Our Taxing Times

W-2Gs and CP2000s

It’s that time of the year, CP2000 time. The CP2000 is an IRS notice to a taxpayer when there is a discrepancy between what income was reported on their return and what was submitted to the IRS in W-2s, 1099s and W-2Gs. Because I’m so close to so many casinos, I see a lot of CP2000s that deal with missing gambling winnings.

When a taxpayer wins a jackpot, the casino gives them the W-2G for the win at that time. It’s up to the taxpayer to keep the W-2G safe and bring it into me, or their preparer, when their taxes are done. What happens to the W-2G? It gets shoved into a purse or pocket, thrown in the glove compartment or on the desk at home or thrown in the trash by accident. It’s no wonder that gambling income is so easy to get wrong.

It’s up to the taxpayer to create a system to keep track of their W-2Gs. The best solution is the log book for gambling wins and losses that they should already be keeping. That will give them a list of what they actually won during the year. Even if they are missing a W-2G, they will be able to report the income. If the taxpayer doesn’t want to keep a log, they need to have a safe place to put the W-2G the minute they get home.

I’d also like to see the casino be able to give taxpayers a list of the W-2Gs they’ve issued to them for that year. Like a pharmacy gives a taxpayer a list of the prescriptions they bought, a casino should be able to give them a list of their jackpots. That way the taxpayer has a list to check against the W-2Gs they’ve saved. It would not only help insure that all the winnings are on the return but give the taxpayer another source to check a CP2000 against.

The IRS isn’t off the hook though. They need to add the date of the win to the information they provide on the CP2000. The date is on the W-2G so it should be an easy task. Without a date, it is very hard to be sure which W-2G(s) was not on the return. I have a CP2000 listing 25 W-2Gs the taxpayer received and 10 of them were for the same amount. Without a date, I can’t be sure which W-2G wasn’t included on the return.

There are to tax prep issues here. First I want to make sure that I have all the income on the return and if a CP2000 is issued I want to make sure the IRS is correct. The taxpayer needs to keep good records of their winnings and a log would help. But casinos make mistakes and it would be helpful to know what they are showing on their records. A winnings printout could easily catch a mistake or missing jackpot. The IRS just adding the date from the W-2G to the CP2000 would make it easier to check what was still missing and if it was really won by my client.

Working with W-2Gs has gotten easier in the last few years. I see very few handwritten forms and it looks like the casinos are better training their people how to fill out the form. But everyone involved could do a better job of tracking and reporting jackpots. Not just to get all the income on the return in the first place, but to give us a way to verify the IRS’s information is correct.

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Do Overs

Do Overs.

How often as children playing with friends have we called out for the chance to do our turn over again. Maybe we’ll get a better result this time. It’s frustrating that as adults we can’t do over events. But with our income taxes, we have a chance to do over our tax return.

When a taxpayer needs to change the return they originally filed, they can do just that on form 1040X. An amended return can be filed for income or expenses which were omitted on the original return, to change filing status or dependents or to take advantage of missed credits. An amended return might also be used to respond to an IRS notice.

No matter the reason, the procedure is the same. Form 1040X is used to report the changes. The first page has three columns. The left column shows what was on the return the taxpayer originally filed. The center column documents the changes being made. The right hand column shows the corrected figures. On the second page, there is an area to list name and SSN for any dependents being added to the return and a place to explain what changes are being made.

The 1040X can be a little tricky so a few suggestions.

• Make sure you have a copy of the original return saved before you start making changes. Once you have completed the amended return, save that return separately.
• If the amended return shows a refund, it has to be for an open year or you won’t get they money. You have 3 years from the tax return’s due date or 2 years from when the tax was paid to request a refund.
• If you end up owing on the 1040X, don’t be tempted to hold off filing the 1040X to see if the IRS catches the error. Waiting for the IRS to contact you could mean higher interest and penalties.
• Prepare one 1040X for each year and mail them separately.
• This might be a good time to get a tax pro to help you. If you choose to do it yourself, take it slow and follow the instructions. It might be easier to do a 1040 return incorporating the changes first. That way you have the information you need for the left and right column and can easily calculate the adjustment column.
• While you don’t need to send a full copy of revised return, you do need to send a copy of the supporting documents and forms for you changes. For example, if you forgot to take advantage of the education credits on your original return complete Form 8863 and include that form with your amended return.
• Amended returns still have to be mailed in to the IRS. They also take longer to process because they aren’t electronically filed. Give the IRS at least 6 to 8 weeks. New this year is the ability to track any amended return for this year or the last 3 years by using the “Where’s My Amended Return?” on the IRS website or by calling 866-464-2050. You’ll need the primary Social Security Number (1^st one on the return), the date of birth for that person and their zip code.
• Don’t forget to amend your state returns. The IRS and the state revenue departments compare notes about what each has on file. Again, take it slow as you prepare the return. Each state has their own format and many require a different form for resident amended returns as to non-resident amended returns. Also, check to see what documentation your state wants sent with the amended return. Generally, they want a full copy of the amended return you sent to the IRS.

You can get a do over on your tax return if you need to make changes to a return that has already been filed. Use a 1040X and don’t forget you state return too.

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You Need the Numbers Before You Do the Return

Dear Rep. Bill Foster (D-IL) do you know what a CP2000 is? May I respectfully suggest that you check this notice out and then go back to the bill you just submitted to Congress and make some revisions or trash the bill completely?

A CP2000 is a notice the IRS sends to taxpayers concerning differences between the information records the IRS has received and what the taxpayer has reported on their tax return. For example, Joe wins a jackpot at a local casino in January of 2013 and is given the W-2G for the win at that time. But by the time Joe does his 2013 return in 2014, he’s forgotten all about it and doesn’t include the winnings on his tax return. About a year later, Joe will get a CP2000 from the IRS pointing out that he left this income off his return and please send them some more money.

Why should Rep. Foster check out this notice and the time it takes for it to be issued? Because he and co-sponsors Rep Mike Quigley (D-IL) and Jared Huffman (D-CA)  have introduced a tax reform bill; the Autofill Act of 2013 (H.R. 1532). The idea is that taxpayers will download from a secure IRS website a tax form with the income information already filled in for them. The income reported on W-2s, W-2Gs and 1099s. The taxpayer can accept the return as is, modify the information or do a return from scratch. It’s the Representative’s solution to the complex tax code and the cost of compliance.

Autofill is one of those ideas that sounds good but will be a bear to implement. Part of the problem with this particular bill is the time frame that the sponsors outline for implementation. Basically they want it to start with the 2013 returns that will be filed in 2014. That is a short time to make those kinds of changes to the tax system. And it doesn’t give anyone much time to get the word out to the public about the program and their right to make changes to the Autofill return. Most troubling to me is the section that requires the IRS to have the downloadable forms ready to go by February 15^th.  That is at least 13 days earlier than W-2, 1098, and 1099 forms have to be filed with Social Security and the IRS. In fact, if the information returns are filed electronically, employers and payers actually have until March 31^st. Then Social Security and the IRS need time to process the information. That’s why it takes so long to get CP2000 notices out. They can’t go out until the information is there. Under this bill, the downloadable returns could be incomplete or change as the issuers make corrections. Autofill won’t help if the correct numbers aren’t there.

As for Autofill reducing the costs of tax preparation, it might cost me clients with simple returns. But I can see more amended returns and compliance work due to information filed late or taxpayers wanting to make changes to the filled in return they filed.

Some kind of pre-filled out Federal return might be an option to help taxpayers. However, there are lots of issues which would have to be worked through before it could go live. The biggest issue would be filing deadlines for the information returns the IRS would need. It might mean that April 15^th would have to become June 15^th to give time for the info to be available and returns filed. The Autofill Act of 2013 needs to go back to the drawing board and take a serious look at how the current system works and what changes will have to be made to get an Autofill return program to be a benefit for taxpayers.

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Storm Tax Relief

I started to write a quick post about the IRS giving extra filing time because of the recent weather and discovered that Taxgirl has a great post about just that. I can’t think of anything to add to her post, so read all about it here.

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I Survived Tax Season 2013!

I remember when…

This will be a year that tax pros will remember for a long time. Whether we are chatting online on a forum or having a drink together at a conference, tax season 2013 will come up. Some newbie will complain about an inconvenience or a strange procedure and those of us who have been in the business for a while will mention all the changes and procedures we have seen; doing returns by hand and paper filing them, putting client info on data entry sheets and waiting for a printed return (corrections had to be sent back), installing our tax software from a stack of small floppy disks, and tax season 2013…

What a year!

We begin with Congress putting off dealing with expiring tax provision until after the first of the year. This was despite two warnings from the IRS that Congressional  delay could cause the start of tax season to be delayed. And it was. Originally, electronic filing was to begin on January 22^nd but the start was pushed back to January 30^th. Even then, we had forms that couldn’t be filed. Two major forms (4561 and 8863) couldn’t file until mid-February. It was March before we could file all returns.

Because of the delays, no Feb. 29^th, and the season actually ending on April 15^th, there were fewer filing days in 2013. This made for a more intensive 3 months and the most hectic season end that I have ever seen.

A minor inconvenience was the lack of a refund chart. For years, the IRS had given preparers a chart which gave up a refund target date based on when the return was electronically accepted. With the expansion of Modernized e-File and CADE2, there was no way to know how fast the refund would come back. Clients told me of IRS refunds in 4 days to 10 days.

The big tax software companies had their issues in 2013. Minnesota had issues with how Turbo Tax was handling items on the state return and banned the software until TT resolved the problem. Then the IRS announced that 10% of returns with Form 8863 (Education Tax Credits) were delayed because of errors on the form. H&R Block was the biggest culprit because of the way their software was handling the new check boxes.

On April, 10 the IRS took the Modernized e-File system down for maintenance. Not something you want to do to stressed tax pros needing to file returns and extensions. Even after the system was back up, there were delays getting acknowledgements for the filed returns.

Then at 6pm on April 15^th, I couldn’t get my last few returns to file. Drake Software was having connectivity issues. I ended sitting around the office, reading a book, and attempting to file the returns every 15 minutes or so. Finally about 9:30pm, they went through. I wasn’t too worried since all my extensions had been filed earlier in the day and most of the returns were refunds but it wasn’t how I wanted to spend the evening.

Factor in some really crazy weather, Tax Season 2013 will be one will be talking about for years to come. Maybe we should get tee-shirts that say “I Survived Tax Season 2013”.

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Not Over Yet.

One of the big problems with all the hype about April 15 as Tax Day is that it gives taxpayers the idea that they don’t have to think about their income taxes once the returns have been filed. So before the sun sets on Tax Day 2013 please let me make a few suggestions that might make you tax life easier in the future.

Before you safely put away your tax return, back it up. Make a digital or paper copy and file it in a different place. I don’t know how many times the last few months I’ve heard from clients who weren’t able to find a past year return. This is especially necessary if you are doing it yourself. It’s hard to fight the IRS if you don’t know what you did in the first place. While you’re backing up the return, take time to secure the supporting documents you used for the return. Back them all up if possible. There are small scanners that are made to copy receipts. Remember that some receipts fade over time and a copy might save you if audited later. Also, I can give a client a copy of their return and will have copies of some of their documents but I don’t keep copies of all the receipts I go through. They’re your receipts and returns; you need to keep them secure.

Did you owe on your tax return or get a large refund? It might be a good idea to look at your withholding and make changes to it. By doing it now, you have plenty of time to let the changes take effect and to check to see if the changes will be enough to cover your tax debt or reduce your big refund.  

This is also the time to think about tax planning. Life changes can affect your taxes and need planning. Will you retire in 2013 or start to draw Social Security? Most pensions don’t withhold income taxes unless you tell them with a W-4P. A tax pro can help you fill one out. And remember Social Security can be taxable and you may need to set up withholding through SS or make estimates to cover the extra tax.

Are you getting married or divorced? Are you having a baby or becoming empty nesters? A little time with your tax pro can help you plan for your 2013 taxes. No one likes a bad surprise when they do their taxes. But too often, taxpayers don’t plan for changes until they’ve seen what happens on their return and have to write a big check they weren’t planning to write.

It’s April 15^th and for most taxpayers, their taxes are done and they won’t think about them again until next January. But a little time now to secure your return and the supporting documents or to talk to your tax pro about changes you expect in 2013 can protect you from problems and surprises in the future.

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One Week Warning

One week left. Unless you file an extension, your 2012 income taxes are due next Monday the 15^th. No extra days because of the weekend and/or Emancipation Day. Returns have to electronically filed or postmarked by the end of the day.

That gives you a week to complete your return. Right? Not necessarily.

To be honest, if you are doing your own return I don’t really care how late you start the return. However, if you are planning to get a tax pro to do your return, you might get a surprise.

I won’t take tax appointments from noon Friday through 6pm on Monday evening. I haven’t for several years and it really has made my end of season life easier. Don’t get me wrong, I keep busy filing extensions, finishing promised returns, reprinting lost vouchers, calling about missing signature forms and answering the phone the last few days. Clients are welcome to drop off their information but they have to understand that I won’t look at it. I’m not the only tax pro that restricts last minute procrastinators. I know some pros who are already telling clients that their return is on extension.

It’s that old saying – your lack of planning is not my emergency. It’s not like the whole April 15^th due date was decided yesterday. It’s been “THE” date for a long time. Admit you procrastinated and accept your preparer’s rules. If not, there will always be preparers who will welcome your return on the 15^th and strive to get it done on time.

Before you dig in and refuse to see a tax preparer before April 15^th, I’d like to give you a few things to think about.

• You get sick or have a family crisis and can’t get to the preparer’s office.
• You didn’t bring in everything and can’t get a replacement for your missing info on short notice.
• Surprise! You end up owing and didn’t leave time to put together the money to pay your balance dues.
• Bad weather causes power outages and internet failures which mean returns can’t be filed.
• The post office isn’t staying open late for procrastinators.
• The preparer is tired and wants to go home. Or they have a waiting room of other last minute filers. Both situations make it harder to concentrate on your return.

You get my idea. Procrastination may backfire on you.  

It’s your decision when to start your tax return. And it’s my decision how to handle your procrastination. If you don’t want to follow my rules, there are lots of prepares who will be glad to see you. I don’t want to lose your business but it’s for your protection and as well as my sanity that I don’t take tax appointments the last few days. Be warned, no amount of bad jokes, clichés and ranting will make me change my mind.

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