing. It works for me because DC can be efiled by itself.

If filing your state/locality is the issue, file that return only and wait for the federal. Amend you state/locality as needed and file the federal in March. I am sure your clients will understand after the media starts its own "panicking postings".

As long as your locality, have the amend "feature" you can find a way get the same results.For example, if you have a client who has 4K tuition deduction (and they need to lower their AGI), you can suggest that they can put 4K in an IRA before April 15 and file their taxes. If needed, you can amend and collect money back from the IRS or break even. Each case will be different. Who knows, maybe the client likes the idea of putting 4K in their IRA. They have until April 1st to make up their mind (I need the extra 14 days to amend if needed).

Is this the first time you guys experience this? We see it almost every year in the last 2-3 years. Even if the IRS has all the forms ready, ATX drags its feet with my state. All the time, forms are draft and not ready for paper filing or simply not ready for filing.

The issue is not with the state return. For the school tax exemption they need to provide a cpy of their Federal return.

[mccoystax]

Seeing as most of my clients use Sch.A because of NY's high taxes this will really delay my season as well as upset a lot of clients looking for their refund. They won't be happy waiting for late Feb. to file. :mad:

[Jack from Ohio]

I will instruct any of my clients that complain about the delay to take their frustrations, anger and rage, bottle it and release it on election day 2012. No one but our Congress is to blame for the delays and all the confusion. Any of my clients who don't understand and keep complaining after I explain it will be talking to a deaf ear. I spend more than a hundred hours of class time to keep up every year and stay abreast. The slow handed work of the Congress is affecting my abilities to seem "professional" in the eyes of the "gotta have it now to survive" group. If we didn't fire enough of the seated Congress this past November, we will have a chance to make up for that in about 2 years.

The good thing is... None of my competition can file any faster either!

[Janitor Bob]

Right now, my biggest concern is all the FAFSA people who NEED their returns done early to apply for student loans before all the money is gone. Big headache every year; bigger headache this year. Even if we can prepare the return, apparently as long is the form is marked "Draft", we cannot print. Just something else to make us look inept.

I need to get my personal return completed ASAP for the FAFSA......and I will qualify for the education credit....I hope I can at least prepare a good estimated return for use on FAFSA even if I can't file....This is what I did last year...then amended my FAFSA with final tax figures in April.

[joanmcq]

I've already rolled over my own return just to see what forms were available as well as another for which I needed to do an end-of-year projection. The forms are there, just marked 'draft' including the 1040.

[chuck]

My take would be file and amend. It is not we preparer's fault they waited to change the code. Blame it on the tea-partiers and the republicans. That ought to get the conversation started

[JohnH]

Interesting. Democrats were still the majority in the House & Senate during the lame duck session, but blame the tea party & Republicans? Now that's a stretch. This thing could have been put to bed well in advance, even BEFORE the election, if the party in power had any backbone. They were so worried about their jobs they forgot to DO their job.