Friday, October 15, 2010

VITA volunteers will be waiting on tenterhooks again

The IRS will be shipping out their generally excellent VITA training materials for volunteer tax preparers in a few weeks.

I'll be studying those materials, because-unlike professional tax preparers--VITA volunteers must pass annual certification tests each and every year.

As usual, I'll probably take my certification test very soon after it comes on-line in November.

My prediction: the training materials and test will be obsolete even before the filing season begins in January--and it won't be the fault of the IRS.

It will be the fault of Congress for dillydallying, as usual.

And, no, I'm not talking about dillydallying on deciding whether to extend the Bush tax cuts into 2011. Those will affect tax returns we prepare in 2012.

I'm talking about a far more severe case of dillydallying--dillydallying on extending tax provisions that expired at the end of LAST year, which most folks expect Congress will fix right before filing season begins THIS coming January--too late for the IRS to correct the printed materials, and too late for the IRS to modify the tests. (We'll just get lots of "Volunteer Alerts" as the season approaches, notifying us of Congress' last minute changes.)

The Wall Street Journal recently published a couple of articles by Bill Bischoff surveying the tax horizon.

Here are the items he listed that are possibly relevant to VITA tax returns that expired at the end of 2009 that Congress may--or may not--extend to apply to 2010, along with his predictions as to whether extension is likely.

Option to deduct state and local sales taxes:
For the past five years, individuals who paid little or no state income taxes were given the option of claiming an alternative itemized deduction for state and local sales taxes. The option expired at the end of last year. Prediction: It will be retroactively reinstated for 2010.

Real estate tax deduction for non-itemizers:
For 2008 and 2009, unmarried individuals who did not itemize could write off up to $500 of state and local real property taxes by claiming an increased standard deduction. Married joint-filing couples could write off up to $1,000. The add-on standard deduction expired at the end of last year. Prediction: It will be retroactively reinstated for 2010 (subject to the same phase-out rule for higher-income taxpayers).

Higher Education Tuition Deduction
This write-off, which can as much as $4,000, actually expired at the end of 2009. That’s a little-known fact because everyone always assumed it would be continued. Not yet. Prediction: It will be retroactively restored for 2010, and it may be extended through 2011.

Tax-free unemployment benefits:
The Stimulus Act allows for up to $2,400 of 2009 unemployment compensation benefits to be exempt from federal income tax. Prediction: Don’t expect this break to be reinstated for 2010 unless the Democrats retain the House (even then it might be iffy).

Deduction for teachers’ school expenses:
For the last few years, teachers and other employees at K-12 schools could deduct up to $250 of school-related expenses they paid for out of their own pockets -- whether they itemized or not. This break expired at the end of last year. Prediction: It will be retroactively reinstated for 2010.

The bottom line for VITA volunteers: be prepared to temporarily "UNlearn" certain tax provisions that you learned last year but which expired at the end of 2009. You need to do that "UNlearning" so you can pass the 2010 certification tests (which is necessarily based on the tax law in effect the tests were printed up), but also be prepared to scramble and RElearn most or all of those "expiring" provisions AFTER you take the test if Congress gets its act together and decides to do the expected last minute extensions right before filing season starts in January.

And don't blame the IRS. Blame Congress.

The IRS is not allowed to predict what Congress might do. They have to print up VITA training materials based on actual law at the time of printing, not on what a reasonable person might EXPECT that law to be during filing season.

(Of course, it could be worse. Other tax preparers have to worry about a lot of other volatile tax code provisions that VITA volunteers don't deal with--such as the uncertainty surrounding 2010 estate tax law, the 2010 AMT patch, and a possible reinstatement of the rule allowing taxpayers to make charitable donations from their IRAs and count that toward their minimum distribution requirements. Thankfully, those are all issues that are "outside the scope of our VITA certification," so we hand those issues off to the professional preparers. And then there are the hapless folks who need to deal with programming withholding formulas into their payroll programs.)

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