Sunday, January 02, 2011

IRS Delays Accepting Returns with Itemized Deductions

The IRS has announced that taxpayers with itemized deductions, tuition and fees or teacher expense adjustments will need to wait until mid to late February to file their tax returns. According to an article in Bloomberg, the IRS needs to reprogram its computers to account for changes made in the recent Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (aka. extension of Bush Tax Cuts bill).

I recall a similar delay for 2008 tax returns. In 2009, the IRS was unable to accept returns with credits for education, residential energy, child and dependent care and mortgage interest until February 11.

One solution for 2008 federal tax returns was to file without claiming the affected credits to get an earlier initial refund and then file an amendment to get the remaining refund after February 11. This worked for taxpayers who had a significant refund even without the credits. However, filing initially using a standard deduction and submitting an amendment with itemized deductions in late February 2010 may not be a solution since taxpayers that itemize may actually owe taxes when using the standard deduction. Thus, waiting until late February may be the only option for many taxpayers that itemize and expect a refund

In the future, I expect IRS delays in accepting returns to become more common since Congress has been regularly waiting until December to make major tax law changes. Since much of the recent tax bill will expire again in 2012, there will likely be another delay in 2013 for accepting 2012 tax returns as Congress passes another 11th hour tax bill. Just a another good reason for me to manage W-2 withholding to minimize the amount of refund, or even to owe a small amount.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial or tax advice. Please consult a professional advisor.

Copyright © 2011 Achievement Catalyst, LLC

No comments: