IRS Tax Refund Delay: What Taxpayers Need to Know This Year

Video Chapters & Transcript:

Hey folks, welcome back yet again to Smarter Money Matters. It really does. Joined as usual by Super CFP Anna Wonderlich. Thank you. And by wife and partner Kimberly Camarda. And today we’re doing a deep dive into tax season. Now, if you’ve been following the news at all, you realize there have been significant uh cuts to the IRS’s budget, and some people are wondering how that might affect uh their speed of processing and refunds. I can tell you it’s making it a lot more difficult to do business with the IRS. Whole times are like two hours. Uh but that’s tax master’s woe, not yours. So, in any event, um speaker one, and that would be Kimberly, is that right? And your speaker two, Anna Wunderlich. Speaker one. Um, thank you so much for joining us. Okay. Well, thanks for letting me be part of the podcast this week. This is definitely a year, especially with the IRS, where we want to be more proactive rather than reactive. Well said. Well said. And I’m sure you concur, Anna. Yes. Um, obviously, we’ve seen in the headlines that there’s been some budget cuts um within the IRS, and this is likely to lead to more snags for taxpayers across the board. It’s changing their the operations of the IRS and it’s hitting a lot of different areas. So, let’s start with the basics, right? So, if I have a question and I call the IRS, what should I expect this year? Yeah. So, you should expect more of a wait. Um, obviously, you know, the IRS staff is always working to working overtime to handle the volume, but it’s frankly just going to take longer to speak to a human. Y and I guess you concur with that, Kimberly. Quite short. It’s not really just the phones. It’s actually dealing anything that’s going to deal with human oversight, be that amended returns or just general correspondence, the backlog is actually worse now than it was a year ago. Um, and just to give you an idea of the scale of the problem, they had about one and a half million amended returns last year. Holy cow. I know, right? So, it seems like a lot. I think there were even stories where they were like piled up. Well, those are ours, by the way. No, just kidding. piled up in boxes and like just shoved in corners, but it took them an uh an average of more than five months just to process one. Five months. That’s really a massive delay. Now, what about people that still prefer to file taxes the oldfashioned way on paper? Yeah, they they absolutely can. You’re able to file taxes um with a paper return. It’s just likely to take longer to be processed than somebody that doesn’t digitally. So, that’s a pretty risky move this year. I think there’s something like 11 million returns were filed on paper and that’s a whole lot of stacks for a limited staff to go through. Um they have they even working on trying to fix that cam. Well of course working on the zero paper initiative where they’re going to use right risk here contractors to scan and digitize the paper returns and my goodness. I got more faith in contractors than government employees but that’s another issue. I mean from my perspective what I would say uh doing a lot of things here with like cyber security identity theft risk uh having contractors in the mix where you’re getting other third parties touching private sensitive data uh to me is you know a big deal opens yourself up to more identity theft and fraud and all kinds of stuff and and actually we should do another segment because that’s becoming a real problem identity then fraud and you know but uh we’ll have to save that for another podcast. So, uh, and again, another people used to be I remember this post office used to stay open till midnight on April 15th. I remember driving in my pickup truck and and gotten my return, you know, um, date stamped to prove that it had been filed on time by April 15th. But that’s no longer the case, is it, Anna? No. So, the post office no longer guarantees a postmark on the same day you mail your return. So waiting until the deadline to mail it might even, you know, risk it being late at this point. And if you don’t do that, that gives the IRS cause and which they probably will hold you to, you know, for late filing other kinds of penalties even though, you know, you technically did file it on time, but the one government hand doesn’t talk to the other. Um, so that’s a pretty significant warning. Let’s talk about the rules. I heard there’s a lot of changes this year in the rules and uh Kimberly, you like to share some of those? Uh let’s see. Well, actually, I guess there’s a lot of changes. Currently, more than a hundred changes to the tax code are uh from stemming from legislation summer. Big beautiful bill. 100 changes. Yeah. And many of them are all uh retro back to 2023. Yep. And uh what’s one of the big ones, Anna? Yeah. The big one is is the child tax credit. um it can increase your refund if you qualify, but a lot of these these um rules and changes have complex income limits. So, it’s something that if you’re you know, when you’re preparing your taxes or your tax preparer is preparing them, you know, you need to make sure that you don’t make mistakes because again, an error on your return is another flag for the IRS. Yeah. And then that just to expand that a little bit, you know, if you don’t and I’ve I’ve seen as I’ve reviewed, you know, clients and and prospective clients returns lately, all kinds of of of errors. The tax forms change seems like year to year. There’s one catchall schedule called schedule one. And if it doesn’t match, it’s on the schedule E or another place on their return. Sooner or later, the computers are going to flag it because things don’t match up. The the basic IRS audit system is this box, this box, this box. There’s a formula for how they should all relate to each other. And if there is a discontinuity, you’re going to get an audit letter, a computer generated

letter that says that, you know, we have questions about return, which can be the beginning of an audit. I’m sorry, Kim, I didn’t mean to steal your thunder. So, there are some interesting new deductions this year, right? Yes. On um schedule A and C uh that people need to be aware of or look for. Um, so there’s going to be new provisions for tips, overtime pay, car loan interest, and then also even specific benefits for seniors. And all this stuff sounds great on the campaign stuff. When you actually try to do the tax math, lean math, like, you know, no tax on tips. Trust me, folks, it’s a quagmire. It’s really a nightmare. What about on the digital side of things, Kim? I think that’s another question for you. We’ve heard that there’s a new way to file directly with IRS. Is that something that So, make it safe. See, I well they call it direct file. So, it’s going to be a new system the IRS is testing out that’s going to allow people to file for free directly through the IRS’s website. So, part of a larger push to get people away from paper. Neither rain nor sle snow, you know, or the IRS will stop your refund, right? From collecting your taxes. And speaking of digital, uh, Anna, yeah, so so digital, right? A common thing a lot of people have side hustles now. They might have an Etsy shop or they sell things locally on on Venmo, PayPal, those types of services. Throwing eBay out the garage. You never know. You never know. But if you’re using one of these services for a side hustle, you need to be looking for a 1099K from them. Um, and it’s not going to be something that likely comes in the mail. So, you got to be extra cognizant of, you know, where you might have income coming from. And if you’re not seeing a reflective tax form mailed, go online and and look for it. That’s a really good point that this is audit red flag number one. All right. So you, the IRS gets what are called information returns, W2s, 1099s, K1s. There’s a whole, you know, zoo of them. Um, and in this example, if your eBay 1099 goes to your email box and you don’t see it because it goes to junk or something, so you don’t put it on your return, rest assured the IRS got that. And their computer management system is, hey, there’s $5,000 of income from eBay. It’s not on the return. Are you trying to evade taxes? We need to find out more about this. And that’s how a lot of audits start. Sorry, Kimberly, I know you had more to uh to share. With all these complexities and the threat of identity theft, which is, you know, one of your pet peeves and and passions to help people with. Um, how can taxpayers really protect themselves? Well, uh, a couple things, and this will also touch on your previous point, but one of the things that people should do is definitely go with all of the fraud out there. One of my favorite things should go with the fraud. No. is to I like to listen to these true crime podcasts. Tons of the don’t they all I guess well the IRS fraud was just amazing and how people get information to file these fraudulent returns. Um so the best thing you could do go now to id.mme set up your account. It’s going to go through take your driver’s license. It’s going to make you do a selfie so it knows you’re a live person and claim your account, hook it up to the IRS. You can also go through the entire government portal, hook that up to social securitycurity.gov. That way it’s going to lock it down and keep those login tied to that ID.mme account so people can’t Is that like the ID pin that I’m reading about the identity protection personal identification number? That’s one of the things that you’re going to be able to do. go into that IRS account, create the uh PIN that and then basically what it says is nobody’s going to be able to file a return. No tax preparer without having this PIN. Um in in helping Carl with uh Tax Master and processing some returns and seeing the back end of how that works, that is definitely there’s spots where you’ve got to input the PIN or it just straight up gives you an error. That’s right. This is, you know, a big increasingly dangerous problem. It’s happening more and more. You know, in fact, we had had a client that just reported a fraudulent return filed um with IRS, which is causing all kinds of problems. I’m not sure if that’s going to impact his liability with IRS, if it actually cost him any money uh with IRS, but you you little quick expansion on that without giving any details away. Yeah, usually there’s something that their their tax preparer, which is not tax master, can do to alert the IRS of this. Um, so there are steps that that you know they can take. It’s outlined on IRS.gov. But the more you know, the more we have a more digital world and even with AI, we’re seeing increase of these fraudulent scammer type people that are trying to get this personal information. Whether it is to file a fraudulent return, hack a bank account, whatever it may be, you have to be extra careful. And like what Kim is sharing, these services that kind of act as a additional authentication are going to be more and more important. Yeah. And more than 10,000 taxpayers apparently already have one. I know Kim, you’re about to say that. Um that but I think an important point is you it rolls every year apparently. You got to keep refreshing the number. It’s only good for a year. Right. Right. But it’s not I’m sorry. Oh no. I was going to say just um one point even about securing your ID.ME account and going into um IRS.gov. You were mentioning about the information returns and all these new ways that they’re sending out 1099s. One of the best things you could do almost like we’ve actually had some folks who say, “Hey, I I don’t those tax doc and I mean I’m kind of guilty of it myself, right? The tax documents come and you shove them in a pile. I I don’t want to look at them.” You can easily go onto the IRS website and download all the information returns. It has your whole history. Plus, you can also see any returns that have been filed with the IRS in the past. Also, another way to detect fraud, like, hey, you know, I didn’t file that. And that’s an important check. We at Tax Master we call it audit shield and it’s you know technically practitioners call it um they’re pulling an IRS transcript but basically these information returns 1099’s W2s K1s whatever to make sure that you’re reporting everything all the income that the IRS has so you’re not going to be you know easy pickings for an audit is pull your transcript and see what they’ve got and also realize that a lot of K1 some stuff is not all filed by April 15th so you’d be wise to get an extension and make sure because some of these roll in past April 15th. And if you file based on, you know, incomplete information early in the year, you may get caught anyway. And just an aside on that, in terms of, you know, opportunities for for tax savings, you know, you you certainly don’t want to have any numbers different than are reported to IRS. If you get a W2 says $100,000, you better put $100,000 in a W2 spot on your 1040. Other things like home office deductions and opportunities for offsets or deductions against income are squishier because the only one reporting those typically IRS is you. So you have a lot more control over what the number is. But things that are reporting information on returns, don’t screw with it. All right. So it’s the same mantra, isn’t it? That that it’s really more important than ever. What do you want to do? Yeah. I mean, when you’re filing a return, right? Ideally, you want to choose direct deposit as your payment option. Why is that? Um, first of all, you get your money quicker if you’re if you’re owed a return. So, I mean, personally, I’d like my money quicker and in a more secure way. That way, there’s not checks in the mail. You mean refunds, right? Refunds. I’m sorry. Refunds. I want my my refunds sooner and it’s not a check in the mail that could be intercepted or or deposited by somebody else. Right. So I think how many still a lot of paper goes out there, right, Kim? Does probably 20 million paper refund checks, but hey, you’ll be waiting a long time to get that even quicker. You can do like the fraudster. You ever do unless you know the the unless Newman the postman throws it in the sewer or leaves it in the bushes like the Amazon guy, right? There’s a lot of risk these days with the mail. The fraudster guys just uh send it to their like net spend debit card and then before you know it, they’ve already withdrawn all the money and it’s gone. Yep. And uh anything else you’d suggest, Anna? Yeah, I mean I’ll piggyback on what Kim talked about. Set up your IRS online account if you don’t have one. Um it’s good during tax filing season, of course, to have it, but just in general to monitor your financial your financial situation and to just, you know, be able to check in, make sure nothing shady or fraudulent’s happening, right? Plus, um good information if you’ve ever got to make estimated tax payments or any other kind of payment. Once you’re in there, it’s just a a treasure trove of information, ease, convenience, and it’s it’s all locked down and secured, but very easy to go on and make an estimated payment. No more mail and checks. No worrying about getting it stamped on time by the post office. Just digitally do it. Although, that was an interesting thing, I thought. Um, well, we were talking about how the the IRS tax code talks about those postmarks. So interesting now uh how it’s all written into the code that things have to be postmarked and that’s what the IRS has to honor now they you know now they’re changing the way the postmark applies but and that really is the law if you have postmark return that’s what the green cards you know for you know if you you can pro that is they evidence actually perfect evidence irrefutable that you have filed on time right and and that’s written into into the tax law other modes like FedEx and UPS or are or you know not as secure but now you know they’ve moved the the the the first down marker on that to where Okay. Well, yeah, but how the post office went home early that day. They had a vacation. So, or even filing the payments, right? It was supposed to be mailing in a postmark check and now you can do direct pay. But another really strong reason to file digitally because that’s time stamped any computer and pretty much irrefutable. Well, I tell you, I never realized how exciting and passionate a tax discussion could be. Uh so, especially when you have uh intelligent uh commentators. So, thank you for joining us once again, Anna Kim. It is so refreshing to have you on the podcast. I hope you’ll come back. Thanks for letting me be here. And it was just great. So, thank you so much for watching this episode of Smarter Money Matter. Smarter Money Matters. It really does. See you next time. Thank you so much. And thank you for Thank you, Zetta, our behind the camera crew, uh, doing a great job with the production. Thank you very much. Bye-bye.