23 Facts About 2020 Tax-Filing Season That You Can’t Ignore

Let’s get one thing straight, filing income taxes is not easy. If it were we wouldn’t be paying professional tax preparers, at a minimum, $188 for the most basic forms. Naturally, the prices go up for those who started a new business, reported multiple streams of income, or want to itemize.

Sadly, it’s about to get even more complicated. The Coronavirus outbreak has not only devastated our daily lives while putting pressure on our health care system, but it is now becoming increasingly apparent that it might make the tax season a whole lot worse for a majority of Americans.

Add that on top of long-standing issues with the IRS and you’ve got a recipe for disaster. The best thing you can do is be prepared and hope for the best but ultimately expect the worst.

Luckily, the filling and payment deadlines have been extended to July 15th, so you’ll have a little bit more time on your hands to prepare.

Here are our 23 reasons why filing taxes in 2020 will be nightmarish.

 

Poor Customer Service at the IRS

Did you know that the IRS is one of the federal government’s worst-performing agencies for customer service according to a report to Congress from Bridget Roberts, the acting National Taxpayer Advocate?

Well, it’s not even a surprise considering the massive budget cuts it has underwent. Those, coupled with staff reductions and the closing of several Taxpayer Assistance Centers have made it nearly impossible to get an appointment. It’s even difficult to reach a customer service representative over the phone at the best of times.

Sadly, this has made people look for solutions online and though the internet is a treasure trove of information, it can’t really provide accurate information for everyone’s situation.

 

Failure To Adjust Withholding

Many workers were happy with the 2018 tax changes, especially since they got to bring home more money. Taxes were lowered for most Americans while new withholding tables were introduced.

But here’s the catch! Those who failed to adjust their withholdings (which ensure that enough taxes were taken out of their paychecks) could be in a lot of trouble now. Failure to do so means that you could end up owing money in 2020.

That’s a particularly harsh reality for those who have already been hit with financial issues this year.

 

Confusion Over Health Savings Account Contribution Limits

You might not be aware of the fact that there has been a slight increase in contribution limits for Health Savings Accounts. Individuals are looking at a $50 increase while families can contribute an additional $100. That means that in 2019 individuals were able to add a total of $3,500 while families could contribute an additional $7,000.

Because the monthly contribution limit is relatively low, it’s not too surprising that a lot of taxpayers were not aware of these changes.

Come tax season, this could create confusion which will inevitably lead to mistakes, so make sure you’re familiarized with these changes before then.

 

Outdated IRS Technology

It sounds like bad science fiction, but it’s true. Despite the size and importance of the agency, the IRS’ information technology infrastructure is aged and inefficient. More and more tech problems spring up every day, and with the increase in volume, it should come as no surprise that we’ll be looking at even more delays in refunds, processing returns, and security breaches.

That being said, funding through investments for upgrades is underway, but it’s unlikely we’ll see any big changes this year. Plus, many experts say that we won’t see any big changes as the rollout of new tech will be made gradually.

 

Not Tracking Business Expenses Accurately

The gig economy has done wonders for plenty of American households, but as tax season approaches, many of the same people could find themselves in particularly difficult binds. On top of managing a business, self-employed individuals must also be careful about tracking all business expenses.

Not doing so accurately could lead to one of two problems. First, you might miss out on deductions which could impact your future finances.

Worst of all, though, is claiming the wrong deductions, in which case you’ll have to deal with an IRS audit. Obviously, everyone wants to avoid this at all costs. But the only way to do so is to ensure that all your books are in order and that when it’s time to file your taxes, you’re well prepared and informed.

 

Mixing Up Personal and Business Expenses

Self-employment can be empowering and extremely lucrative… but it can also come with pitfalls such as IRS audits if you’re not careful about how you file your taxes.

Writing off business expenses in order to lower your tax burden? Go right ahead, but make sure you familiarize yourself with IRS rules as some things might blur the line between personal and business expenses. Take a car, for example. Or a home office- what exactly can you write off as a business expense while you’re working from home?

As mentioned earlier, you have two choices here. Miss out on deductions by not accurately tracking business expenses or getting in trouble for going overboard.

 

Delays in Processing Refunds

In the year 2019, the Taxpayer Advocate Service has seen a lot of issues, particularly in the refund department. That’s because, in order to prevent refund frauds, the IRS has provided more filters to their systems. This has led to around 25% of returns chosen by the new filters to take more than 40 days to be processed.

It’s highly unlikely that these issues have been resolved in 2020, so experts say that taxpayers have to look out for this issue as well- while arming themselves with patience!

 

Not Enough Multilingual Notices

Confusion and processing delays are also expected due to a lack in multilingual notices. Demographic changes in the U.S. such as the rising number of taxpayers with limited English proficiency (also known as LEP) seem to have put pressure on federal agencies, which are required to help LEP people access services.

Despite this pressure, the IRS has been known to send unhelpful notices to many individuals, as they are not written in their preferred language.

If you know someone who has been struggling with this issue and know that delays are in order, it might be a good idea to reach out to them. Now, more than ever, they might need a helping hand so that they can avoid issues with the IRS.

 

Unqualified Tax Preparers

The IRS has not developed a comprehensive tax-preparer strategy. As such, incompetence and misconduct have run rampant among tax preparers, and this is an issue for millions of taxpayers who rely on these services for their tax returns.

Be careful when employing a third-party tax preparer as you might end up dealing with fraudulent, incomplete or inaccurate services. And this is something the TAS are aware of, as reports show. Who knows when we’ll see the much needed changes in this department?

 

Not Paying Side-Hustle Taxes

The 2020 tax season will also be a challenge for those who have taken on a side hustle to supplement their income- young and old alike. Freelance work, especially, does not involve withholding, so keeping track of income and paying taxes is your responsibility and yours alone.

Not keeping good track of your finances could be disastrous. If your income hasn’t been taxed yet, go back and look at all your expenses to ensure you won’t be making any mistakes on your forms.

 

You Might Have To Pay Self-Employment Tax

If you’re one of the thousands of Americans who recently became self-employed, first of all, congratulations are in order! It’s not an easy thing to do, though the changing U.S. economy has definitely helped many people in pursuing this dream.

Independent contractors, however, need to file self-employment taxes on top of income taxes. These amount to 15.3% of your net earnings and are used to cover Medicare taxes and Social Security.

So for 2020, you have to be prepared to take on this extra responsibility in order to help your future, senior self out!

 

Not Keeping Up With Estimated Taxes

On top of the previously mentioned self-employment tax which go towards your Social Security and Medicare, independent contractors must also pay estimated taxes on a quarterly basis.

By 2026, the Bureau of Labor Statistics estimates that there will be 10.3 million self-employed individuals in the U.S. Clearly, we’re not quite close to those estimates but that doesn’t mean the system isn’t already strained even with our current numbers.

We know to get additional help from TAS will be next to impossible, but just keep in mind that failure to pay up could result in additional interest and penalties imposed by the IRS. Not making them on time will also complicate matters when you file your return.

As you’ll be responsible for keeping records, paying the right amount is also paramount. Failing to do so will result in one big payment at tax time, which could add even more financial strain on your business.

 

Problems With Free File

Over 100 million taxpayers qualify to use the Free File Inc. services. In partnership with the IRS, they provide tax return preparation software which sounds good and accessible, especially for those who have always found this time of year stressful.

The truth, however, is far gloomier. The TAS report shows that less than 2% of e-file returns were made with the software, primarily because people are (to put it simply) highly dissatisfied with it.

So you might qualify for Free File, but if figuring out the software is more difficult than figuring out your taxes as a whole then you’ll be in a world of trouble.

 

Help Might Be Hard To Find

Flying solo at tax time could be particularly stressful if you’ve been planning on employing a tax preparer. This is especially true if you’ve recently gone through a  major life event that caused you to change up your tax returns, if your income stream has shifted or if you’ve started up a new business.

In theory, tax preparers ensure that your return is accurate, though hiring one might be a risky move. Yet if you have no other choice you might still bump into some troubles: high demand might make it nearly impossible for you to find help at all.

 

Photo by 4 PM production from Shutterstock

Loss of Alimony Deduction

Americans used to be able to deduct alimony payments from divorces or separations, but (no) thanks to the 2018 Tax Cuts and Jobs Act, this is no longer the case. It’s only in 2020 that these particular changes are beginning to be  applied and some people might have forgotten about them already.

Unsurprisingly, this could cause a lot of confusion and frustration. Sadly, you might lose quite a bit of money that up until recently you would have been able to write off.

 

Confusing IRS Audit Correspondence

Taxpayers have put up with a frustrating combination of letters from the IRS, and despite being aware of problems with the system, there seems to be no end in sight to them.

So you’ve probably received an initial contact letter followed by a 30-day notice, but it gets worse when you realize that both of them serve different purposes. Because of this, many Americans simply do not have adequate time to respond- and we know how well that goes with the IRS!

So despite the TAS’ report on how taxpayers are unhappy with this approach, it just seems like we’re going to have to put up with it for the foreseeable future.

 

Tax-Debt Relief Needs Improvement

If you’re having a difficult time with what you owe for tax debts then you might qualify for an ‘offer in compromise’- and that’s a big maybe. But let’s talk about what this means first.

In order to provide taxpayers with a little wiggle room and more time to file their taxes, the IRS allows you to pay less than the full amount. While this sounds like a good deal for those who are in a difficult place financially, the National Taxpayer Advocate is actually pushing for more liberal policies.

That’s because a lot of people find the requirements to be too strict. So even if someone is in dire need of help, they might not be able to take advantage of this offer in compromise anyway.

 

Cash Income Might Draw Additional Scrutiny

Dealing in cash brings a lot of scrutiny from auditors, so keeping accurate records of your income and receipts is par for the course for those who recently started a side hustle.

Keeping records might be discouraging for a lot of people, especially if they wish to focus on their work instead. But as with any other business, it’ll be your responsibility to do so.

Food stands and pop-up shops are just two examples of businesses that need to take working with cash seriously as the consequences could be financially painful.

 

Appeals Might Not Go Your Way

If you don’t agree with a decision made by the IRS then you can appeal it through the Office of Appeals, run by the agency. However, taxpayers have always complained that the decisions made by appeal officers don’t go their way, and the National Taxpayer Advocate agrees. The whole setup is said to run contrary to the independent appeal process for taxpayers.

So why is this? As it turns out, the conferences include an IRS counsel and compliance team. More often than not, they will sway the appeals officers in their favor, leaving the taxpayer hanging.

Ensuring that all your finances and tax forms are in order could help you avoid situations like these.

 

Confusion Around the Individual Mandate Penalty

In 2018, we were introduced to certain tax code changes that did not come into effect that same year. Like the alimony deduction we mentioned earlier, the end to the federal tax penalty for violating the individual mandate comes into effect in 2020.

Previously, those who could not prove they had health insurance were subject to this federal penalty. This may all be well and good, but don’t forget that you may still be hit with a one depending on where you live. State and local penalties still apply, such as in Washington D.C., Massachusetts, and New Jersey.

 

The Ever-Changing Medical Expense Deduction

Changes to the medical expense deduction aren’t new. We as taxpayers are more used to it bouncing than we are anything else. Between 2010 and 2016, it was 10% of your adjusted gross income. In 2017 and 2018 it fell to 7.5%, only to return to 10% in 2019.

This year you have to ensure that your dental and medical expenses exceed 10% of your adjusted gross income before claiming the deduction.

Who knows where this percentage will fall in the future? It’s difficult to say, but we don’t expect it to remain the same for long. Keeping up with all these changes will make filing taxes much, much less confusing.

 

Scams Are On the Rise

It seems that scammers are trying every trick in the book to separate you from your hard-earned money. 2020 is no different in that regard. If anything, it seems that fraudulent activities are on the rise.

Scammers might call you directly or could send you fake correspondence. It has become increasingly difficult to tell when someone with ill intent is reaching out to us, so it’s important to stay vigilant and don’t give away any identifying information to anyone that comes to you to ask for it.

It’s best to contact the IRS directly if you think you’re dealing with a scammer, but due to the recent influx in calls that might be easier said than done, so watch out!

 

Losing Track of Different Income Sources

In the ‘good’ old days, tracking your income was pretty straightforward — you worked for one company, and that company sent you a W-2. But in the gig and side-hustle economy, more taxpayers are getting outside sources of income to supplement their main sources. Keeping up with numerous income streams complicates the process and increases the risk of error.

While the side hustle economy is a great way to supplement your income, it could also become one huge source of headaches. Losing track of different sources of income has become more prevalent in recent years.

A while ago, this used to be a non-issue as employers would send you a W-2. Done, deal! Now, becoming your own boss comes with added stress when it comes to finances.

The more income streams you have the more the risk of error rises, so this is your friendly reminder to ensure everything is on the up-and-up before tax season!

 

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