Delayed for two weeks because of last October's federal government shutdown, this year's tax season officially begins tomorrow. However, local tax professionals say the late start is unlikely to have much an effect on most taxpayers and predict this year's tax season to run much smoother than it did last year.
Several bills getting pushed through Congress at the last minute caused headaches for several taxpayers anxious to get their W2s and other necessary documents in order to file. Some forms were not released by the IRS until as late as March.
"Back in January of 2013, they enacted all these late for the 2012 tax season," Jeff Sprowles, CPA for Wise, Buckner, Sprowles & Associates, said. "Most of those laws are now good through 2016 so there's not a whole lot of those types of changes."
According to Sprowles, the few changes to this year's tax laws will affect only a small portion of taxpayers. Single individuals filing with an earned income higher than $200,000 or those who are married and filing jointly with incomes exceeding $250,000 will face an additional 0.9 percent Medicare tax and a 3.8 percent net investment income tax. Married taxpayers with income more than $125,000 who file separately will also have to pay the additional taxes.
Kim O'Banion, registered tax preparer for O'Banion Tax Service & Accounting, said deducting medical expenses will be more difficult this year. For individuals younger than 65, medical expenses must total 10 percent of their adjusted gross income to be eligible for deduction, an increase of 2.5 percent. The requirement for medical expense deductions will remain at 7.5 percent of adjusted gross income for individuals 65 and older.
There is some good news for those who deduct home offices for their business. Sprowles said these individuals will likely be glad to see a simplified home office expense calculation. Instead of having to factor in the square footage of the house in addition to the square footage of the office and calculating utilities, telephone and other applicable bills, Sprowles said the calculation is based on $5 per square foot of office space.
Sprowles and O'Banion agree that one of the most common problems they encounter during tax season is people getting in too big of a hurry, especially those anticipating large refunds.
"You can't file your tax return without your W2s," O'Banion said. "There are people that come in here every day with their last pay stub and say 'File my tax return,' but you cannot do that."
Sprowles said his advice to all taxpayers - whether they hire a professional or file on their own - is be sure all IRS documents from employers, banks, retirement funds, Social Security statements and student loans are accounted for. A forgotten W2 from a temporary job or other documents may require filing an amended return.
"Some people get back amended investment statements a month down the road after they've filed and they start freaking out," Sprowles said. "They bring them in and if it's just a $3 or $4 change here or whatever, it won't make a difference."
While Sprowles dismissed concerns that filing an amended return increases one's chances of being audited, he said amended returns can cause a lot of confusion and the individual might have to pay a financial penalty.
But if they've seriously made a mistake - missed a W2 or 1099R Pension then they need to file an amended return.
According to Sprowles, most tax audits are picked at random. He said having a professional prepare the tax return can help someone in this situation.
"It's representation if you do get audited," Sprowles said. "I'm sure every CPA would back their client in an audit situation."
After years of re-doing self-prepared returns, O'Banion said there are several advantages to hiring a professional. She said the three most common mistakes she finds in self-prepared tax returns are people who can itemize deductions but don't, people who aren't aware of the education credit and forgetting about the child tax credit. While not including these in the tax return won't get taxpayers in trouble with IRS, they could be throwing away thousands of dollars in potential refunds.
"The government wants everyone to do their own tax return because they leave so much money on the table," O'Banion said.
Sprowles said many taxpayers are unaware that the price of using a professional to prepare their taxes is comparable to purchasing tax software such as TurboTax. He said these types of software are designed to catch errors that are self-entered but don't necessarily notify taxpayers of documents and other items that they don't know to enter. He said a sit-down interview where the tax preparer gathers the client's information is one of the simplest and most important benefits of hiring a professional.
To ensure tax refunds are received as early as possible, O'Banion recommends arranging for the refund to be direct deposited instead of waiting on a paper check.
If a check gets lost in the mail, O'Banion said it could take three to six months to receive a replacement.
"They have to wait so many days and then if you don't get it you have to file a form with the IRS. They have to process it in their time," O'Banion said. "We'll have two or three a year and they'll average three to six months."
Paige N. Hall, CPA with Ross & Company PLLC, has some advice for those planning to file taxes on their own. She said people should research tax laws and know where all the numbers come from and how they are calculated. She said a misconception she frequently encounters is assuming that preparing tax returns is simple data entry.
"CPAs provide a wealth of knowledge and support to their clients," Hall said. "If you aren't completely comfortable filing your own returns, hire someone who will explain to you the process and be there for you if something comes up."
She said it also never hurts to ask questions if something about the return is hard to understand.
"You are signing your name to the return, know what you are signing," Hall said.
Watch for more tax filing tips from local tax professionals in an upcoming issue.