Tax season is almost here, and with it comes all the usual issues of paperwork and confusion. But this year might be especially difficult as there are several new developments on the tax front.
With that said, here are 11 things you need to know when filing your tax return this year.
1. Tax Accountants Get Swamped Closer to Tax Season
The earlier you start collecting documents and figuring out how you are going to file your taxes, the better. Many accountants might find themselves too busy to help procrastinators who wait until April to start the process.
“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 of 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.”
Early preparation for filing helps you avoid everything from document issues to accountant time constraints.
2. Tax-Filing Methods Are Evolving
The way that people actually file their taxes is evolving, with many opting for tax preparation software over filing by hand.
For example, TurboTax offers free and affordable services to help you fill out your tax returns. However, this software can cost as much as $79.99 if you’re self-employed or a small business owner. The IRS offers Free File Software, but it’s only available to those whose annual income is below $62,000. If your income is above $62,000, the IRS offers Free File Fillable Forms, but you must know how to do your taxes yourself.
There are distinct advantages and disadvantages to various tax-filing methods, and taxpayers should spend a bit of time deciding on the method that is right for them.
3. The IRS Is Trying to Prevent Identity Theft
With new changes in technology, the IRS is increasingly concerned about tax-filing-related identity theft. There have been many stories in the news in recent years about criminals stealing people’s identities and then using those identities to file false tax returns. But during the 2016 tax season, new security measures are expected to prevent this.
According to a statement on its website, the IRS is partnering with state tax administrators and tax leaders to protect consumers against identity theft refund fraud by using more than 20 new data elements on tax returns this year.
“We are breaking new ground in the battle against identity theft,” said IRS Commissioner John Koskinen in a statement. “Taxpayers will have more protection than ever when they file their tax returns.”
4. But These Safety Precautions Could Make the Process Longer
CBS MoneyWatch reports, however, that this effort against identity theft and fraud will mean “more stringent passwords to access tax software” and security questions for taxpayers. There will also be a new feature that will lock users out after too many failed log-in attempts. Although these data elements should detect possible identity theft refund fraud, it also means tax-filing might be a longer process.
And as with all changes, these new security measures might encounter some hiccups and complications the first time through. So, make sure you give yourself plenty of time to get through the tax-filing process this year.
5. IRS Customer Service Levels Might Be Low — Again
In November 2015, Koskinen warned that customer service will be even worse during the 2016 tax season, reports the Washington Post.
During the 2015 tax season, customer service levels were low at only 37.6 percent, reports Forbes. Out of approximately 83.2 million taxpayers who contacted the IRS via its Customer Account Services number, only about 8.3 million were connected to a live person. And, the average wait time to talk to a person was 23.5 minutes.
But, USA Today reports that during a January 2016 media briefing, Koskinen said there might be shorter telephone waiting times this year. “We expect the level of service on the phone will be better than last year,” he said. “Our goal would clearly be to have [waiting times] under 20 minutes.”
6. Audits Are Fewer But Just As Unpleasant
Congress did approve a $290 million budget hike for the IRS, but that money is going to be used to improve customer-service issues — not tax compliance and enforcement, reports USA Today. That means there will likely be fewer tax audits in 2016 compared with last year.
But when taxpayers do end up with a regular in-person field audit, it will likely be as grueling and intense as it has always been.
7. Obamacare Penalties Are Higher
The changes to Obamacare this year are significant, especially on the penalties side. While the Affordable Care Act imposed penalties for those without having qualifying health care coverage, the penalties were rather small initially. If you didn’t have coverage in 2014, those penalties started at $95 per adult or 1 percent of household income. In 2015, they rose to $325 per adult or 2 percent of household income if you didn’t have health insurance that year.
All of these penalties might be confusing for many taxpayers — specifically those who did not have health insurance coverage in 2015 — when they file their federal tax return. Visit Healthcare.gov or consult a tax professional if you have concerns.
8. The IRS Has a Program to Exchange Your Account Information
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,” states the IRS.
Those who fail to do so could face stiff penalties, which often essentially puts the firms out of business. That’s why even in the famously secretive Switzerland, banks have bent over backward to comply with U.S. law.
As of January 2016, more than 100 countries have signed FATCA agreements with the IRS. And in October 2015, the Wall Street Journal reported that the IRS has a new program where they can automatically exchange digital financial account information with tax authorities in other countries.
9. Chances of an Audit Are Higher If You’re Wealthy and Live Overseas
Bloomberg Business reported in 2015 that those who make $200,000 to $1 million a year have a 2.2 percent chance of getting audited, which is more than double the average. And for those who make more than $1 million, that number jumps to 7.5 percent. Additionally, U.S. taxpayers overseas had a greater chance of getting audited in 2015.
Furthermore, the Wall Street Journal recently reported that an inspector general’s report is urging the IRS to focus on auditing the super-wealthy instead of those who make $200,000 to $400,000 a year.
All of this changes the way wealthy U.S. taxpayers, those traveling abroad and U.S. expatriates have to think about filing their taxes in 2016. Filers who try and use any international tricks to minimize taxes can face substantial penalties and even possible criminal prosecution.
Keep Reading: 10 Best Tax Havens in the World
10. Start Gathering Your Documents Now
Tax planning in any year is never fun, but 2016 might be particularly difficult for a wide variety of groups. Taxpayers need to understand the changes in Obamacare, for example, and how the IRS will use their personal data to try to prevent identity theft, which will require more effort from taxpayers as well.
In this environment, planning and early research is the best way to get started. Start collecting your personal tax documents early, especially your Affordable Care Act paperwork.
11. The Tax Deadline for Filing Is Different This Year
The IRS deadline for filing taxes is generally the same each year — April 15. But this year, the filing deadline is three days later thanks to a federal holiday, Emancipation Day, being celebrated in Washington, D.C. Since the 15th is a Friday and the IRS cannot require the filing deadline be a holiday or weekend, the deadline rolls over to Monday, April 18.
This should provide last-minute tax filers with a bit more time to get their paperwork in order.