Of the first 5 individual income tax returns that I prepared this week, 4 had unexpected problems and complications. Other tax preparers report unexpected and disturbing taxpayer reactions.
Income tax filing season opened four days ago on January 29. Day by day now the real impact of the new federal tax law is hitting home for more individual tax filers. Experienced tax advisers joined with government watchdog agencies in sounding the alarm since before passage of the law a year ago. Yet too many people were apparently placated by propaganda lacking factual basis and then failed to take appropriate financial precautions to minimize tax consequences of the new law.
These are the four main trends reported by tax professionals across the nation in these early days of the tax filing season:
1) Most people who usually receive tax refunds are seeing smaller tax refunds this year. Despite all the warnings in public media, most affected taxpayers are surprised.
2) At least 1 in 5 middle-income taxpayers in my area, and probably a higher ratio within my attorney client niche market, will face higher tax bills. The amount of the increase shocked some tax filers. Indications are that many are not aware of the loss of popular tax deductions.
3) Most of these affected taxpayers ignored published tax advice and offers of individual professional tax planning assistance to reduce tax liabilities a year ago. Tax filers want retroactive ‘fixes’. It is obviously too late to make adjustments to reduce 2018 tax liability now.
4) More people are indicating a willingness to commit tax fraud on this year’s income tax filing to offset the effects of the new law. These bizarre stories seem to be flooding online accountant group discussions now. It’s just crazy and scary to me. This unexpected client reaction is alarming many tax preparers who are clear that they will not engage in this behavior. I wonder if IRS disfunction and low audit rates are contributing this behavior. Most are unfamiliar with the potential of life-altering impact of a tax audit.