Tax season is in full swing, and tax practitioners everywhere are bracing for a busy few months. April 18 is a major deadline, and others are scheduled in the IRS’ Online Tax Calendar.
While the IRS marked Jan. 23 as the official start of the 2023 tax season, the agency is still processing 2021 returns. As the National Taxpayer Advocate Erin Collins indicates in her 2022 Annual Report to Congress, the IRS began 2022 with an inventory of 22.3 million requiring manual processing. The IRS ended the year with 15.1 million in inventory of the same.
Tax pros have the difficult job of managing client inquiries about the status of previously filed returns and overdue refunds while managing refund expectations for the current year. For tax year 2022, some tax credits and deductions that were expanded in 2021 will return to 2019 levels—the child tax credit, the earned income tax credit, and the expanded charitable contribution deduction of up to $300 ($600 for joint filers)—meaning smaller refunds for affected taxpayers are likely.
Practitioners can encourage and assist clients to check the Where’s My Refund tool, IRS2Go mobile app and Where’s My Amended Return tool to monitor refunds. Currently, the IRS is reporting that it is taking more than 20 weeks (instead of up to 16 weeks) to processing amended returns.
Meanwhile, here are six things tax pros should keep in mind as they go into the busy tax season.
- The IRS announced in December that it’s delaying the new, lower $600 reporting threshold for third-party settlement organizations. As a result, third-party settlement organizations won’t have to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower, $600 threshold, assuming no withholding was made. The IRS will regard calendar year 2022 as a “transition period.” Tax pros should prepare clients that the IRS will enforce the $600 de minimis reporting threshold for years after 2022.
- In December, the IRS also posted a revised draft version of the 2022 Partnership Instructions for Schedule K-2 and K-3 (Form 1065) and a similar revised version of the 2022 S Corporation Instructions for Schedules K-2 and K-3 (Form 1120-S). They were subsequently finalized. These final instructions retain the new domestic filing exception to the requirement to file and furnish to partners and shareholders Schedules K-2 and K-3 for tax years beginning in 2022. The AICPA Tax Section Odyssey episode Uncovering the intricacies—Schedule K-2 and K-3 sifts through the changes between the draft instructions and dive into the particulars CPAs and taxpayers need to know.
- The IRS has updated the question about digital assets on the 2022 Forms 1040, 1040-SR and 1040-NR. Instead of asking about virtual currency, for 2022 the question is: “At any time during 2022, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, gift or otherwise dispose of a digital asset (or a financial interest in a digital asset)?” Tax pros also should highlight the varying state guidance for their clients. The AICPA has this chart available to help.
- The IRS has opened a free portal to file information returns: E-file Forms 1099 With IRIS. This new option can reduce millions of paper Forms 1099 estimated to be filed by businesses in 2023. Known as the Information Returns Intake System, this free e-filing service is secure, accurate, and requires no special software. The portal is available to any business of any size and may be especially helpful to small businesses that typically send paper Forms 1099. Currently, IRIS accepts Forms 1099 only for tax year 2022 and later.
- Recently, cyber threat actors are attempting to get around multifactor authentication by using a technique known as MFA bombardment or MFA abuse. Access the AICPA Tax Section’s Keeping Data Secure for Taxpayers and Professionals guide to see the latest cyber threat provided by the cybersecurity firm Sylint and access best practice tips to implement before, during, and after an incident.
- Tax planning takes place all year round and, with the help of a tax professional, taxpayers can understand a tax return is just beginning of the story. Tax pros should discuss with clients key provisions included in the SECURE 2.0 Act, which provides for expanded automatic enrollment in retirement plans, an increase in the applicable age at which beneficiaries must begin taking required minimum distributions, and more. The AICPA Personal Financial Planning Section has developed several resources, including: Analysis of a Tax Return for Financial Planning Opportunities, AICPA Personal Finance Scorecard, Planning Tax Services Infographic, How to Make Time to Provide Personal Financial Planning Service, How SECURE 2.0 impacts clients we see in our practices, and How SECURE 2.0 will impact retirement planning.
Good luck to all the tax pros out there, whether it’s your first or 61st busy season!
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Sarah Shannonhouse, CPA, is manager of tax practice and ethics for the Association of International Certified Professional Accountants. She helps develops and reviews technical tax-related content for the association.
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