Tax Day 2016 By The Numbers
1:47 AMPosted by: John S Kiernan
April 15 – or April 18 this year due to Emancipation Day scheduling – is one of those dates that’s simply synonymous with a particular event, representing Tax Day like Dec. 25 and Jan. 1 do Christmas and New Year’s, respectively. The glaring difference is that we approach this IRS holiday with foreboding – images of audits and unpaid liabilities dancing in our heads rather than sugar-plums. Such concerns, embedded in our DNA since Revolutionary times, are also well-justified – considering that we collectively fork over $1.62 trillion to Uncle Sam each year and spend 6.1 billion hours making sure our payments are proper.
The U.S. tax landscape has also changed a great deal in recent years, with returns becoming predominantly electronic, the IRS budget again swelling after five years of shrinkage and the tax code ballooning to 5-times the number of words in the Bible or 2-times the entire “Game of Thrones” series. With that in mind, we decided to take a closer look at what the contemporary U.S. taxpayer faces each April, highlighting the most interesting statistics related to how we prepare, pay and process taxes. We also interviewed a panel of leading experts on matters relating to both tax policy and practicality, and you can check out their insights below.
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Taxes and our obligations with respect to them are almost like living, breathing entities. The dynamics are in constant flux, which means we can never stop learning about the process. In search of a greater understanding of how to successfully navigate the waters of taxation, we posed the following questions to a panel of leading experts. You can check out their bios and responses below.
- How is tax day 2016 different from past years?
- Will the extended deadline--April 18--help reduce the number of people who file late?
- Has the amount of time and money spent on preparing tax returns changed in recent years? What are some tips for reducing time and money spent?
- Is tax reform more likely under a President Hillary Clinton or a President Donald Trump?
Eric Allen Assistant Professor of Accounting in the Marshall School of Business at University of Southern California
Alice G. Abreu James E. Beasley Professor of Law at the Temple University Beasley School of Law
Caroline Bruckner Executive-in-Residence in Accounting and Taxation, and Managing Director of the Tax Policy Center at the American University Kogod School of Business
Sean Wandrei Lecturer in Accounting at the University of Massachusetts, Isenberg School of Management
How is tax day 2016 different from years past? This is more related to the last couple of years than just 2016, but I think the biggest relatively recent change in tax compliance is that the FATCA and FBAR requirements have gotten tougher (and more stringently enforced). Will the extended deadline -- April 18 -- help reduce the number of people who file late? Maybe on the margin, but I don’t think it will affect more complex filers. When I was in practice, we started extending larger clients (lots of jurisdictions/K-1’s/ etc.) up to two weeks before the deadline because even if the missing documents came in at the last minute, we would need more than a few days to finish the return. What are some tips for reducing time and money spent? My biggest recommendation is to spend some time during the year staying on top of your record keeping. If you wait to try to reconcile/reconstruct all your activity until you’re filing the tax return, it takes longer than if you were on top of it during the year, and you will forget something. Even taking an hour every month to reconcile your bank accounts and do some basic bookkeeping in Excel or Quicken, will make your (or your tax preparer's) life significantly easier. The difference in time I spent on a client who would just show up with the proverbial box of receipts, and the client that gave me some organized files was significant. Is tax reform more likely under a President Hillary Clinton or a President Donald Trump? I suppose it depends what you mean by tax reform. I really don’t think there’s a high likelihood of a major OECD BEPS type reform coming anytime soon, regardless of who’s president. There might be some incremental changes that vary based on the president (or which party is in congress), but nothing earth-shattering. Alice G. Abreu James E. Beasley Professor of Law at the Temple University Beasley School of Law 
How is tax day 2016 different from years past? Although fundamental tax law has not changed much in a while due to the Congressional inability to get serious about tax reform (despite much rhetoric and Former Chairman Camp's release of a very serious proposal, complete with legislative language and revenue estimates during his tenure as the Chair of the Ways and Means Committee), there are two items that have become more salient this year. One is that an increasing number of taxpayers will have to include an "IP-PIN," an Identity Protection Personal Identification Number, in addition to their social security numbers on their returns. The reason for this is that tax-related identity theft has become an increasingly serious problem for the IRS, as criminals file tax returns using real social security numbers with otherwise false information that appears to entitle the taxpayer to a refund. When the true owner of that social security number then files, her return is rejected because it looks to the IRS as if they have already filed. Once that is discovered, the actual taxpayer will eventually receive the refund due, but it can sometimes take quite a while to resolve the matters. Anyone so affected would then have received an IP-PIN from the IRS in December, and must include that number on the return to identify it as authentic. Data breaches at the IRS itself have also contributed to this problem. The IRS has made some strides in stopping the criminal activity but the problem is far from solved and the number of taxpayers with IP-PINs is growing steadily. The other item that has been more salient this year is liability for the "shared responsibility payment," or penalty, which is due from anyone who does not have health insurance (technically, "minimum essential coverage") and who is not exempt from the requirement to have it. The amount of the penalty is higher this year than last. Some taxpayers will only recently have received Forms 1095 listing the extent of their coverage, but returns can be filed even if taxpayers have not received the form. Last year was the first year that the "shared responsibility payment" applied, so on the bright side, this year, preparers are more likely to have had some experience with working through the required forms and determining the applicability of exemptions. Will the extended deadline -- April 18 -- help reduce the number of people who file late? I seriously doubt it. While some late filers are procrastinators and the extra weekend might help a bit, many late filers have little choice but to file late. Individuals who are partners in partnerships or shareholders of "S Corporations" whose taxes are computed somewhat like those of partnerships cannot file their own returns accurately until the partnership or S corporation has told them how much of the partnership or S-Corp income they must include in their individual returns. The partnership or S-Corp does that by issuing a "Schedule K-1" to the partner or shareholder, but with only a few exceptions, those forms are not due until April 15. Obviously, unless the entity completes its own return and then does the K-1 before the due date, there's no way that individual partners or shareholders can have all the information necessary to complete their own return. The additional weekend won't change that. Most partners and shareholders of S corporations have no choice but to file for extensions, and most small businesses today, and even many large ones are held as partnerships or S-Corps (LLCs with more than one owner are usually partnerships for tax purposes). Has the amount of time and money spent on preparing tax returns changed in recent years? What are some tips for reducing time and money spent? Yes - the law doesn't get simpler, and every time Congress routes social welfare legislation (like health insurance) through the tax system, the process of filing returns just gets more difficult and necessarily more expensive. Low and moderate income individuals can save a lot of money by seeing whether they qualify to have their returns prepared by a trained, IRS-certified volunteer under the Volunteer Income Tax Assistance ("VITA") Program. Thousands of community organizations run VITA sites all over the country and qualifying individuals can get their returns prepared there for free. There is information on VITA sites in specific locations. Other things that can save preparation costs are to compile all tax documents in advance, and have lists of deductible expenses, such as charitable contributions. Remember that charitable contributions, like state and local income and property taxes and home mortgage interest, are not deductible at all if taxpayers don't itemize, and that itemizing doesn't make sense for taxpayers whose Standard Deduction is greater than all of their itemized deductions combined. For 2015, the Standard Deduction is $6,300 for single filers and $12,600 for taxpayers who are married filing jointly. Similarly, many people spend a lot of time keeping track of and organizing all of their receipts for medical expenses. Yet, because such expenses are only deductible if they exceed 10% of adjusted gross income (and then on the amount over the 10% is deductible), and even then, only if the taxpayer itemizes. Hence, most taxpayers can't use the deduction unless their medical expenses are extraordinary, so the time keeping track is wasted. For example, a taxpayer with $50,000 of adjusted gross income will not be able to deduct the first $5,000 of medical expenses; any amounts over $5,000 will be deductible only if the taxpayer itemizes. Caroline Bruckner Executive-in-Residence in Accounting and Taxation, and Managing Director of the Tax Policy Center at the American University Kogod School of Business 
How is tax day 2016 different from years past? This year, for some small business owners who are partners in partnerships or shareholders of S-corporations, the window between the time a partner or shareholder receives the information needed to complete a tax return has shrunk. These small businesses won't necessarily have enough to complete returns in April. More of these types of taxpayers will need to file for extensions because their preparers won't have enough time to finish returns, which is just another headache for taxpayers and their preparers. From talking to small business tax preparers, we've learned that the complexity in the law has grown exponentially in recent years. Will the extended deadline -- April 18 -- help reduce the number of people who file late? Not necessarily for partners in small businesses. A few days doesn't make a difference if you don't have the third-party information you need to file your returns in a timely fashion. Has the amount of time and money spent on preparing tax returns changed in recent years? What are some tips for reducing time and money spent? Small businesses typically incur greater compliance costs than their big business counterparts and that data hasn't really changed. What people don't realize is that the smaller a business is, the more expensive the compliance costs can be once a business starts hiring employees. For example, last year, GAO reported to Congress that compliance costs for corporations and partnerships with 1 to 5 employees, so really small businesses, ranged from $4,308 to $4,746 per employee compared to $182 to $191 per employee for businesses with 50 or more employees. In terms of tips to reduce time and money spent, the best strategy is to keep good records throughout the year on expenses you've incurred and file early. Is tax reform more likely under a President Hillary Clinton or a President Donald Trump? In past tax reform efforts (under Presidents Kennedy and Reagan), leadership from the White House was key to moving tax reform forward. But today, our budget situation and current tax rates are much different than they were in the 1960s and 1980s. Regardless of who is the next President and their agenda, tax reform may have to take a back seat to addressing the projected long-term debt and annual deficit. Sean Wandrei Lecturer in Accounting at the University of Massachusetts, Isenberg School of Management 
How is tax day 2016 different from years past? There are more things that CPAs have to deal with now than in the past. This is the first year of the ACA, which has increased the complexity of returns and therefore cause more time to be spent on returns for individual and businesses. Will the extended deadline -- April 18 -- help reduce the number of people who file late? Based on my experience, people are going to wait until the deadline, no matter when it is. So having a few extra days will not change that thinking. “Oh I have a few extra days? That’s great; I’ll just wait until the last day like I always do”. The firms I have worked with usually treated the deadline as the 15th even when it as later. We tell our clients that we plan on having the returns done by the 15th. While there are some extra days, we do not cram those days with getting more returns out the door. I do believe that at a smaller firm, the extra days are used for getting returns out the door, but I am not sure how many more are really done. Has the amount of time and money spent on preparing tax returns changed in recent years? What are some tips for reducing time and money spent? Costs have increased. If you look at the amount of money that people spend on tax preparation, it is overwhelming. The code just gets more complicated each year. The code is not only a revenue generator, it is always a social and economic tool used to accomplish various things. Take the ACA, for instance: we now have tax credits or additionally tax businesses to influence them to offer health insurance. More rules mean more time and money spent. There are several ways to reduce time and money however the most important one is to stay on top of your taxes throughout the year and don’t wait until the last minute to get things together. Keep accurate records of all tax items. If you give your CPA clean records then he/she does not have to spend time going the records to figure out what is going on or what has happened this past year. Most returns are billed based on the time it takes to prepare them. If you give the CPA clean records, they will take less time to prepare the return and the bill should be smaller. Is tax reform more likely under a President Hillary Clinton or a President Donald Trump? Neither. Congress does not have any idea what it means to work with each other and compromise on their differences. I do not hold out much hope that anything will happen any time soon. Part of the reason it will be difficult to get tax reform is that Congress won’t work together. The other reason is the tax code does so much now from a social and economic stand point that it is difficult to reform the code. There are so many pieces to the code that reform is going to take a huge effort.from Wallet HubWallet Hub
via Finance Xpress
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