While Tax Day has been extended, you should ask yourself whether there is any real benefit to waiting to file your taxes
The U.S. Department of the Treasury is delaying the April 15th deadline to file and pay taxes until May 17th, giving individuals and businesses another month to file and then pay the government what they owe. The IRS will be providing formal guidance in the coming days.
From the IRS press release dated March 17th:
“This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities,” said IRS Commissioner Chuck Rettig. “Even with the new deadline, we urge taxpayers to consider filing as soon as possible, especially those who are owed refunds. Filing electronically with direct deposit is the quickest way to get refunds, and it can help some taxpayers more quickly receive any remaining stimulus payments they may be entitled to.”
Directly From the IRS (Tax Day)
“Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17.
Individual taxpayers do not need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the May 17 deadline can request a filing extension until Oct. 15 by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Filing Form 4868 gives taxpayers until October 15 to file their 2020 tax return but does not grant an extension of time to pay taxes due. Taxpayers should pay their federal income tax due by May 17, 2021, to avoid interest and penalties.
The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds associated with e-filed returns are issued within 21 days.
This relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS by people whose income isn’t subject to income tax withholding, including self-employment income, interest, dividends, alimony or rental income. Most taxpayers automatically have their taxes withheld from their paychecks and submitted to the IRS by their employer.”
State Tax Returns
“The federal tax filing deadline postponement to May 17, 2021, only applies to individual federal income returns and tax (including tax on self-employment income) payments otherwise due April 15, 2021, not state tax payments or deposits or payments of any other type of federal tax. Taxpayers also will need to file income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and are not always the same as the federal filing deadline. The IRS urges taxpayers to check with their state tax agencies for those details.”
What Should You Do?
Putting off paying taxes until right before the deadline is human nature. In fact, according to statistics from the IRS, in most years 70 million individuals had already filed their tax returns by mid-March. And that’s only about 45% of the returns the IRS expects to receive.
For those who haven’t filed yet, here are two reasons to convince you to have your taxes done professionally:
- The IRS estimates that the average person will require about 11 hours to prepare a tax return
- According to a survey by the National Society of Accountants, the average charged for filling out your basic federal and state returns is $261
So it is most likely worth your time and money to have an expert prepare your tax return or at least look it over for you.
Taxes are Complex
Preparing your own returns can take a lot of time, but the exact amount of time depends on the complexity of your finances.
You already know that the federal, state and local tax laws are complex, and constantly changing. But remember, the Tax Cuts and Jobs Act made some significant changes to the tax code when it went into effect. In fact, most consider the Tax Cuts and Jobs Act to be the biggest tax reform legislation in more than 30 years.
Should You Delay or Not?
The answer to that question, of course, depends on your situation. But it’s likely that for a lot of people, it makes sense to just stick to the original schedule and file and pay taxes by April 15th. Ask yourself this question:
“Is there any real benefit to waiting until May 17th?”
When you’ve answered that question, make sure you talk to your financial advisor to confirm that the tax decisions you make are consistent with your overall financial plan.
At any rate, don’t forget to check your Important tax numbers for 2020.