5 Tax Season Tips For Accountants for Better Preparation

The flurry of tax changes in 2018 has created a panic that has overflown the 2019 tax year into the upcoming 2020 tax year.

The current situation says that it is never too early to begin preparing for April 2020. While December marks the beginning of endless challenges accountants and tax preparers have to face in the oncoming season.

The tax season has always been busy for the accountants, but the financial year 2019–2020 has been a real doozy due to the uncountable tax reforms and new tax laws that have come into action. The complexities of the Tax Cuts and Jobs Act (TCJA) in the US added a significant workload to almost all tax attorney’s offices.

This is the ideal time to begin prepping for the tax season. Here are the practical ways in which you can address the tax season’s pain points –

Helping clients qualify for medical and dental deductions in 2020

As we have mentioned before, there have been significant changes in the contribution limits and deductibles as of 2020. As a self-only applicant, one can contribute a maximum of $3,500. It is a $50 increase from the $3,450 limit of 2019. As a family, the maximum amount is $7,000.

While the change in the maximum amount is small, the impact can be significant in terms of the work the tax accountants have to complete within the deadline. The taxpayers opting for Health Savings Accounts (HSA) can enjoy the tax savings, even if they have made contributions prior to the imposition of tax on their income.

Apart from changes in healthcare, there exist dental and medical deductions.

The Tax Cuts and Jobs Act lowered the threshold for medical expense deductions to 7.5% of AGI from the prior threshold of 10%. In other words, a taxpayer with an AGI of $100,000 can now deduct medical expenses exceeding $7,500. (source)

Informing Clients About Alimony Deduction Modifications For 2020

From the 2020 tax filing, any alimony payments related to a separation or divorce will not qualify for a tax deduction. It is one of the most significant Tax Cuts, and Jobs Act (TCJA) changes that have taken place this year. It is a jarring change for anyone who has been paying alimony for months or years.

The TCJA change can result in the loss of hundreds to thousands of dollars of the taxpayer’s money.

It is going to be a significant challenge for the tax accountants and attorneys to convince their clients that they owe more money for payments. Almost all the leading tax attorney firms across the US are gearing up for the upheaval that will soon face them during the upcoming filing season.

Helping the freelancer and independent contractor avoid penalty

Failing to report all income has always been a cardinal sin in the eyes of the IRS, but the growth of freelancing has drawn the close attention of the IRS to individual income declarations. As the number of independent contractors and freelancers are on the rise, reporting income with W-2s or 1099s is not enough.

The tax reporting process is now more complicated than it ever was in the US. It has become almost mandatory for freelancers to consider appointing personal tax attorneys and accountants to be able to report their income adequately, track the deductions, and save taxes.

Catering to freelancers or independent contractors has always been a challenge for fellow tax accountants. Still, the stringency of the IRS and the implementation of penalties associated with incorrect income reporting has made the job even more challenging for them.

It is necessary to work with a client throughout the year and remind him/her of quarterly tax payment deadlines. It can ensure that the taxpayer does not forget what he might owe at the end of the financial year.

Changes in the limits of retirement account contribution

As of 2020, you can invest more in one or more retirement accounts. The limits for 401(k) and IRA have risen in 2019. Here are the contribution limits for the different retirement plans –

1. 401(k) base contribution — it has increased by $500 to $19000 since 2018
2. 401(k) catch-up contribution — for all taxpayers at least 50-years old, additional $6000, which has remained unchanged
3. IRA base contribution — a $500 increase from $5500 to $6000 from 2018
4. IRA catch-up contribution — for all taxpayers at least 50-years old, additional $1000 has remained unchanged

The contributions your clients make in 2019 can be deductible during your 2020 tax return. This is the first time since 2013 that IRA limits have changed. Experts estimate that the limits will again change and rise for the tax year 2020 (tax return due by April 2021).

Convincing the taxpaying client of their data safety

One of the prime concerns of all tax accounting firms is client information safety and security.

It is the responsibility of every tax accountant to safeguard their client data against all malware, ransomware, and other forms of a data breach. Apart from using a two-way 256-bit encrypted channel, your firm needs to set up cloud-storage systems complete with firewalls that can thwart data hacking attempts.

Although not directly related to the tax reforms of 2019, data security is a pressing concern that still affects the taxpayers and the accountants, who need to exchange information multiple times per day.

As the TCJA has become law, fewer taxpayers will claim standardized deductions, and less than 10% of the taxpaying populace will itemize. The level of complexities makes space for numerous errors, especially when the accountants are working on a tight deadline. And this is only a brief glimpse at the several pain points the accountants had faced during the 2019 tax season.