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Legislative Limbo: Deciding When to File 2023 Taxes

The IRS started accepting tax returns on January 29th, but on January 31st, the House passed the Tax Relief for American Families and Workers Act of 2024, which could impact many 2023 returns. The bill now moves to the Senate where it will likely undergo additional modifications. As with all bills, the content of the bill is still uncertain as is the timeline for the bill to go into effect. Kristine Tidgren’s blog on Feb. 5 reviews the details of the House bill. So, should tax preparers wait to file returns (both business and personal) until after the legislation (possibly) passes?

It depends.

IRS Commissioner Danny Werfel said, “We urge and encourage taxpayers to file when they’re ready.  Don’t wait on Congress. If there’s a change that impacts your return, we will make the change, and we will send you the update whether it’s an additional refund or otherwise without you having to take any steps.” If any passed legislation impacts a return you’ve already filed, that means you theoretically have the option of waiting an undetermined amount of time for the IRS to fix the return, or file an amended return, but are your clients interested in paying to file an amended return?

Other Factors to Consider

Criminal activity

The risks of scams and identity theft go down once the tax return is filed.

Cash needs

A taxpayer anticipating a refund has overpaid the IRS through the year. This money could be reinvested into an interest-accruing account and earn the taxpayer more money. Regardless of reinvesting, a taxpayer may need money now and not be interested in waiting for legislation.

Kids subject to the child tax credit (CTC)

Parents with young children may take pause in filing early if they have qualified for the CTC in prior years. Because the legislation isn’t final, it’s too soon to say what the income brackets could be impacted. Currently, the full credit (partial credit available at higher incomes) is available has annual income of no more than $200,000 ($400,000 if married filing jointly) and a qualifying child that meets the following eligibility factors.

  • Be under age 17 at the end of the year
  • Be the taxpayer’s son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these
  • Provide no more than half of their own financial support during the year
  • Have lived with the taxpayer for more than half the year
  • Be properly claimed as the taxpayer’s dependent on their tax return
  • Not file a joint return with their spouse for the tax year or file it only to claim a refund of withheld income tax or estimated tax paid
  • Have been a U.S. citizen, U.S. national or U.S. resident alien

It is possible that parents who qualify for the CTC may not see any additional funds under new legislation than they would under the current credit. Taxpayers most likely to see an increase are those with lower-incomes and multiple children. Your tax software may be able to run comparisons but if not, there are various websites with estimates based on adjusted gross income, filing status, and number of dependents.

Businesses with research costs, business interest, depreciation, employee retention credits, etc.

There are plenty of business-focused provisions to the proposed legislation, but many of them may not apply to your smaller clients. For taxpayers to which those provisions may apply, it may not make a larger enough impact on their return to warrant waiting on filing. This is especially true if the business return is a flow-through entity that has taxpayers who are waiting on a Schedule K-1 from the business. Conversely, however, consider that if you file a floww through entity return and then amend after legislation passes, all the taxpayers who received a Schedule K-1 will also have to amend.

What are other tax preparers doing?

We asked some of our instructors whether they are planning to delay any tax filings waiting on legislations and this is what they had to say.

We are still full steam ahead, finalizing and filing individual returns. I’m not worried about the CTC because IRS proposes to fix that as needed but I am a little worried about HR 7160 because a change to the SALT limitations would impact the majority of my client base. At this point, I would prefer to finish them and amend later than to hold on to them on the off chance that legislation passes. I am not finalizing business returns with R&D or with bonus as those are big potential changes. – Keith Baum

I believe it depends on which type of return you are talking about. With respect to child tax credit, I believe that unless Congress gets the whole thing done this week, there will have to be something that directs the IRS to calculate and send refunds – something like what they did when they changed taxability of unemployment benefits in March during Covid.  If you or your clients don’t want that, then I would hold off filing.  I am guessing though that the taxpayers that will benefit the most from that change will not want to wait for their refunds. If you are talking about bonus depreciation or R&D expensing for a business, I would definitely be waiting to file. – Catherine Riddick

IRS has said they will make up child tax credit amounts automatically without need for amended return…so no reason to wait on that provision. Taxpayers who may benefit from 100% bonus should wait. – Bob Rhea

This isn’t a decision for a tax preparer to make on their own. As clients are coming in for their tax appointments, these are just some of the considerations to discuss and evaluate with your clients.

By Kelly Golish, CPA
University of Illinois Tax School
Assistant Director, Tax Materials
Kelly Golish, CPA

Sources

Child Tax Credit (irs.gov)

Don’t wait on action on tax bill to file returns, IRS tells taxpayers (journalofaccountancy.com)

Disclaimer: The information referenced in Tax School’s blog is accurate at the date of publication. You may contact taxschool@illinois.edu if you have more up-to-date, supported information and we will create an addendum.

University of Illinois Tax School is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this site is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information. This blog and the information contained herein does not constitute tax client advice.

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