Tax-filing season is something few people look forward to. But this year’s tax season seems set up to be even tougher than usual– and, below, we’ll share why. Read on to learn what problems are on the horizon for the 2020 tax-filing season so you can try your best to be mindful of them.
Budget Cuts at the IRS
There have been recent budget cuts at the Internal Revenue Service (IRS), which has led to staff reductions and closures of Taxpayer Assistance Centers (TACs). This means that, this tax season, there are fewer IRS employees to handle internal issues and fewer IRS customer service agents to help individual taxpayers with their tax return questions or issues.
Tax Filing Deadline Change and Other COVID-19 Related Issues
The novel coronavirus pandemic has impacted the lives of Americans in so many ways. And it’s sure to impact tax season. Treasury Secretary Steven Mnuchin has already announced that the 2020 income tax filing deadline has been moved in anticipation of taxpayers needing more time to deal with their taxes due to the ongoing pandemic, which has affected so many Americans personally and financially. The 2020 tax season tax deadline for filing and making tax payments is now on July 15. How else COVID-19 may impact tax-filing season remains to be seen, as this crisis and government response to the crisis is ongoing. But one thing is certain: the new coronavirus will surely impact tax-filing season in numerous ways.
Increased Self-Employment in the U.S.
Due to the changing economic landscape in the United States, more Americans are now working freelance or independent contractor jobs, both as side hustle jobs and as their full source of income. With self-employment income comes an entirely different set of tax rules, which could be unexpected or confusing to those reporting self-employment income for the first time on their tax return. The 15.3% self-employment tax, which must be paid on top of income taxes, is likely to be particularly surprising to newly self-employed persons, who may not be prepared to pay this steep federal tax come Tax Day.
Confusing New IRS Correspondence Letters
The IRS has been using combination letters for many of their audits over the last few years. These combination letters, which contain both an initial contact letter and a separate 30-day notice, have proved extremely confusing to many taxpayers. According to a TAS report released last year, taxpayers who receive combination letters tend to misunderstand the letters. Additionally, the report found that taxpayers often do not have enough time to respond to combination letters appropriately. Though this internal TAS report found that combination letters were not an optimal method of IRS communication, the use of combination letters is set to expand in 2020, which will likely lead to much confusion among taxpayers who receive them.
Changes to the Tax Code
Several tax code changes that apply to the 2019 tax year are likely to confuse taxpayers in 2020. Here are a few notable changes you should be aware of:
- The 2020 tax-filing season marks the first year that alimony payments can no longer be deducted on returns.
- The Individual Mandate Penalty has ended federally starting in the 2020 tax season. However, there are still some regional rules and penalties in effect that are related to having health coverage, so be aware of this as you file your state taxes.
- The rules surrounding the medical expense deduction have changed many times over the last decade. If you’re planning on making this deduction for the 2019 tax year, know that your medical and dental expenses must exceed 10% of your AGI before you can claim the deduction.
Unqualified Tax Preparers
Another issue cited in last year’s TAS report was the need for a new return preparer strategy. Around 80 million people use third party tax preparers. But the IRS report noted that incompetence and misconduct of third-party tax preparers was a current concern and that the IRS needs to develop a comprehensive tax preparer strategy to address this issue. Since the federal government currently does not have an enacted strategy to deal with this issue, taxpayers who have their state and federal tax returns prepared by a third party should be vigilant about choosing their tax professional. If you use a tax professional for your small business or individual state and federal income tax returns, remember to check their credentials. We recommend only selecting a licensed, experienced CPA, IRS Enrolled Agent, or tax attorney to prepare your business or individual income tax return.
2020 Tax Scams
Tax scams always cause trouble around tax-filing season, and the 2020 tax-filing season is no different. But this year, tax scams are actually on the rise, with a noticeable increase in attempted phishing via fake IRS letters and fake IRS phone calls. If you’re concerned about protecting yourself and your tax refund from tax scammers during the 2020 tax season, view the IRS’s up-to-date Tax Scams page. You can also get more information on how to protect yourself from tax-related identity theft by reading this informational guide: Identity Theft – What it is and How to Stop It.