Busy season is just around the corner and it promises to be one of the most interesting tax preparation seasons ever. I know that “tax” and “interesting” are words that are hard to imagine hearing in the same sentence, but in the years I’ve had my tax practice, I’ve never seen a more radical change to the tax code and the returns I’ll be filing for 2018.
Any time the tax code changes substantially as it did for the 2018 tax returns I’ll be preparing, there is a greater chance of taxpayers did not properly estimate their tax liability during the year, and potentially face underpayment interest. Typically, you would be required to have paid 90% of your liability for 2018 by January 15, 2019, and self-employed individuals would be required to have made earlier quarterly payments in April, June and September, covering 25%, 50% and 75% of the tax liability, respectively. Any underpaid portion would be subject to a 4% annualized interest rate, the amount imposed based on the number of days between the payment deadline and the date of the payment.
However, given the complicated changes in our tax code this year, particularly for self-employed persons, the Internal Revenue Service has “thrown us a bone” and now requires only 85% of tax liability to have been paid by January 15, 2019, provided you specifically request a waiver of the penalty on the Form 2210 and specifically have the language “85% Waiver” in the explanation statement. This waiver, as far as I am aware, only applies for the 2018 return and will likely not be renewed for the 2019 return, given that the tax rules are not changing so dramatically from this year to the next.
Some relief is better than none, but in light of how complicated the tax rules have become for self-employed individuals, it seems that more relief from penalties should be given to them, while persons working regular jobs generally don’t need to worry as much, given that they have taxes withheld all throughout the year.
Busy season is slowly beginning, conveniently at the same time that the government shutdown has just ended, so tax returns will theoretically be processed as normal, as the Internal Revenue Service had already announced (before the shutdown) it would not be processing any returns until January 28th anyway. If you have your tax documents available, now is the time to submit them to your tax professional, as they will likely be able to complete and file your return in a much shorter period of time before the heavy backup begins in late February and the wait for your completed returns can be several weeks. Don’t delay if you don’t have to, and the earlier you file, the earlier you can take advantage of your tax professional’s advice for reducing your federal and state taxes during the rest of the year.