When tax season comes to an end, I always like to take a moment to look back and see what went right, what went wrong, and what were the big issues of the season. The 2016 filing season brought several challenges - health insurance forms no one understood, more late 1099's from investment companies, late depreciation laws, and constricted tax brackets. But there were also some positives with decreased identity theft returns and better e-filing. Following are just a few thoughts on the last 109 days.
Everyone owed taxes
I'm just going to be honest, the withholding tables don't work. If you make more than $40,000/yr and/or your spouse works, you cannot rely on the withholding tables. The tax brackets were constricted in 2015, meaning that taxpayers creeping into higher brackets owed more tax than was withheld. Furthermore, in Arkansas, the withholding tables were updated to reflect new tax rates, yet several employers were either unaware or neglected to update employee withholding. For example, the Little Rock School District sent a letter to all of their employees in February 2016 saying they used incorrect withholding amounts for their employees for 2015 and as a result they might owe tax. If you owed tax, it's time to re-evaluate your withholding and make sure your W-4 is filled out correctly.
Health insurance forms
Did you have health insurance all year? Did it meet the essential minimum coverage requirements? If you didn't have coverage, do you qualify for an exemption? Did you obtain insurance from a subsidized exchange? Do you owe some of your premium tax credit back? These are all questions I got really tired of asking. On top of that, taxpayers got 1095 forms, and then voided 1095 forms, and corrected 1095 forms, or they didn't get them at all. And, if a return was filed before a corrected 1095 form was received, the taxpayer received a notice. I'm all about having a fair system and giving everyone an equal shot at affordable healthcare, but when it spills over into the tax world, the reporting should be held to the same standard as everyone else.
Late 1099's
i understand the wash sale rule probably more than most people. I understand the value of waiting until the end of January before brokerages with transactions can start putting together their 1099's. But logistically, you have to think by the end of January they will know dividends, interest, etc. and all they are waiting on is to see if there are any wash sales. When taxpayers that used to file in late February are now filing in late March because they don't get their 1099 until early March, it puts a lot of pressure on the system. Hopefully as the cost basis and wash sale reporting gets under control, investment companies will be able to issue their 1099's earlier.
Identity theft returns
It would appear (knock on wood) that the IRS has somewhat combated the filing of false tax returns. For example, our firm did not have nearly the number of rejected returns as a result of something already having been filed as in prior years. It will be interesting to see what happens on extended returns over the next few months, if the hackers have figured out to file after the deadline instead of early in the season.
In all, the filing season went okay. Now it's time to sit back, take a deep breath and a nap, then get to work on the extensions.