Status Update for Tax Season 2021
We’ve been meaning to reach out to all of our clients for the past several weeks with an update on where things stand, not just with peoples’ returns, but the state of the industry in general.
There were three major laws passed starting with the end of December and the last one, the American Rescue Plan Act, being signed into law on 3/11/21. One of the 3 laws impacts MD returns, whereas, for our VA and PA based clients, these states have largely elected to conform to the federal rules and filing deadlines. Part of the MD RELIEF Act requires the publication of brand new forms, and their attendant instruction manuals. The State of Maryland has not yet released these forms, something that caused the Comptroller of Maryland to extend the state’s deadlines to 7/15/21.
Without expressing an opinion on the politics of these laws, the administration of them in practical terms has presented challenges across the entire industry; from small accounting firms to national firms, and on the software engineers that continually update the tax software we use, and to the various tax authorities that have to update their forms and publications to align with the new laws at the federal and state levels, it’s been a struggle for all of us across the board and across the nation.
It is not a normal thing for laws to be enacted that impact an open tax season, though we acknowledge that these are not normal times.
To illustrate the challenges, we took a continuing ed seminar on 3/16, which is amazing if you think about the fact that the CPA who delivered the seminar was able to put it together in 5 days. He then published an update a week later on 3/23. By the end of that day, he published yet another update because the IRS has continued to announce changes as to how they will implement the new law’s various provisions. What this means is that some returns that were filed early will need to be amended.
After much pressure from national organizations such as the AICPA, NAEA, and the like, the IRS finally relented and agreed to a 30 day extension of the tax season - but only in part. The deadline for 1040s (individual tax returns) is now 5/17/21. However, the deadline for C corporations, trusts, and quarterly estimates for the first quarter, remains 4/15/21.
Normally, we would have filed 40-45% of all our clients’ tax returns by this point of the season (about ½ of our practice files by 4/15 and the other ½ file by the extension date due to complexity in their situation). As of the drafting of this post, 4/11/21, we have filed less than 5 returns!
The reason for this bottleneck is because the software hasn’t been updated to accommodate many of the changes, and out of an abundance of caution to avoid mistakes in an environment where the rules continue to change from day to day.
The status of almost all of our clients’ returns is that they have been worked up in draft form. We want to thank you for using TaxCaddy as we’ve found this technology to be indispensable during the lockdown, and amid the degradation of service from the USPS.
Our plan, as a firm, is to get all the returns prepared to the point where we can file, so that once the software bottleneck is lifted, we can get them out for signatures in short order.
Looking ahead, we will be reaching out to our clients that will have a 1st quarter estimated payment first so they can prepare.
It is our hope that we can file federal and state returns together, as normal, ahead of the 5/17/21 deadline. However, if MD continues to delay the publication of the new forms under the MD RELIEF Act, we may need to file the federal returns first and the MD returns later (for our MD based clients).
Finally, we want to take an opportunity to remind you about IRS and Social Security scams. There has been an increase in scams that play on people’s fears. As a general rule, the IRS and Social Security Administration do not initiate collection actions through phone calls. If you receive such a call, let us know and do not give out any information.
Thank you again for your patience and trust.