What’s New with 2021 Form 1040?

You’ll want to take the time to review the “What’s New” Section of the Form 1040 Instruction before the 2021 tax season. Its lengthy changes will most likely need your attention before crunch time.

The Instructions for the 2021 Form 1040 section on “What’s New” is two pages long. The two pages include 17 reminders on what has changed from 2020 to 2021. We talked about the changes in the update classes, but now it is time for you and your staff to review the new input forms that resulted from the changes.

*Make sure you read thoroughly for some hidden gems. Our teaching group teamed up to give you their best tax season recommendations for this year.

Ease Problems with ACTC and EIP

The IRS sent an information letter to Advance Child Tax Credit (ACTC) recipients starting in December. Additionally, they will send a letter to recipients of the third round of the Economic Impact Payments (EIP) by the end of January. Remind clients when you send organizers, or otherwise contact clients asking for 2021 tax documents, they should include with their records any (and all) IRS correspondence, including:

  1. Letter 6419 will show advanced child tax credit payments
  2. Letter 6475 will show the third round Economic Impact Payment.

If your client received either, or both, payments, you’ll want to obtain their letters. If your client has already lost their letters, you can get the necessary information from a transcript, giving you more time.

CLASS DISCUSSION REMINDER

If you leave Line 30 of Form 1040 blank or enter a zero on the input form for the Recovery Rebate Credit, the IRS will not calculate and correct the entry. Instead, the IRS will treat the entry as the client’s decision not to claim the Recovery Rebate Credit (FAQ #10).

If an incorrect amount is entered, the IRS will calculate the credit for the taxpayer (unless you enter $0 or leave line 30 of your Form 1040 blank), correct the tax return, and continue processing the return (FAQ #9).

Encourage Clients to Create an IRS Online Account

Have clients create an IRS Online Account. The IRS Online Account will allow clients to get the three items that cause the most errors on 2021 tax returns:

  1. Accurate EIP information
  2. Advance child tax credit payments
  3. Estimated tax payment information

Getting them right when you prepare the 2021 return will save countless hours of dealing with the IRS trying to resolve problems we could have prevented. And remember, having the IRS Online Account will allow your client to authorize a power of attorney (POA/TIA) that is processed in real-time (rather than weeks or months).

Set Deadlines for Clients

This is a tax season suggestion from Karen Brosi. Don’t let the latent procrastinators run you. For example, adjust your practice workflow by adopting an engagement letter to keep your clients informed of deadlines.

Deadlines could include:

  • Feb. 15 – bulk of pass-through information submitted (no extension)
  • March 1 – Pass-through data submitted for extension
  • March 15 – bulk of individual data submitted (no extension)
  • April 1 – Individual data submitted for extension

Consider wording in your engagement letter “If you do not submit data by March 1 (pass-throughs) or April 1 (individuals), we cannot prepare a timely extension for you. If we do not prepare your extension, we will not be able to prepare your returns.”

THE FINAL LIVE SEMINAR

Experience America’s #1 Federal Tax Update live in Las Vegas, January 24th – 25th, 2022. Learn about the latest developments before tax season.

Mistakes to Avoid This Tax Season

Charles and Toni Crispino[i] claimed that their tax preparer, Vincent Minelli, mailed an administrative claim for a refund of $134,000 to the IRS on April 15, 2015. The tax preparer asserted that he mailed the administrative claim using a postage label printed from a Stamps.com postage meter. He admitted that he did not send the claim for refund to the IRS via certified mail or registered mail. During his deposition, Mr. Minelli testified that he normally used the local Post Office to send documents. He also testified that he could not remember any details about April 15, 2015, except that it was a “hectic” day.

The IRS didn’t receive the April 15, 2015 claim for refund.  The Crispinos’ 2009 taxes were paid in full in June 2013, so their claim for a refund was due by June 2015. The district court agreed with the IRS that Crispinos had no proof of mailing, their claim for refund was untimely, and was, thus, barred by the statute of limitations (§7422(a)).

Final Tax Season Suggestions Takeaways

  1. Always file electronically if you can. The IRS is drowning in paper. The latest numbers are that the IRS has more than 2.5 million of unprocessed refund claims in its service centers. 

  2. If you mail the return, always take the time to register or certify the mail. A stamp isn’t good enough and is probably going to cost this tax preparer $134,000.

  3. If you hand the client a paper return to mail, put in writing that they should send the return by registered or certified mail.

[i] Charles Jr. And Toni Crispino V. US, US District Court for the District of New Jersey, Doc No. 3:17-CV-13751 (July 26, 2021)

Sharon Kreider, CPA, has helped more than 15,000 California tax preparers annually get ready for tax season. She also presents regularly for the AICPA, the California Society of Enrolled Agents, CCH Audio, and Western CPE. You’ll benefit from the detailed, hands-on tax knowledge Sharon will share with you—knowledge she gained through her extremely busy, high-income tax practice in Silicon Valley. With her dynamic presentation style, Sharon will demystify complex individual and business tax legislation. She’s a national lecturer for business and professional groups and consistently receives outstanding evaluations. In 2014, she was awarded the prestigious AICPA 2014 Sidney Kess Award for Excellence in Continuing Education.

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Karen Brosi, CFP, EA, has an extensive California tax practice, advising clients in individual tax and family wealth planning, specializing in complex individual income tax matters and all types of securities transactions. Her background as a CFP and as a tax preparer for the wealthy makes her particularly effective in the tax and financial planning arenas. Karen teaches tax professionals how to avoid tax minefields with her extensive planning checklists and practical tips.

Besides being one of the most prominent California tax update instructors, she’s a favorite interviewee on radio, television, and in print media, such as Bloomberg Businessweek. Karen’s powerful real-life presentations pinpoint critical federal and state tax areas, teaching tax professionals what they need to know to optimally assist their clients. Karen was the recipient of the California CPA Education Foundation 2012-2013 Outstanding Webcast Instructor award.

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Mark F. Seid, EA, CPA has an active tax practice in Paso Robles, California specializing in small businesses and tax controversy. A National Tax Practice Institute graduate, Mark is admitted to practice before the U.S. Tax Court. He has served as an Internal Revenue Agent with the IRS in San Jose and San Luis Obispo, California, a state director for the California Society of Enrolled Agents, and the chair for the society’s Finance and Budget committee. He regularly presents courses to tax professionals on issues affecting small businesses.

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DIG DEEPER:

How The $3.5 Trillion Budget Blueprint Could Impact Your Clients

The new reporting requirements on brokers are addressed in Section 80603 of the bill. “Broker,” by definition in Sec. 6045 (c)(1), is expanded to include “any other person who (for a consideration) regularly acts as a middleman with respect to property or services…A person shall not be treated as a broker with respect to activities consisting of managing a farm on behalf of another person.” In turn, the bill defines a “digital asset” as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.