Tax Season Pulse Check – Where Are We One Month In?

Each year, individuals and businesses eagerly await tax refunds, however this year we are experiencing a bit more uncertainty associated with filings due to the new tax law. As we are one month into tax filing season, here are a few of the most frequently addressed questions that SC&H Group’s Tax Team wants to address.

  • When will IRS forms be online? Several are not ready despite being the end of February. The partial government shutdown and the impacts of Tax Reform have put the IRS a little behind this season. Additionally, audits, refund claims, and other non-return issues with the IRS remain behind schedule.
  • Why is my tax refund lower than prior years? Based on early filings, refunds are down 17%. This is not a surprise as withholding was adjusted in 2018 to reflect lower tax rates for most taxpayers. The loss of some deductions is also likely impacting these results to date. That said, while refunds for many are down, it is likely that their gross federal tax is also down.
  • Are there going to be any Tax Extenders issued? As of the end of February 2019, it is not clear if any “Tax Extender” legislation will see the light of day. At this time, tax breaks such as deducting mortgage insurance, avoidance of taxation on debt forgiveness related to a principal residence, various energy credits and 15-20 other corporate tax breaks are not in place for the 2018 tax year. It is possible that they could be reinstated later in 2019, either prospectively or retroactively.
  • What are the new basis reporting rules for 2018? Just when we thought we had enough on our tax reporting plates this busy season, we were given more to do by the IRS:
    • For all S Corporation shareholders, when you file your individual return you will need to complete a new section of Schedule E which requests data regarding your stock basis. On February 6th, the IRS announced that basis computations are required for any S corporation shareholder who is claiming a loss in 2018, received a distribution in 2018, disposed of some portion of their stock or received a loan repayment. This may require extra work to prepare such calculations in addition to the time spent reporting said data.
    • On page 6 of the 2018 Partnership K-1 instructions is a new requirement that requires the partnership to provide the IRS with tax basis capital computations if the partnership reports other than tax basis capital accounts to its partners on Schedule L and if any partner’s tax basis beginning or ending capital would be negative during the tax year. This runs counter to long-held IRS guidance that partnerships are not required to track partner tax basis, as that responsibility falls on the partners themselves. In fact, current year Form 1065 instructions reiterate that same sentiment, which runs counter to the instructions for the K-1. This new development would likely create extra work and the need for data collection when historical tax basis capital accounts have not been maintained by the partnership.

SC&H Group’s Tax Team is keeping a close eye on the TCJA implications and monitoring how they are affecting 2018 filings. If you have any questions about your tax planning strategies, please contact us to determine what makes sense for your business and/or you as an individual.

2019 Tax Planning