Post Tax Season Commentary

I thought I would share some comments and observations now that another tax season is over.

In recent years tax season has become a sprint, as a combination of taxpayers receiving documents later and getting them to tax preparers later means less time to get returns completed than in the past. During the COVID years the Federal Government extended the tax deadline to May 15th, and in my view, there is no reason why that should not be made permanent. The current deadline of April 15th does not give taxpayers and preparers enough time, and as a result the number of tax returns that are put on extension has increased for reasons mentioned above.

All the hype about a reduced IRS workforce leading to a difficult tax season turned out to be exaggerated. While there are isolated situations that require a call and incur wait times, many questions can be answered by taxpayers researching and/or creating an account on the IRS website. But given the reduction in IRS personnel an extended tax deadline would make even more sense going forward.

Taxpayers should think more about the financial circumstances that come up during the year and how they might relate to their income tax situation. An example: I prepared several returns this season that the client sold stock during the year, likely as an emotional reaction to market volatility. As the stock market has performed well over the last couple of years this resulted in income taxes owed that the client did not expect. Tax preparers work all year round, so if you use one it is strongly advised to contact them before making a big financial decision during the year. You do not want a surprise tax bill before next April 15th, and we tax preparers do not like making those phone calls.

Self-employed taxpayers get into tax problems by failing to plan for estimated tax payments. These are supposed to be done on a quarterly basis but are often skipped for cash flow reasons. This may sound harsh, but the IRS does not care about your cash flow problems and will assess penalties for the failure to pay estimated taxes. Budgeting is important in helping to avoid this, and some of what is earned should be set aside in a separate account for quarterly tax payments. The recommended amount for taxes will be different depending on how much is earned, and this is where an accountant’s advice is valuable all year round, not just at tax time. Anyone who has a small business should be using one.

Tax preparers all have clients whose children have grown up and are now in the workforce. As we are extremely busy during tax season it is encouraged that these children look to do their own taxes, as many can use a program like Turbo Tax to complete them. We will happily prepare those returns, but it is going to cost more than some young adults want to pay to have their income taxes done. In addition to saving money, it also will be an educational opportunity.