10 Things You Need To Know to Prepare You for Tax Season
By Victor Ochieng
We all know the hassle that comes with tax return season, with many businessmen and women doing loads of paperwork. While it’s been a challenge year in and year out, this year might be an even bigger challenge because of the new developments in the tax system.
Below are some of the things you need to know before you embark on filing your tax returns this year.
Tax Accountants Get Too Busy During the Tax Season
The best thing to do is start getting your paperwork ready so that when the time comes, a tax accountant can easily work on them. This is a good precaution since these accountants normally get extremely busy during the tax season.
“There are literally hundreds of changes, extensions and deletions that we will consider this year when preparing returns for our clients,” said accountant William Rivero, who works with accounting firm Correia, Rivero & LeFebvre. “Because of these changes, we are requesting our clients try to have their information to us no later than March 21, 2016.”
Evolving Tax Filing Methods
You should be aware of the newly available ways of filing tax returns. There are tax preparation software programs you can take advantage of instead of manual filing. A good example is the TurboTax, which makes it easier to file tax returns. You’ll, however, have to spend about $80 to get the software if you’re a small time businessperson.
The IRS is Doing More to Prevent Identity Theft
The shift towards new technology in filing tax returns has also led to an increase in identity theft cases. The IRS will, in response to controlling such acts, be taking 20 new data elements. This means longer time filing the returns as users will have to provide more complex passwords and data in order to access the filing software. Ensure that you have some extra time as new systems are likely to present some challenges.
The IRS Customer Service Might Hit a Low Again This Year
Forbes reported that IRS customer service was at a low of 37.6% during the 2015 tax season. Only 8.3 million of the 83.2 million taxpayers who tried to reach out to the IRS were able to get connected to a live person. The average wait time to talk to a customer service attendant was 23.5 minutes. However, Koskinen is reported to have said the wait time might be shorter in 2016.
Fewer Audits This Year
Congress gave a $290 million budget raise to the IRS, but that money will be channeled towards improving customer service. What that means is that no improvement is expected in enforcing tax compliance. However, in as much as there will be fewer audits, they’ll definitely be as grueling as usual.
Penalties Are Higher For Those without Health Insurance
Changes made to Obamacare this year make noncompliance penalties very high. Earlier on, penalties had the lowest threshold of $95 per adult or 1% of total household income, a figure that has jumped to $325 per adult or 2% of the total household income.
The IRS Can Exchange Account Information with Agencies in Other Countries
The Foreign Account Tax Compliance Act (FATCA) “requires certain U.S. taxpayers who hold foreign financial assets with an aggregate value of more than the reporting threshold — at least $50,000 — to report information about those assets on Form 8938, which must be attached to the taxpayer’s annual income tax return.” There are up to 100 countries that have signed the FATCA agreements as of January 2016. The IRS now has a program through which it can exchange digital information with foreign tax authorities to ensure compliance.
You’re More Likely to Be Audited If You’re Wealthy and Live Overseas
In a 2015 report, Bloomberg Business revealed that American citizens making between $200,000 and $1 million have a 2.2% chance of getting audited, a figure double the average for all filers. That percentage jumps to a whole 7.5% for those who earn more than $1 million. That percentage even jumps way higher if you’re living abroad and earn more than $1 million. The Inspector General recommends that the IRS focuses more resources on auditing the super rich, according to the Wall Street journal.
The Tax Deadline Changed For This Year
Because of a federal holiday, the deadline for filing taxes will be three days after the usual April 15. This is because April 15, 2016, falls on a Friday, the Emancipation Day, yet according to IRS policy, the tax filing deadline can’t be on a holiday or a weekend, meaning it will roll over to Monday, April 18, 2016.
If you don’t want to find yourself on the wrong side of the law, do your research early and ensure that you put your documents in order as early as possible.