Although the Tax Cuts and Jobs Act (TCJA) was enacted in December 2017, taxpayers won’t feel the true impact of these sweeping tax changes until they file their 2018 income taxes this April. Unfortunately, taxpayers who are entitled to a refund may find themselves waiting longer than expected. With the government shutdown over (for now), it’s still important to consider how the shutdown impacts tax season.
What the Government Shutdown Means for Taxpayers
When the shutdown first began in late December 2018, a significant number of the IRS’s more than 75,000 employees were furloughed. But in recent weeks, as the shutdown dragged on while tax season ramped up, many IRS employees were recalled back to work to begin processing tax returns and issuing refunds.
Furthermore, the White House promised that taxpayers' federal refunds will be deposited on time—although with less than 60 percent of the IRS’s workforce in place during the shutdown, whether the administration can fully deliver on this promise remains to be seen.
One way the government shutdown is almost guaranteed to impact the tax filing process involves the IRS helpline. For decades, taxpayers with questions about their returns have been able to call the IRS for assistance, whether they’re wondering about the status of their refund or aren’t sure how to calculate the home office deduction. This helpline is also a crucial resource for tax preparers, as getting advice straight from the IRS is the best way to help clients avoid the red flags that can trigger an audit.
But with so many “non-essential” IRS employees furloughed, the helpline was down—and the TCJA’s sweeping changes to just about every section of the 1040 form means the helpline’s absence was being felt. While the government shutdown has ended for now, it's unclear whether the employees who return to work will be manning the helpline or, more likely, processing returns and refunds.
How Taxpayers Can Get Their Refunds on Time
While losing more than half of the IRS’s workforce during a historically busy tax-filing season is never ideal, it’s likely that few individual taxpayers will see much of a disruption in the refund process.
This is because about 90 percent of tax returns are filed (and 80 percent of refunds are deposited) electronically, and most of these electronic processes are entirely automated. Unless your tax return is selected for further review or runs into other snags along the way, it should be accepted in a timely fashion—and having a refund direct-deposited into your checking account after it's accepted doesn't require a human touch.
But the potential snags that may delay acceptance bear some further discussion. Anyone can be audited, no matter how airtight their return may seem— while some audits are for-cause, others are entirely random. Still, there are some well-known "red flags" that make one's return more likely to be selected for an audit.
- Households with more than one million dollars are audited at a rate of around 4 percent, while the average audit rate is only about 0.6 percent.
- Any taxpayer who fails to report all 1099 and W-2 income attached to their Social Security Number may have their return flagged for this discrepancy.
- Taxpayers who claim an alimony deduction are almost certain to be audited if this deduction doesn't match up with the information their ex-spouse reports.
- Taxpayers who have several years of "hobby losses," whose deductions are nearly equal to their income, or who operate a marijuana-based business (still illegal under federal law) are all more likely than average to draw additional attention to their return.
While not all of these situations are avoidable (and few one million-plus earners seem likely to take a pay cut just to reduce their audit risk), it's a good idea for taxpayers to keep them in mind as they go into the 2018 tax season.
With years of tax preparation experience and a special focus on business owners—whose returns can often be the trickiest—Scott Boyar has the expertise you need to ensure your return is error-free. Contact Scott today to schedule your appointment.