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10 Things to Know Before You File

Jerry Gaddis, EA Has Some Pre-Tax Season Tips for Fellow Preparers

With Christmas is in the rear view mirror, the bowl games all played out, and December bank statements arriving in the mail, tax season 2017 has officially arrived. Here are 10 things to know before filing that first return. 

1. Expired ITINs Need to Be Renewed

ITINs that haven’t been used on a tax return in the past three years and those with middle digits 78 and 79 expired on January 1, 2017. Anybody with one of these expired ITINs will need to renew before filing, which may take 7 to 11 weeks to process. Instructions for renewing can be found here.

2. Several due dates have changed

Many payroll tax returns, along with 1099-MISC forms, are now due on January 31 – not just to employees and contractors but to the government as well. In addition, partnership returns (Form 1065) are now due in March, C-corporation returns (Form 1120) are now due in April, and Foreign Bank Account Reporting (FBAR or FinCEN Form 114) is now due in April to coincide with the personal income tax return deadline.

3. New due diligence requirements and a new form: the 8867

With the IRS’s continued scrutiny on refundable credits, preparers are now required to perform additional due diligence on returns claiming the Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), and American Opportunity Tax Credit (AOTC).

4. The IRS really wants that 1098-T information

As part of their focus on refundable credits, Form 1098-T is now required from taxpayers claiming education credits or the tuition and fees deduction. Make sure to keep a copy for your records as part of the due diligence process.

5. Preparer penalties have increased

The $500 penalty associated with Earned Income Tax Credit (EITC) due diligence is now expected to be applied to CTC, ACTC, and AOTC returns. In addition, the preparer penalty for willful or reckless conduct has increased from 50% to 75% of the income derived from that return or claim for refund. Be very careful with these credits and keep good records regarding any information included on the return.

6. Expect refund delays for returns with refundable credits

The IRS is cracking down on fraud associated with EITC and ACTC, so refunds on returns including those credits will not be processed until at least February 15 and taxpayers are being told not to expect to receive those refunds until the third or fourth week of February. Combined with the earlier due dates for payroll tax returns, this gives IRS the opportunity to verify income for these taxpayers before issuing their checks.

7. Casualty loss claims could be popular this year

There are special rules for taxpayers in federally-declared disaster areas. Much of the East Coast was affected by Hurricane Matthew and several states have been affected by wildfires and other disasters this year.  Check the IRS website for disaster relief news and updates.

8. Passport revocation

US taxpayers with seriously delinquent tax debt could now have their passports denied, revoked or limited. The amount generally must be greater than $50K with a tax lien issued and no payment agreement in place.

9. Data security is a big issue

Identity thieves continue to come after tax return data, so everyone must make data security a priority. As the IRS, software providers, and national chains get better at keeping data safe, thieves are moving downstream to individual firms who generally know less about the topic and have fewer resources to engage in the fight. See IRS Publication 4557 and News Release 2016-96 for more information and a list of preparer best practices.

10. Several extenders expired at the end of 2016

Be careful when offering tax planning advice to clients this year. Included in the provisions that have expired (can be claimed for 2016 but not 2017) are the residential energy credit, tuition and fees deduction, and the forgiveness of principal residence indebtedness.

So there you have it, the first top-10 list of the year. Feel free to add helpful hints for your fellow preparers in the comment section.

Jerry Gaddis is founder & CEO of Tropical Tax Solutions, a full-service firm headquartered in Key Largo offering tax consultation, preparation, and representation services. Mr. Gaddis, a Dave Ramsey Endorsed Local Provider, is enrolled to practice before the Internal Revenue Service, a director with the National Association of Enrolled Agents, and a fellow in the National Tax Practice Institute. He earned degrees from the University of Florida and the Crummer Graduate School of Business at Rollins College in Winter Park, FL. He’s been in the tax business since 2004, and you can reach him at TropicalTax.com.

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