Under normal circumstances, tax season can be stressful, to say the least. This season, with its backlog of tax returns, changes to the tax code, and new deduction opportunities to explore, could prove to be the most challenging season yet — but also the most rewarding.
As your go-to national tax experts, the team at National Tax Group is here to help. Let’s break down the situation and see how it affects your 2021 tax return.
Newest Reports on the IRS Backlog
On March 17th, 2022, IRS Commissioner Charles Rettig updated House lawmakers on the state of the backlog and announced the plan to resolve it. At the time of the report, there were over 20 million unprocessed tax returns in the backlog, some of which were from over a year ago. However, Rettig promises that “If the world stays as it is as of today, we will be what we call healthy by the end of calendar year ’22, and enter the ’23 filing season with normal inventories.”
The IRS plans to hire ten thousand new employees to address the backlog. In addition, they are now able to streamline their onboarding process, with new employees now ready to work in 30-35 days where it used to take six to eight months. A specialized team of 800 employees has been processing amended returns and other correspondence since February 2022, and the agency is putting together a new surge team of 700 employees to work through new returns.
Additionally, the IRS will authorize more overtime and shift employees to their most overloaded processing centers: Kansas City, MO; Austin, TX; and Ogden, UT.
What Caused the Backlog?
The IRS workforce was already struggling, but the COVID-19 pandemic escalated the problem. Since 2010, the IRS’ workload has increased by 19%, while their workforce has decreased by 17% and their budget has decreased by 20%.
The COVID-19 pandemic provided fresh challenges for the agency. In addition to a portion of their workforce being unable to work due to pandemic-related health concerns, employees had to manage and distribute stimulus checks and adjust to changes to the tax code, on top of their typical workload.
How Can You Ensure Your 2021 Tax Returns Go Smoothly?
The backlog and subsequent announcement have left many business owners with more questions than before — primarily, “how should I navigate filing my taxes this year?” We’ve compiled our best strategies to help you set your business up for success during this turbulent tax season.
Your best chance at avoiding the backlog is to file electronically and opt to receive your refund via direct deposit. The agency processes both incoming and outgoing electronic communications much faster than it processes paper mail, so cut as much paper out of your return as you can. The IRS estimates that fully electronic filers will receive their money within 21 days — a far cry from the years of returns in the backlog.
Additionally, filing electronically allows you to check the status of your return just 24 hours after filing, whereas you have to wait four weeks for mailed returns. Visit the IRS’ Where’s My Refund tool with your social security number or ITIN, your filing status, and your exact refund amount handy to check your refund status.
The backlog has left some business owners wondering if they should hold off on filing until they receive last year’s tax returns. However, delayed filings will still be considered late, regardless of the IRS’s backlog. While the IRS extended the filing deadline for the past two years due to the COVID-19 pandemic, they have decided not to do so this year. Make sure you file April 18th to avoid penalty fees.
Double (Or Triple!) Check for Accuracy
If you make a mistake on your taxes, the results can vary from inconvenient to disastrous. If the due date has not yet passed, you can file another tax return with your correct information — but if the due date has passed, you’ll need to file an amended tax return. Unfortunately, amendments must be filed by mail, rather than online, which means your return is more likely to be caught in the backlog. And if your mistake results in the IRS depositing your return in the wrong bank account, you’ll have to sort out the issue through the bank itself.
Steer clear of scenarios like this by meticulously checking your return for errors before you submit. Look over each answer and double-check each digit, especially for bank account and routing numbers. Leave yourself plenty of time for this process to avoid rushed mistakes and small errors.
Check For Deductions
The complex system of tax incentives may seem tricky to navigate, but many businesses miss out on tax credits and deductions simply because they don’t know they qualify. To make the most of your tax deductions, look into the underutilized tax deductions available, such as:
- Research and Development Tax Credit — Many business owners overlook this credit under the assumption that it only applies to research-focused fields, but in truth, it covers a wider spread of industries than you might expect. To qualify, your business’ research must meet four criteria: it must have a permitted purpose, address technological uncertainty, use a systemic process, and be technological in nature. Learn more about this credit to see if you can claim this credit here.
- 179D Energy Efficient Tax Deduction — Businesses with newly constructed or renovated commercial buildings can claim this deduction if they included energy-saving elements in their design. If you have built or renovated a commercial building recently, check out the full list of qualifications here.
- Employee Retention Credit — This credit, a new addition under the CARES Act, rewards businesses negatively affected by the COVID-19 pandemic for keeping employees on their payroll. Qualifying businesses can claim up to $21,000 in refundable tax credits per employee. Learn more about this credit and see if you qualify here.
If the thought of navigating these deductions is making your head spin, don’t worry — national tax experts can help you figure out what you qualify for and how to claim your credit. Which leads us to our final tip…
Hire a National Tax Expert for Assistance
Tax season can be tricky even under normal circumstances, but this year’s upheaval only makes things more complicated. With a national tax expert on your side, you can rest assured that your tax return is in the most capable hands. National Tax Group is a team of experienced national tax experts who specialize in maximizing your savings. If you’re interested in a free assessment of which benefits you qualify for, send us an email or give us a call. We look forward to helping you save!