1. Tax Season Workload Compression:
The new OBBBA Federal tax law required software engineers at IRS to program for significant changes to be able to launch the initial tax filing season in late January. After OBBBA was passed into Federal law, States followed with new legislation to either comply or “decouple” with Federal laws, which then required new programming at State Agencies. After IRS and State Agencies initiated programming for new tax laws, tax software developers followed with new programming to ready for tax season. We have used one of the top two professional tax software programs for many years, and we are still receiving software updates almost daily, as Federal and State tax forms and instructions are released. We have been required to hold most of our tax returns in pending mode for weeks, awaiting additional tax software updates. We are just now beginning to finalize some of our 2025 business tax returns, but we have the majority of our business and individual tax returns in pending status. Therefore, we do not want to compromise the integrity of our work, and the professional tax client experience, to rush out 2025 tax returns and related financial reporting documents. Importantly, we do not want to put undue pressure on our clients to review 2025 tax and financial documents, answer technical questions, e-sign e-file authorizations, and execute tax payments, if applicable.
2. IRS and State E-File and Payment Processes:
Assuming all 2025 tax and financial reporting documents have been satisfactorily reviewed, discussed, and approved by your e-signatures on tax return e-file authorizations, there are important additional final steps required to wrap up tax filings, including the resolution of e-file rejections prior to tax due dates, and the processing of timely online tax payments for balances due that require technology skills to setup secure IRS and State tax accounts. Timely tax filings and tax payments must be digitally posted to IRS and State agencies and confirmed as accepted on or before tax due dates.
3. Avoidance of Follow-up IRS or State Tax Notices:
It has always been our quality management policy to thoroughly cross-check and confirm the accuracy of tax return information, so that the risk of future tax notices is minimized. Having said that, there are still risks for missing or late tax reporting documents and information, breakdowns in communications, and human error in tax preparation processes. When tax notices are received, we strive to communicate efficiently with IRS or State and Local Agencies to conclude a resolution as best as possible. However, given that IRS has experienced a 40% cut in personnel in the past year, communications with federal and state tax agencies can be very inefficient to resolve tax notices. Therefore, we make all efforts to minimize the risk of tax notices, as best we can. However, there can be many valid reasons for tax notices, and thus we need to allow ample time for our due diligence as we finalize 2025 tax filings.
4. Tax Extensions Allow Additional Time To Verify Tax Information and Coordinate Final Steps:
A majority of business and individual taxpayers have become very accustomed to filing “on time” each tax year, meaning by March 15th and/or April 15th. However, there has always been a minority of taxpayers that have considered tax extensions as a normal process for annual tax compliance. There are many valid reasons for filing tax extensions, such as late Schedules K-1, delayed financial reporting from business entities, higher priority current year business transactions, and personal/family events. There can be business and personal advantages to having the insights gained by experiencing a few months of activity in a succeeding year that may influence final tax and financial decisions for a prior year.