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Tax Preparation Services Filing Season 2013 Predictions

While many businesses wind down at year-end, tax preparation services 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 tax preparation services 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.  tax preparation services 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.  tax preparation services to integrate the poor-quality information received in 2011 with Automated Under reporter 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 tax preparation services…especially for those clients who do their own QuickBooks.  IRS moves forward with Automated Under reporter-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 preparation services 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 tax preparation services 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 preparation services and mandated minimal skill testing lead to fewer tax preparation services available to serve the public?  If the tax preparation services is unwilling to take or unable to pass the competency test, is it a problem that will eventually resolve itself for the better?
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