Tax experts and taxpayers alike are breathing a sigh of relief that this year's tax season is finally over at midnight tonight. Following a flurry of technological hiccups, sudden tax changes and delays caused by Congressional debates with the fiscal cliff, it's been an infamous year for taxes many would wish to not repeat.
"This has been the strangest filing season on record," says Bill Nemeth, an enrolled agent in Atlanta, Ga. "It's never seen like this before."
The most recent mar on the tax season occurred late Sunday night when the top tax preparation tool, TurboTax online, went down for roughly an hour. But that was relatively minor given the other trials taxpayers endured, including:
• Compressed tax season. Typically, the Internal Revenue Service is up and ready to start accepting returns on Jan. 13, Nemeth says. But due to last-minute discussions in Congress, the IRS wasn't ready for returns until Jan. 30, he says. But that was just the start. Some returns with certain credits didn't have forms ready until Valentine's Day and those with rental property had to wait until March 7, he says. "Because of Congress, things got real compressed this year," Nemeth says.
• Lifestyle changes raising new tax questions. Given the state of the economy, tax experts found taxpayers struggling on new issues. One of the biggest changes had to do with greater questions about who qualifies as a dependent, says Eva Rosenberg, an enrolled agent and operator of the taxmomma.com Web site. Many more parents are wondering who they can claim as dependents, as their children return home unable to find jobs, she says.
• Changes with investment taxes. Starting last year, brokerages have had the obligation to report the cost basis of most investments at tax time. And while most brokerages have gotten these forms out on time this tax year, many were wrong and needed to be fixed with amendments, says Jerry Love, a certified public accountant in Abilene, Tx. Several brokerages were sending fixes up until April. This only complicated the fact that many of the software packages that accountants used were also being patched to incorporate the year's last-minute tax changes.
Taxpayers who haven't filed yet need to get in motion, tax experts say. That's especially important for those who owe taxes. Filing for an extension can save big fees, as failing to do so results in a maximum 25% failure to file penalty and a 20% failure to pay, Nemeth says. The failure to file fee is 5% a month. Taxpayers unable to pay may qualify for a 3% annual interest rate and payment plans are also available for bills of less then $50,000, Nemeth says.
The IRS is less tough on taxpayers who miss the deadline but who are getting money back. There's no penalty, Nemeth says. But even these taxpayers will want to get current since if there's money due, and they don't file for three years, they forfeit their refund to the government, he says.
But above all, now's the time to plan for next April, says Love. Big changes in the code will likely hit high income earnings hard. "If you make more than $250,000, your taxes are going up. Count on it," he says.