business man screaming as tax forms fly around him (Photo: Shutterstock)

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(Bloomberg) –Filing taxes last year was a nightmare fortaxpayers, their accountants and the Internal Revenue Service. Thisyear might not be much better.

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The IRS is still working to issue guidance for the changes tothe tax code signed into law more than two years ago. Congress alsopassed a series of tax breaks late last year that will require theIRS and tax software providers to revise formsat the last minute, and taxpayers may have to amend returns fromprior years to claim those breaks.

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It also could be another disappointing year for taxpayersexpecting a hefty refund.

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"I hold my breath for the entire filing season and breathe asigh of relief every April 15," said Robert Kerr, the executivevice president of the National Association of Enrolled Agents, agroup that represents tax preparers. "Every filing season is amiracle. The IRS fights an uphill battle every year."

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There are a few bright spots. The agency made it through onefiling season with the changes from the 2017 tax overhaul, whichgreatly revised the tax code for individuals, small businesses andcorporations. And unlike last year, the IRS won't be facing agovernment shutdown forcing the agency to spend the final weeks ofpreparation with a bare-bones staff.

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Still, tax preparers are bracing themselves for the 2020 filingseason, which runs Jan. 27 to April 15.

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"I don't think we know enough or learned enough last year to saythis year is going to be substantially easier," Mike Greenwald, apartner at accounting firm Friedman LLP, said.

Everyone wants extensions

For many accountants, the crunch isn't concentrated just in thespring anymore. The new busy season now includes fall deadlines,reflecting the increased number of people filing on the extensiondue date to have more time to comply with new complex rules forpass-through entities. Tax professionals are still recovering fromlast year's Sept. 15 deadline for partnership returns and Oct. 15due date for corporate and individual returns.

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"Last April was moderately harder than any other tax season,"said Steve Rossman, an accountant at Drucker & Scaccetti."September was the worst tax season I've ever had."

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Accountants say a large portion of their sophisticated clients —especially those who have stakes in partnerships or invest in hedgefunds or private equity — wait to file until the fall, because theydon't have the information yet from the fund to submit their owntaxes.

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"They are going to want to wait as long as possible to see ifmore guidance comes out," especially rules about write-offs fordebt and carried interest, Greenwald said. "They want us to learnon somebody else's dime."

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Congress gave some taxpayers a gift in December, when itretroactively extended several expired tax breaks, includingwrite-offs for some medical expenses, mortgage insurance premiumsand college tuition. Taxpayers have the option to amend their 2018and 2019 tax returns to claim those deductions if they're eligible,but they should weigh whether the value of the tax break is worthre-submitting paperwork to the IRS.

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"If you're paying a professional $400 to get back $40, that mathdoesn't work for me," Kerr said.

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Low and middle-income taxpayers should check their total incomebefore shopping for a tax preparer, because they might be eligiblefor a free service. Taxpayers who earned $69,000 or less last yearare eligible for IRS Free File, a no-cost, online tax filing systemusing private tax providers, such as H&R Block and Intuit'sTurboTax, according to the IRS.

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More than 20 states, including New York, Massachusetts andMichigan, also offer free state tax return preparation.

Refund delays

Refunds could also take a while to reach taxpayer bank accounts,as the IRS clamps down on fraud. The agency has to wait until atleast Feb. 15 to send refunds to taxpayers who claim the earnedincome tax credit or subsidies for health coverage. The agency saystaxpayers who file at the start of the filing season can expectthose as soon as the first week in March, as long as there are noproblems with the returns.

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The IRS recommends submitting a return electronically andrequesting the refund via direct deposit, rather than check, forthe quickest turnaround time.

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Some taxpayers could also face longer-than-usual waits for theirrefunds because of a fraud filter that catches hundreds ofthousands of legitimate returns, the Taxpayer Advocate Service saidin a recent report. The screening system — intended to flag returnspossibly filed by fraudsters looking to steal refund checks —identified nearly 1.1 million returns, but about 71% of those werefalse positives.

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Taxpayers who weren't happy with the size of their refunds lastyear could be similarly disappointed this year unless they theychanged the amount of tax withheld from their paychecks. Taxpayersoften judge their tax preparer based on the size of their refund,Kerr said, even though it has more to do with how much they did ordidn't have withheld.

Optimize your refund

At the start of last tax season, the average refund was nearly9% lower than in 2018, before the tax overhaul took effect. Thatgap largely closed by the end of 2019, but some taxpayers werestartled by how the tax cuts and withholding rate changes meantthey ended up with a much smaller refund than usual, even if theypaid less in federal tax overall.

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The IRS at the start of this year made it slightly easier fortaxpayers to more accurately calculate how much employers shouldtake out of their paycheck, according to Pete Isberg, vicepresident of government affairs for Automatic Data Processing,Inc.

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The agency released a new Form W-4 that aligns with the 2017 taxcode changes. It eliminates using so-called "allowances" todetermine the withholding rate. Instead, the form asks forinformation about income sources, dependents and anticipateddeductions.

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The IRS says the new form reduces the complexity and increasesthe transparency about withholding, though some tax preparers saythe form is still difficult for the average taxpayer to fillout.

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But since these changes won't affect this year's tax returns,the best way to optimize your refund is to get in touch with youraccountant as soon as possible, before they get too busy, Rossmansaid.

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"Don't wait until the deadline," he said. "Whether you owe moneyor get a refund, it's better to know now."

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