Happy Thanksgiving from Jake, Butch and the rest of us!
Our office will be closed the week of Thanksgiving. We will reopen on Monday, November 30, 2015. I apologize but we will not have access to emails.
This year NC taxpayers filed for the first time under the tax changes made by the Legislature in 2013 but mostly effective in 2014. Many lower-income people, those making less than about $80,000, paid the same, a little less or a little more income tax as under the 2013 rules. But because the withholding tables resulted in much lower withholding in 2014 than in 2013, many taxpayers owed for the first time. Others received much lower refunds than they did the prior year.
Complaints were loud and intense for a while. Politicians being politicians, they figured they needed to fix this problem and help most people receive a refund in the future. After all, 2016 is an election year. Instead of cutting tax rates or allowing more deductions the Legislature decided it could fool most of the people most of the time.
Maybe I am a cynic but this is sure what it looks like. The Legislature passed House Bill 117, also known as Session Law 2015-259 (PDF). Starting in 2016, the law requires employers to withhold at a higher rate than the actual NC tax rate. This should cause more people to get a refund or get a larger refund. Voila, problem fixed.
Of course one could argue the Legislature is helping taxpayers who were confused by the more complex new NC-4 (PDF of withholding allowance form) and had less tax withheld than was proper. The fix to that would seem to be to make the law simpler and not cause smaller take home pay for almost everyone, even those who got the NC-4 right.
Lets look at a simple example. Taxpayer Tom owed $2,000 for 2014 and had $1,900 withheld. Poor Tom has to pay another $100 with his 2014 tax return. For 2016 he owes $2,000 but he has $2,100 withheld. Now Tom is happy because he is getting $100 back. What really happened? He still owes $2,000 in total income tax before any payments. Because of the $100 refund, the NC Legislature hopes Taxpayer Tom is tricked into thinking 2016 was a good tax year while 2014 was a bad tax year.
So taking more money up front and then returning it later is a tax cut? Sadly, the NC Legislature will fool quite a few people with this ploy. So is tricking taxpayers part of the Legislature’s job?
Sometimes the IRS does something right. Hope nobody fainted. On October 7, 2015 the IRS provided people living in Bamberg, Berkeley, Calhoun, Charleston, Clarendon, Colleton, Darlington, Dorchester, Florence, Georgetown, Greenwood, Horry, Kershaw, Lee, Lexington, Orangeburg, Richland, Sumter and Williamsburg Counties in SC with more time to meet their filing requirements. More counties may be added once FEMA continues their damage assessments.
Taxpayers with income tax extensions who live in the affected counties will get until February 16, 2016 to file returns they extended to October 15, 2015. Other tax filings with payments or deadlines starting October 1 will also get the extension to February 16, 2016.
The IRS release is available here.
Keeping mileage logs is an aggravating requirement in order to claim vehicle expenses for most small business owners. There are some exceptions to a log – hearses, ambulances and 18 wheel trucks come to mind – but most people have to keep a written contemporaneous record or there is no vehicle deduction. Written contemporaneous record is IRS code for a mileage log. You can read more about the requirements in this post.
This post is about a way to make keeping a log a bit less taxing (sorry, pun intended).
Here is one that is popular with accountants – MileIQ. It works on Android smartphones and iPhones. Sorry, BlackBerry and Windows users you need to look elsewhere. Since I have a Windows Phone, I do not have personal experience with this app so please try before you buy. The application eases mileage tracking by:
Currently, the monthly fee is $5.99 or annually you pay $59.99. If you have 40 or fewer a month, MileIQ is free.
The Taxpayer Advocate released their mid-year report on how the tax season went. “Likening the 2015 filing season to ‘A Tale of Two Cities,’ however, the report says: ‘For the majority of taxpayers who filed their returns and did not require IRS assistance, the filing season was generally successful. For the segment of taxpayers who required help from the IRS, the filing season was by far the worst in memory.’” This is even worse than last year’s report detailed in this post – IRS doing more with less?
The news release says:
Olson wrote that the decline in taxpayer service imposes increased compliance burdens on taxpayers and may lead to erosion in taxpayer trust. “For a tax system that relies on voluntary self-assessment by its taxpayers, none of this bodes well,” she wrote. “In fact, there is a real risk that the inability of taxpayers to obtain assistance from the government, and their consequent frustration, will lead to less voluntary compliance and more enforced compliance.
I read that to mean the Taxpayer Advocate would not be surprised if people throw up their hands and do what they think is best for them instead of trying to figure out the law and the forms.
According to the report, IRS’ long-term plan is too heavy on enforcement and too light on customer service. Additionally, the IRS’ is pushing too much online taxpayer service and cutting back on human assistance. For a hint on a better way to search the IRS website see the Website section of this post – Get IRS help by appointment.
OK your identity has been stolen and someone is using your information to get a tax refund. From my experience, this is an extremely stressful situation for most people. So how does IRS help?
If someone else uses your Social Security Number before you file, expect to wait an average of six months for a refund. If you owe, do not worry they will promptly take your payment. If an IRS’ fraud filter incorrectly flags your return, IRS makes you wait an average of 28 minutes to speak to someone and “courtesy disconnects” 83% of callers. The good news is IRS is catching more fraudulent returns before sending refunds. The bad news is IRS’ fraud filters are flagging more legitimate returns – over 600,000 this year.
Not surprisingly, there were quite a few problems caused by the new Affordable Care Act (ACA) provisions. Interestingly, the Taxpayer Advocate attributes many of them to other parties. For example, the Center for Medicare and Medicaid Services sent out about 800,000 erroneous Forms 1095-A regarding health care acquired through the ACA exchange.
Considering the 17% inflation adjusted budget cut IRS has experienced since 2010, the problems with answering the phone are not surprising. I discussed the IRS budget earlier in this post. Of course, if IRS would stop shooting themselves in the foot they could do a better job with their existing budget. A bit more money to customer service and less to enforcement might actually be profitable.
In the past, IRS Taxpayer Assistance Centers were open on a first come first served basis to provide in person assistance with tax issues. Now the IRS is testing letting taxpayers get IRS help by appointment in-person. IRS encourages taxpayers to use the face-to-face meeting to only handle issues that cannot be taken care of over the phone or online.
You can find an IRS Taxpayer Assistance Office offering appointments here. Scroll to the bottom and click on your state or the international link. Look for a link to “By Appointment” in the Days/Hours of Service column for those offices scheduling appointments. As of this writing, the only NC IRS site taking appointments is in Wilmington. All other locations are drop-in with first come first served service. So how good are IRS’ suggested alternatives?
Is the IRS’ website a realistic option? Depends on how complex your problem is and whether it is specific to your account or not. Downloading forms and publications is pretty straight forward, assuming you know the form or publication you need. The IRS search tool is not ideal (being polite here). If I do not know where the information is on the IRS site, I usually use Google to search just the IRS website. You can do this in at least two ways – 1) use the Google Advanced Search screen and complete at least one search field and put “irs.gov” in the site or domain field or 2) type your search normally and at the end add “site:irs.gov.” Leave out the quotation (“) marks. Here is an example search for information on the child tax credit that will provide results only from the IRS site:
So the IRS website will only help you can find and understand the information on their site. It is no help if you need specific help with your actual account (e.g. respond to an IRS notice).
Good luck calling IRS! You are better off searching IRS’ website than calling. The Treasury Inspector General for Tax Administration (TIGTA) has several reports on IRS phone efficiency. Need help because you have a collection notice? TIGTA reports IRS collections answers 25% fewer calls than they did in 2011 and taxpayers who do get through wait 97% longer (about 8 more minutes) than in 2011.
What about taxpayers seeking answers to help them complete their returns? TIGTA wishes them good luck (OK, not really but that is the gist of the report). TIGTA reports the level of service in 2015 through March 7th has dropped to 38.5% from 74.7% in 2014. The level of service is a measure of a taxpayers success in getting assistance (i.e. talking to an IRS employee, not necessarily getting the right answer). The average wait time more than doubled from 11.7 minutes to 24.6 minutes in the mid-season report.
On July 15, 2015 the Taxpayer Advocate gave updated numbers – IRS answered 39% of calls and hold times averaged 23 minutes compared to 71% answered the prior year with an average hold time of 19 minutes. So by the end of the tax season things got a little better or less bad.
Only the IRS could come up with a term like “courtesy disconnects” to replace “we hung up on you while you were on hold.” IRS hung up on 8.8 million callers before they got to speak to anyone. Wonder how many were hung up after starting to talk to an IRS employee but before receiving help? At least the hang ups only increased 544,000 from 2014.
It will be interesting to hear from people actually using the appointment system. Please add a comment letting us know if they were available at the scheduled time, were able to resolve your issue, and how difficult it was scheduling the appointment. If you prefer, you can send your comment directly to me.