One of my clients received his first “Important Tax Document” envelope in the mail, and commented that it seems like we just completing his 2013 tax returns. Actually, we did have a few stragglers who just completed their returns, but that’s a different story.
The IRS announced that we can start filing 2014 tax returns on January 20, so we’re ready to enter into what many experts have declared could be the worst tax season in years. Additional IRS complexity, combined with lower IRS staffing, could have a major impact on your ability to get your tax returns completed and filed.
As your mailbox fills up with holiday credit card bills and tax documents, here are 4 things to consider when you start assembling your 2014 tax return documents:
- ObamaCare’s individual mandate kicks in
You and your family must have had healthcare insurance during all of 2014, or you will pay a penalty on your 2014 tax return for each month that at least one family member wasn’t covered. The minimum annual penalty is up to $285 per family, but it could be as high as 1% of household income depending on your income. There are tax penalty calculators available online to help determine the damage, but the calculation is fairly complex. Individual mandate penalties increase substantially in 2015 and 2016.
- Filing your returns early limits your chances of tax return fraud
The IRS estimates that over 3 million tax payers were ripped off in 2013 to the tune of over $5 billion. You can read more about this in a previous article, but thieves buy your personal data and file a bogus return in your name to collect a refund. The thieves are long gone before you notice the theft, and identity theft cases can take 6 months or longer to resolve. The sooner you file, the lower your chance that a criminal can file a fraudulent return before you.
- It’s easier to prepare tax documents for your CPA when you start early
Now that I’ve scared you, there are a few other reasons to do your tax prep work earlier in 2015. Many online banking systems report more detailed information for the previous 12 months only. If you start in January, you’ll have access to full reporting and less guessing. Also, CPAs like Bach, James, Mansour & Company will be busier than ever this year, so turning in your tax documents early will allow plenty of time for Q&A, 2014 tax return prep, and 2015 tax planning.
- The IRS budget cut may further diminish taxpayer services
The IRS budget was trimmed 3% in 2015, now down 10% since 2010. While that might diminish your chances of an audit, the IRS has already warned that there will likely be fewer customer service representatives available to answer questions. With a more complicated tax code and fewer reps, getting questions answered could be a nightmare. That’s another reason to start early in 2015 and have a professional prepare your tax returns.
Let’s be careful out there!
Here is my final thought as we enter a new year with a record stock market. The higher the market climbs, the harder it may fall. I’m not trying to be a doomsayer, but just warning you to be careful about counting on paper wealth. If you know that you’re going to need the money you have tied up in the stock market, learn a lesson from past market corrections. Consider taking some or all of the required funds out of the market, or set up a system (like automated sell orders) to limit losses in the event of a market scare. Let’s prepare today so our money will outlive us, not the other way around.
Neal Bach, CPA