2015 Filing Season Won't be Pretty

Those who would know best are saying that we need to be prepared for one of the worst filing seasons on record during the first quarter of 2015. What makes one filing season worse than another?  It has to do with the level of service that the IRS can provide to taxpayers.  How fast can they answer the phone when taxpayers call?  How fast and accurately can the IRS respond to taxpayer correspondence?  How efficiently will the IRS be able to process tax returns and refunds?

The IRS had a goal of answering 80% of incoming calls last season, but only managed to answer 72%.  This filing season it is predicted that the IRS may only be able to pick up 53% of the time with a 34 minute average hold time.

The IRS Commissioner, John Koskinen has identified a few main reasons why things look so bleak:

  1. The IRS doesn’t have enough money to operate the way it should.  Funding levels are lower than they have been in years.
  2. The IRS has been tasked with administering new programs such as the Affordable Care Act and the Foreign Account Tax Compliance Act with no additional funding from Congress.
  3. Implementation of a new voluntary return preparer oversight program will also increase work load for IRS employees.
  4. There are 50 or so “tax extenders” — laws that Congress needs to vote on and determine if they will be extended or not.  The uncertainty could delay the start of the 2014 tax season.

National Taxpayer Advocate, Nina Olson, has a way of stating things in the plainest terms.  She has generated some great sound bites over the years.  Here’s her take on the upcoming tax season:

The filing season is going to be the worst filing season since I’ve been the National Taxpayer Advocate {in 2001}; I’d love to be proved wrong, but I think it will rival the 1985 filing season when returns disappeared.

I think these viewpoints have been colored by a recent TIGTA report that highlights “unfavorable trends” with the Automated Collection System (ACS).  Because the IRS does not have the resources to work cases properly, they have been “punting” many of them into Currently Not Collectible status or into the “queue” where cases can sit idle for months or years.  Consider yourself fortunate if you don’t have to interact with the IRS this tax season other than to file your return and wait for a refund check.

1st Grade Tax Tips

Do you endorse the "shoe box" strategy of document storage?

This is usually the time of year when people start digging through their file, or shoe box as the case may be, in an effort to get started on their dreaded Form 1040.  If you wait until the eve of tax day, then you’ll find yourself furiously rifling through said shoe box.  And if you really use a shoe box to secure your important records, then chances are you not very organized, and you have other records scattered all throughout the house or in multiple files on your computer.

I know that nobody ever taught you about income taxes or finances in grade school; my kids haven’t had that class yet either.  But as they get older, I do intend to impart some wisdom on them, even if by force.  And for now, there are many habits I can help them develop that will hopefully carry over into their adult life and will make their future April 15ths that much more bearable.

1.  “Get started on your homework right after school.”    If you at least begin the process with a few weeks to spare, then when things come up that inevitably pull you away from the task at hand, you will still have time to put out those fires and get your return filed on time.  And, if due to your personal high principles, you refuse to pay Uncle Sam a nickle before the 15th, at least have it ready to go, then you can hit “send” at 11:59pm.

2.  “Keep everything in your backpack.”    It really doesn’t matter if you’re using a shoe box for your tax docs.  A shoe box works just fine if all your stuff fits in there.  One disorganized shoe box is way better than having multiple piles around the house.  The key is to keep everything together.

3.  “Once it has been graded, throw it out.”    Sometimes we want to save a particularly well-made craft or an A+ essay, but most of the stuff that comes home from school each day goes directly into the trash.  We couldn’t possibly save everything, nor would we want to.  Same with your tax records.  If you can access it online, then why keep a paper copy?  The “three-year rule” should generally suit you just fine.

2014 Tax Season: Status Check

Today the IRS released some key filing season statistics to show how they are doing compared to last year at this time.

So far the IRS has received some 49.6 million tax returns and has processed around 98 percent of them.  A vast majority of those returns were filed electronically — about 46.6 million.  If you hadn’t noticed, as much as the IRS loves sending taxpayers mounds of mail, they really do not like receiving it.  Hence the constant emphasis on e-filing.

So far the IRS has paid out over 40 million tax refunds; most of them being directly deposited.  As much as the IRS loves sending taxpayers mounds of mail, they really do not like sending paper checks.  Hence the constant emphasis on direct deposit.

One stat that always blows my mind is the average refund amount, which is now over $3,000.  I think that number tapers off as we approach the tax filing deadline since those who are eager to file early are typically the same people who expect a fat tax refund.  Personally I would rather pay what I owe in April than give the government an interest-free loan throughout the year.

And finally, the statistic that has left me wondering is the irs.gov website traffic.  This is one of the only stats that has dropped since last year.  The only other stat that is lower this year is the number of e-filed returns by tax professionals, but this is probably going to continue to drop as the number of e-filed returns prepared by taxpayers from their home computers (self-prepared returns) continues to rise.  Could the decreased website traffic mean that people are relying more heavily on tax software?  Could it mean that taxpayers are turning to the phones more than in years past?  There are a million possible explanations.