“It’s déjà vu all over again.” — Yogi Berra
Tax practitioners must feel this way. The start of tax filing season is here, and we are still dealing with effects from the pandemic, IRS service woes and the endless talk of potential legislation. Sometimes, when a million things are competing for my attention, I take stock and realize it’s time to pause and refocus. Look at the most pressing items and cross some off my to-do list.
In that vein, let’s tackle the big-ticket items you need to think about now.
Advance child tax credit: Plan how you are going to get this information from clients.
Clients are receiving Letter(s) 6419 if they received any advance payment of the child tax credit. This has the potential to be time-consuming as we field clients’ questions — “That’s not the amount I received.” or “Why did I get two letters?” If the amounts reported on the return don’t match the IRS’s system, the IRS will flag the return, and processing delays can result. To proactively handle this issue, think through some options. Consider recording a video to show clients how to log in to the IRS’s Child Tax Credit Update Portal so they can double-check the payments. Also, use data analytics from your tax software to determine which clients likely received these payments and contact them to start the process.
Also, if your client received an advance child tax credit payment in 2021, Form 8867, Paid Preparer's Due Diligence Checklist, must be completed - even if no child tax credit amount is claimed on Form 1040, U.S. Individual Income Tax Return. Consider using the AICPA Tax Section's Paid Preparer's Due Diligence Checklist to help you, which is part of the Annual Tax Compliance Kit that also includes engagement letters and tax return checklists.
2020 returns with refunds or other carryover information applied to 2021: How will you/your firm handle confirming whether these returns have been processed?
This is another situation where including information on a return that doesn’t jibe with the IRS’s system will likely delay processing. The IRS has stated that taxpayers “generally” will not need to wait for their 2020 return to be fully processed to file their 2021 tax returns and can file when ready. Many tax practitioners suggest getting an IRS transcript to confirm a tax return has been processed if there is doubt or concern.
Cryptocurrency transactions: Ask your clients and make sure you understand what you are asking.
You have likely seen or heard that the cryptocurrency question changed slightly for the 2021 Form 1040 — “Any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?” The change was an attempt to clarify the question from prior years, but the question may still be ambiguous to your clients. Nevertheless, there has been a lot of talk about cryptocurrency and NFTs (non-fungible tokens) this year, so make sure you someone at your firm is knowledgeable on the subject so that clients can be advised accordingly. Check out the AICPA Tax Section’s virtual currency tax guidance and resources for support.
IRS service issues: Let clients know. Consider online access for you and your clients.
We are all aware of the challenges of contacting the IRS — unnecessary notices and countless time on the phone with the IRS. I wish I had a magic wand to make all of this better. Consider letting your clients know where things stand so that they don’t take their frustrations out on you. Have you signed up with Tax Pro Account? Have you encouraged your clients to create an ID.me account with the IRS? ID.me is the IRS’s trusted technology provider of secure identity verification for its digital services.
You should watch the Tax Professionals United for Taxpayer Relief Coalition Town Hall on Feb. 8 to learn more about what stakeholders are doing to try to improve the situation with the IRS.
Extensions: Talk to your clients early.
This is a communication and client-education issue. Yes, some work may be needed to determine if tax will be due with the return. But, for a lot of clients, you likely did year-end tax planning with them, so you already have a good idea about how the 2021 return will turn out. Spreading the work out over the summer is a good strategy to ensure that there is plenty of time to complete and review the compliance work. Setting firm deadlines with clients is another good way to manage your schedule rather than clients managing your schedule. Help your clients understand that an extension isn’t bad and, in many cases, a wise choice.
BONUS: Don't be afraid to have fun.
When I was in public practice, the firm where I worked for 14½ years had a great practice of having a "Tax season kickoff." It helped get everyone in the right mindset, provided some good reminders on firm practices and usually had a theme with costumes and fun activities related to it. So, think outside of the box when gearing up for another tax season. And, if you need support this tax season, check out some of the resources available in the tax season resource library.