New Tax Code Impact on Timely Filings
October 7, 2020
An article in The Wall Street Journal on Friday, October 4, 2019 by Richard Rubin entitled, "Accountants Race As New Tax Code Leads to Logjams," focuses on why the October 15 extended deadline for filing returns is especially challenging this year under new tax law. Below, we have excerpted sections of that article explaining the complexities of the law and how it has caused massive delays in the ability to file timely returns.
"The first round of individual tax filing under the new tax law is just now reaching its final stage, and the end of 14-hour days can't come soon enough for the nation's Accountants. Tax preparers are racing to complete individual tax returns due Oct. 15, which will finish tax year 2018 for the more than 15 million people who sought extensions from the mid-April deadline. Late floods of information from investment funds and tough judgment calls about new pieces of the law have accountants bracing for messy days ahead.
In December 2017, Congress made the most significant tax code changes since 1986, lowering rates, limiting some breaks and creating a hiring boom for tax professionals along the way. Most provisions took effect in 2018, which meant the first individual tax returns under the new system were filed in early 2019. But many high-income taxpayers with complex returns routinely seek six-month extensions, kicking the can to mid-October. Even more did so under the new tax law: In 2019, the number of filers seeking extensions rose 3.9% from 2018 while the number of returns filed in the spring was flat. Some of the law's biggest shifts—a new deduction for certain business income and revamped rules on losses, carried interest and business interest—have proven particularly tricky.
Many taxpayers who typically file in October were waiting for information about businesses or investments. Those entities issue K-1s—the equivalent of the W-2 that wage earners get—that detail income and deductions flowing through to individual tax returns. Those forms normally arrive by the end of August before their mid-September final due date. This year, because of uncertainty around the new law, they didn't. Instead, they bunched at the Sept. 16 deadline, compressing the last chunk of work into less time. The potential of cascading delays creates painful problems for tax preparers, because clients risk owing interest and penalties if they file late or make mistakes."