Let's just say it: The profession of accounting has become very trying when it comes to income tax season. If it wasn't enough that 2020 brought unprecedented changes to tax laws and filing deadlines, the upcoming 2021 tax season has some major new hurdles. Covid-19 has changed the landscape of many types of businesses, but accountants are especially affected.
In an article from Accounting Today discussing the 2020 tax season, Mark Steber, chief tax information officer at Jackson Hewitt, said it was one for the record books. Some of the factors that created confusion in 2020 were changing deadlines, changing rules for retirement plan distributions, the myriad programs offering loans, stimulus payments, teleworking nexus issues, and, for many taxpayers, just finding a preparer to prepare their return.
“The moving deadlines were a surprise to everyone,” agreed Dina Pyron, global head of EY TaxChat. “It created confusion for taxpayers, especially where the federal and state deadlines didn’t match up.”
Pyron noted a disconnect between the excitement over the economic impact payments and the refund-due taxpayers who waited till the last weeks to file their returns: “People were clamoring for their stimulus payments, but often neglected to file early to get their refund. Statistically, about 70 percent of filers had at least a $3,000 refund due on their return, but with the filing deadline pushed back to July 15, they put off getting their refunds. With the IRS also on lockdown, it would have been to their advantage to filing as soon as possible.”
As a result of what has happened in 2020, the 2021 filing season will usher in new complexities, according to Pyron. “The 2021 filing season will be unprecedented,” she predicted. “First, many accountants may not be aware that the extra $600 a week in unemployment benefits people receive will be taxable. The stimulus is not taxable, but unemployment is taxable.”
“The ability to withdraw up to $100,000 from a 401(k) or another retirement plan without the 10 percent early withdrawal penalty is a huge development,” she said. “You still have to pay tax on the withdrawal, but it can be spread over three years. Or you can pay back the plan for over three years. So if you took out $100,000 this year you have to put back one-third of it by Dec. 31, 2020, or pay the tax on one-third of it by next April 15 [assuming the filing deadline reverts to its traditional date]. A lot of taxpayers will get a Form 1099 from their plan administrator, and not be aware that they can pay it back over three years.”
“Many taxpayers left their home state, went virtual, and now think they’re residents of a different state,” Pyron said. “Each state has different rules, but it can be hard to break the residency hold of a state. New York is even refusing to waive the taxability of first responders who volunteered to come on a temporary basis from other states to help out with the expected surge in area hospitals.”
Roger Harris of Padgett Business Services sees two lessons the pandemic taught the accounting profession.
“First, we learned through all of this what our real value is to our clients, and it’s not in compliance, it’s in our advice. Our clients were a lot more concerned with getting help in the loan and forgiveness procedures than in getting their taxes done,” he said. “We’ve known that our industry has been moving in this direction, and COVID-19 has pointed that out — I hope we don’t forget it when the pandemic is over.”
“Second, I think we all learned how to work remotely,” he continued. “Either we had the technology in place to do this, or we got it in place. We learned that working remotely has some benefits and we should take advantage of those benefits going forward.”
To help accountants navigate the challenging 2021 tax season, Accounting Web is offering a free downloadable handbook, The 2021 Tax Season Survival Guide.
Created by EA Susan Tinel, who has authored several practical tax planning content efforts, and runs a successful tax practice, and Randy Johnston, who provides a vetted list of essential tax season tools.
The guide itself dives into the technical tax and accounting challenges that all firms need to be familiar with. It also includes a checklist to ensure that firms have the systems, plans, and processes in place to ensure a smooth and safe tax season. Finally, there is a directory of the key product categories commonly used by firms to make tax season more efficient.
The software sectors included in the guide compiled by Randy Johnston, cover all areas of technology including document management, practice management, and workflow, hosting, automation, and of course, core tax software options.
Accounting professionals are more than equipped to deal with change and the MoneyThumb team is confident you will get through the 2021 tax season. We also firmly believe that any bit of advice and direction will help. We wish you a very successful rest of the year and the 2021 tax season! The free guide can be downloaded here.