After a couple of pandemic-influenced tax seasons in 2020 and 2021, many practitioners were hoping the 2022 tax season would be a more traditional, or “normal,” tax season.
“I believe we got what we hoped for,” said Jim Guarino, managing director in the tax practice at Top 100 Firm Baker Newman Noyes. “But that’s not to say we didn’t experience our share of typical tax season challenges.”
“For example, there was the winding down of COVID-related legislation such as confirming final stimulus payments, Child Tax Credit payment reconciliations and ‘above the line’ charitable contribution inquiries,” he explained. “In addition, we were faced with the newly implemented Schedule K-2/K-3 reporting issues and ongoing IRS processing delays. All of these factors helped create a bit more stress on the 2022 filling season than we would have liked.”
The other item that might have also impacted practitioners last tax season was having to explain the results of their tax return preparation, according to Guarino. “In some cases, clients owed more tax than they anticipated — this was especially true for our clients who had significant investments in mutual funds,” he said. “These clients, on average, had much larger capital gain distributions than in past years. As a result, some of them were caught off guard and had larger tax liability balances owed with their tax return last spring. Despite the sobering investment results of 2022, practitioners might see a recurrence of this phenomena again for the 2023 filing season.”
For the current season, Guarino said the firm is focusing attention on appropriate staff training, professional development and establishing overall tax season expectations and goals.
“The beginning of tax season is an ideal time to focus on staff training and professional education,” he said. “The timing of this training is of particular importance since tax season is right around the corner. Our people will soon be putting into practice the information and knowledge they are learning.”
Tom O’Saben, government relations and tax content director at the National Association of Tax Professionals, agreed. “Tax pros should use this time to get familiar with their software, begin scheduling client meetings and seek out important education resources that may be needed during crunch time, such as webinars or other guidance on specific topics like the Child Tax Credit, retirement plans, trusts, etc.,” he said.
Education is one of the cornerstones to the staff’s professional development, but so is in-person collaboration, Guarino indicated. “Although hybrid and remote work is still a part of the new work environment, we are also encouraging our people to make time to be physically present in the office so that they have an opportunity to participate in those unscheduled impromptu meeting that regularly occurred in the pre-COVID office environment,” he said. “There’s a component of professional learning, knowledge gathering and team-building that is best experienced while interacting with one’s peers.”
For 2023, practitioners have plenty to plan and prepare for as the season gets underway, Guarino predicted.
Many were concerned about slated changes to Form 1099-K reporting, which would have required third-party payment networks like Venmo, PayPal and others to issue a 1099-K to any individual who was paid $600 or more in 2022 (the previous threshold was anyone who had more than 200 transactions and total payments of more than $20,000).
Just before Christmas, however, the IRS postponed that change — in response, in part, to the concerns of practitioners like Roger Harris, president of Padgett Business Services, who wrote the chairmen and ranking members of the House Ways and Means committee and the Senate Finance Committee, asking that the lowered threshold for filing Forms 1099-K be pushed back. Harris believes the delayed effective date will allow the IRS as well as the private sector more time to develop systems and potential form changes that will make the new reporting requirement easier for taxpayers.
Harris noted that the Employee Retention Credit will impact this year’s business returns. “Preparers will have to ask taxpayers that come in with a K-1 or a Schedule C whether or not they received the ERC for either 2021 or 2020,” he said. “Then you have to see if the information you got from the taxpayer reflects that they received those credits. At a minimum, we have to ask the questions,and it’s possible that there might be additional work that needs to be done.”
Practitioners this season will have to deal with what Texas-based practitioner and former director of public liaison at the IRS Beanna Whitlock calls a “virtual shutdown” of the Practitioners Priority Service. Whitlock, who is also the executive director of the ncpeFellowship, said that if a practitioner can get the Practitioners Priority Service line it goes into a “cut-off” mode and will disconnect shortly after.
“With so many tax pros leaving the business, we will be inundated with taxpayers seeking answers, and we will have no access to the IRS on their behalf,” she said.
Meanwhile, Guarino summed up a couple of additional areas of pre-2023 tax season preparation:
- Finalizing 2022 tax projections for clients who may have had significant fourth quarter transactions and need to make an adjustment to their fourth quarter estimated tax payments by Jan. 16, 2023; and,
- Checking with clients about potential crypto transactions that need to be reported.
“The 2023 tax season, similarly to recent tax seasons, will once again keep tax professionals as busy and challenged as ever,” he said.