Taxpayers are feeling a lot of anxiety as tax season approaches. On top of all the tax reform laws that will make major changes to their returns for the 2018 tax year, the government shutdown has raised concerns about whether the Internal Revenue Service would be able to accept returns at all if lawmakers and the White House weren't able to come to a decision regarding funding the tax agency's operations.
Earlier this week, the IRS put to rest any concerns about when tax season would start. Beginning on Jan. 28, 2019, the tax service will start accepting 2018 tax returns. It also intends to pay refunds to taxpayers as scheduled. But even though the official start date for tax season has been set, you need to understand that there are reasons why you might not be able to file that quickly -- and the IRS might not start processing your return as soon as you might like. It's important to balance your wish to get a quick refund with making sure that your return is correct and doesn't raise any red flags that lead to unnecessary delays.
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A second year in a row for a late tax season
Historically, the IRS often managed to start accepting tax returns about three weeks into January. Yet from time to time, certain complications arose that made it necessary for the tax service to give itself more time to prepare. Last year, the IRS had to look at the just-passed tax reform measures to make sure what impact it might have on the 2017 tax returns that taxpayers were about to file. That made sense, given the late December enactment of the reform efforts and the quick turnaround necessary to incorporate them into the tax agency's operations.
This year, the IRS scrambled to prepare for all the changes under tax reform. It took an all-year effort during 2018 to take on tasks that ranged from creating a brand new universal 1040 form for all taxpayers to ensuring that all instructions and tax forms reflected new tax laws. With the IRS already short-staffed, the government shutdown simply exacerbated what was already a high-stress situation for federal workers for the tax agency. Yet keeping the late-January deadline was clearly important to the agency, and starting tax season as early as it is represents a substantial victory for the IRS.
Here's some guidance for dealing with tax season as efficiently as possible.
1. Don't wait to work with your tax preparer
One thing to keep in mind is that there's no need to wait on getting ready to file your return. Tax professionals and tax software companies are already accepting customers and starting to prepare tax returns, and the official Jan. 28 start date won't stop them from doing everything they can on their end to get your filings ready to go. Once Jan. 28 hits, they'll then submit completed returns once IRS systems are able to accept them.
2. Look at electronic filing
As it always does, the IRS once again took the opportunity to encourage taxpayers to file electronically. Doing so minimizes errors and speeds up processing, allowing for faster refunds. If you hire a tax pro or use tax software, electronic filing is typically offered as part of the package.
The IRS announcement didn't talk about how paper returns will get processed this year, but last year, the tax service said that paper returns wouldn't start processing until mid-February. If the shutdown continues, the IRS will be under great strain, and that could give electronic filings an even bigger advantage over paper returns this year.
3. Getting the earned income or additional child tax credits? Prepare to wait for refunds
Tax reform made some big changes, but it didn't take away rules that require some taxpayers to wait for their refunds. Those who receive the earned income tax credit or the additional child tax credit aren't able to pay refunds on those returns until mid-February.
By imposing the additional delay, the IRS can cross-check numbers to ensure that the taxpayer is claiming those credits legitimately. Historically, those two credits have been frequent targets for those trying to abuse the system, because they provide for refundable amounts to go back to taxpayers even if they have no other tax liability. Taxpayers can expect normal processing of their returns -- the IRS will merely hold onto refunds until the statutory deadline passes.
4. File when you're ready
Just because tax season starts Jan. 28 doesn't mean that you should file then if you don't have all the information you need. Even the all-important W-2 forms that employers give to their workers aren't required to go out until Jan. 31. If you have bank or brokerage accounts, it can be well into February before you have all the tax forms you'll need, and some forms for more complex tax issues take even longer to go out to taxpayers.
The worst thing that can happen is to rush your return only to find out that you left something out. If you do that, you'll have to file an amended return, and that can add all sorts of complications -- as well as potential interest and penalties if you're not timely in responding to the changed circumstances.
Get ready for the season opener!
It's impressive that the IRS expects to start tax season even with the potential difficulties associated with the government shutdown. By understanding what's involved in getting your return in and processed, you'll be more likely to be among the first to get your hard-earned refund back in your hands.
