Was it really 70 degrees in New Jersey during the first week of March? I keep finding myself having to rub my eyes, pinch myself, and double check multiple calendars to make sure it’s actually March going into April and not April going into May. That time difference of just a month or two might seem minor, but to tax accountants it’s an eternity. The main reason being that there’s a large volume of work that must be completed by tax accountants between March 1 and April 15. However, I was fortunate enough to catch up with two individual tax returns experts at Untracht Early prior to the eye of tax season storm to ask them a few questions that are relevant to many, in some capacity.
With another tax season having kicked off, what are some methods you use to mentally prepare for the long days that lie ahead?
While there were a multitude of techniques offered up, the number one most important thing to both individual tax returns experts (well aside from chocolate) was organization.
Organization is the key and it stretches across both professional and personal life. Due to the long hours worked during the busiest times, it is a must for Raquel Arrechea, CPA, MST, to be sure that she has everything in her personal life (that she can control) scheduled so that it doesn’t conflict with those work days and weeks that consist of very long hours. This allows her to focus on her clients and manage her workload with less external distractions.
For Andrea Nodoro, CPA, MST, MBA, making daily to-do lists is how she’s able to organize and stay ahead of her crazy “day to be.” The daily list is started with any items that weren’t completed from the previous day. Anything new that came in prior to her arrival to the office is then added to the list. Finally, the daily to-do list is completed by including any engagements that are expected to be received for review by the end of the day. According to Andrea, the best part of list-making is getting to cross off completed items as it makes her feel extremely productive and she then has something tangible to show her daily accomplishments.
What is some advice you’d give to individuals who are starting to get their tax return documents together in anticipation of having their tax returns completed?
Many accountants provide some form of a tax notebook/organizer to their clients. This document should be utilized by the taxpayer as a guide to help them gather their tax information and send it to their accountants. And of course, the earlier a taxpayer can do this, the better. Even if the entire tax package isn’t complete, it’s highly recommended to send what you’ve gathered to your accountant because anything they can get started on earlier in the year will make it more likely that they’ll be able to complete the return sooner. This is especially important for the filing of your individual 2016 tax returns as the IRS is taking measures to protect against various types of external security fraud risks, which is delaying the release of refunds and overpayments being applied to future periods.
Also make sure to gather all receipts, especially those related to medical expenses, charitable contributions, gifts, and unreimbursed business-related expenses. Raquel believes that you’re better off bringing/sending the information to your accountant and discussing what might be deductible versus what might not be, than to just assume these receipts won’t be of use. For example, a taxpayer might have purchased a gift or sponsored an event in a way which benefited a not-for-profit charitable organization. Therefore, a portion of the purchase might qualify as an itemized charitable contribution deduction on the taxpayer’s individual tax return.
Do you have any tax tips that you’re recommending to individual filers to take note of this year?
Although there haven’t been any major tax law changes affecting individual tax returns for the 2016 tax year, there is some potential for significant tax law changes to be implemented as early as the 2017 tax year. However, as of February 2017 there’s been no finalized tax law changes issued.
As mentioned above, there’s been a delay on the issuance of tax refunds and overpayments being applied to future periods as the IRS attempts to reduce and uncover fraudulent tax reporting.
As a high level individual tax returns reviewer, what are some of the key things you’ll be looking for during your reviews this year?
While not specific to the 2016 tax year, both Raquel and Andrea agree making sure that all taxpayer information is included in the tax return, and is accurately reported, are both crucial factors. Certain areas are generally more subject to information being omitted based on lack of details provided to us and/or lack of supporting documentation. A few of these areas include itemized deductions, charitable donations, real estate taxes, investments, and states filed. Raquel and Andrea’s approach is to perform a completeness check first to make sure there’s no obvious information missing from the tax return. This is done by comparing the tax return with the projection and with the taxpayer’s prior year tax return. The next steps taken are to look through correspondences between the engagement team and the client, and to look at IRS tax notices (if any) to identify potential events that affect the current year tax return and, therefore, should be included in the return. Once there’s comfort that everything has been reported, accuracy checks are performed to make sure all items are being presented correctly on the tax return.
What are your expectations for tax changes over the next few years in connection with the change in Presidents?
There is a lot of speculation about potential tax changes that are currently being discussed within the government but nothing has been finalized or released, thus far. Raquel does have some general expectations on tax changes (which wouldn’t take effect until the 2017 tax year at the earliest) based on the statements and proposals released by government officials that have been made about potential tax reforms. For example, she doesn’t expect an increase to the long-term capital gains rate and she believes the rate in the future will be at 20% or lower.
An expectation of Andrea and Raquel’s is that the Net Investment Income Tax (“NIIT”) will be repealed. The NIIT is a complex surtax charged on certain income earned from investments, which includes dividends, interest, short-term capital gains, long-term capital gains, and passive business activities, to name a few.
There seems to be a predominant feeling that the individual Federal tax rates may be lowered in the future and Andrea agrees. With a Congress controlled by Republicans, she would expect the individual Federal tax rates to decrease based on similar historical events. It appears that only time will tell what the future holds for the current tax laws.
As can be formulated from the answers above, the future tax law changes are up in the air so the effects can’t be determined yet. Therefore, it will be important to check in with your tax accountant during 2017 to make sure any tax amendments issued during the year (if any) won’t have an impact on your 2017 tax filing. Reaching out to your accountant before the end of this year may provide you with an opportunity to optimize your cash flow while also putting you in a good tax position when you file your 2017 tax return next year.