July 1st, 2020
As we flip the calendar onto another month, you might just find yourself realizing the July 15 deadline is only 15 days away! Remember how far far away that sounded just a couple of months ago when the filing season was extended and you thought to yourself, “I’ll be done before the end of May!”
Well, Walter, it’s time to stop the home remodeling projects and get those returns filed! (You really didn’t want to take that bath anyway did you?)
Welcome back to reality, tax friends. So, let’s see what we can do for our clients in these waning days…And for those of you who are hoping for another reprieve…the IRS announced on Monday, June 29 that the filing deadline will not be extended beyond the July 15 deadline for filing tax returns. However, automatic extensions are still available, which pushes off the filing deadline (but not the payment deadline) to Thursday, October 15.
(Per IRS Notice 2020-23 and IR 2020-66)
Now the bigger question is what advice can we still give taxpayers to reduce their 2019 liability? Well, first of all, since the filing deadline was changed to July 15, so was the funding deadline for traditional IRA plans. You might recall that the latest funding date for IRAs has always been the un-extended due date for the filing of personal returns—so in simple terms, no extension exists to fund IRAs. This can be a powerful tool assuming the contributions are indeed deductible, especially for taxpayers who received premium assistance for their healthcare via the Marketplace. These taxpayers should be in possession of Form 1095-A, which you will need to reconcile when filing their 2019 return. Deductible IRA contributions reduce adjusted gross income and could result in a reduction in the amount of premium assistance, which may need to be paid back or result in a larger premium tax credit being available to your taxpayers.
Secondly, if your client qualifies, 2019 HSA contributions may also be made by the July 15 filing deadline (but like IRAs, there is no extension in the time to fund the HSA). Be sure to review the rules regarding HSA funding qualifications and also verify how much your client may have already funded for 2019. Once funded, these contributions not previously paid through or by your client’s employer represent adjustments to gross income so they can have the same impact as a deductible traditional IRA contribution.
It may in a variety of settings. You may recall that for our calendar-year S Corps and Partnerships, if we didn’t get their returns filed in time (that was still March 15 but since March 15 fell on the weekend, the due date was Monday, March 16) we needed to file the extension by March 16 to give the taxpayer until Tuesday, September 15 to file the entity return.
For individual returns, filing an extension on July 15 (Form 4868) will not give the taxpayer another six months to file, but rather the extended due date will still be Thursday, October 15.
If your taxpayer wishes to fund the employer portion of a qualified plan, such as a Simplified Employee Pension (SEP) or employer matching to other qualified plans, that contribution for an S Corp or Partnership is due by the due date of the entity return PLUS extension (no law change here). So with the extension, your S Corps and Partnerships wishing to fund the employer portion of pensions have until September 15. For self-employed taxpayers filing a Schedule C or F that have profit, the extended funding date is October 15, the same extended due date as the “entity” (in this case the 1040) return. The impact of funding retirement plans for 2019 can have an enormous impact on the client’s tax liability, not to mention these deductions result in lower adjusted gross income and can have a significant impact on premium assistance issues just as we described for the funding of IRAs and HSAs.
If you wish to file an extension for the 1041 series (trust and estate income tax returns) be sure to file Form 7004 by July 15. The extended due date, however, will be Wednesday September 30.
For tax-exempt entities filing the 990 Series (except 990-N postcard filing), filing an extension by using Form 8868 on July 15 will give the taxpayers until Monday, November 16 to get the returns in and considered timely filed.
The interesting aspect of having a July 15 due date is that you can get a feel from your client as to how 2020 is going. Knowing their results through the first half of this year can greatly impact decisions made for the filing of 2019 returns such as accelerating (or not accelerating) depreciation decisions via bonus or §179 for 2019. Typically, when we file returns by April 15 we only have speculation for how the current year will turn out. Of course, I believe you will agree that given the pandemic, many businesses may have no idea how the remainder of 2020 may unfold.
Taxpayers who have not received a stimulus check may be entitled to receive the stimulus on their 2020 filing. The stimulus checks are actually an advance on a new credit which will appear when 2020 returns are filed next Spring. That fact may result in some advance planning and may impact decisions made for the 2019 return filing.
Clients who left employment where they had a 401(k) loan in the past had 60 days to repay the loan or treat it as an early distributions (“deemed distribution”). But thanks to the Tax Cuts and Jobs Act (TCJA) of 2018, effective January 1, 2018, the deadline was changed to allow rollovers of part or all of the loan amount from other funds, until the due date, including extension, for filing the client’s tax return for the taxable year in which the “deemed distribution” occurred. This could be another reason to file an extension for your individual client.
Employment tax returns (941 etc.) were still due April 30 for the first quarter of 2020 and still due July 31 for the second quarter. Required employer tax deposit due dates did not change. Note, however, that the CARES Act allows employers to delay payment of the employer portion of employment taxes until 2021 and 2022, and some otherwise required deposits can be recovered as advance Employee Retention Tax Credits or credits for required payments of sick leave.
We, here at Tax School, would like to hear from you as to whether you believe you will be conducting business as usual in the future or are you contemplating changing your tax season routine to fewer face-to-face meetings? And, are you evaluating other forms of client interaction such as online meetings via Zoom or Skype, more mail-in or portal uploaded returns, etc…we’d like to know! Post some ideas you’re considering for the future in our Facebook group so they can be shared with your contemporaries. It will be an interesting exercise.
by Tom O’Saben, EA
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