Today, at 11:59pm, a number of automatic spending cuts signed into law in August of 2011 are set to begin. There has been lots of debate and discussion as to the ramifications of the cuts on our fiscal budget and our economy as a whole, but what about taxes?
First, the IRS will lose 8.2% of its funding, which could force the agency to furlough workers during this already busy and impacted tax season. Typically, such a cut would allow the IRS to prioritize certain work and distribute the cuts accordingly, but with sequestration, the Service is forced to make cuts across the board, limiting its ability to shift workers around to handle the overwhelming flow of returns in March and April. And because of the Congressional game of chicken with the fiscal cliff, the IRS is already behind this year, since it had to update its systems at the very last minute once that deal was finally reached.
On the bright side, refundable tax credits, such as the Earned Income Tax Credit and the Child Tax Credit, are exempt from the sequester.
How does this affect you? With fewer workers on an already backed up schedule, this could mean delays of days or even weeks for your tax refund. As it is, taxpayers who e-file and elect for direct deposit often wait 7 to 10 days for their refunds, while those who file by mail will not be seeing any refund checks for up to six weeks. And with an average refund of $2,700 in 2012, that is a lot of money tied up on the sidelines for those who have not yet filed.
What can you do? File your return as soon as possible to avoid any excessive delays that may result from the sequester, and resolve any potential tax issues you might have before you file.
Hiring a tax attorney is a good idea because he or she knows how to navigate the political landscape of tax law that seems to change by the day. Moreover, a tax attorney will zealously advocate on your behalf…