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Pitfalls for Tax Preparers for this Tax Season

By David P. Donnelly, CPA-Houston

There are several areas which should concern tax preparers in this tax season. Two of these with the potential for client and preparer frustration are the Child Tax Credit and the stimulus payments.

Child Tax Credit

The Advance Child Tax Credit (ACTC) paid in 2021 was based on previous tax filings. Taxpayers who received the credit should receive Letter 6419 (or both spouses if MFJ) stating the amount paid and the number of qualifying children, based on the taxpayer(s)’ 2019 return. Preparers need to enter these payment amounts on the 2021 form to calculate the amount owed to the taxpayer(s) or if an overpayment occurred.  

The IRS sent approximately 50 million letters to taxpayers on Dec. 14; since this was before the final payment in December, there is some concern that the amount on the letters could be incorrect. Regardless, preparers need to ascertain the correct amounts paid—this can be done by accessing the client’s transcript or having the taxpayer do so. 

The taxpayer can access the Child Tax Credit Update Portal. It is presumably more fee-efficient for the taxpayer to provide this information than for the preparer to acquire a POA and then request a transcript. Regardless of how the information is acquired, filing an accurate return is preferable to having to deal with the IRS correspondence if the amounts are incorrect.

Stimulus Payments

Once again, preparers will have to deal stimulus payments, also known as the Recovery Rebate Credit and the Economic Impact Payment. Our clients need to provide this information; if inaccurate, we will once again be dealing with manually processed returns, difficult-to-bill time and frustrated clients. As with the ACTC, the taxpayer’s transcript should provide the proper information. 

Taxpayers can determine their payment at Recovery Rebate Credit.

These two areas are only a part of the complexities that will impact this tax season. We will also have the new Forms K-2 and K-3, and the expiration of the CARES Act tax provisions. All of this will make for an interesting year.

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