The Day of Reckoning – Is it January 15 or 18?

Hello again, everybody and happy new year. This is Tom O’Saben coming to you from the University of Illinois Tax School with our first tax season blog for the 2021 Filing Season. Specifically, we’re going to talk about our first due date coming up January 15. Or is it the 18th this year, which I’m describing as our day of reckoning. Again, my name is Tom O’Saben. I’m the Assistant Director for Professional Education and Outreach for Tax School. I’ve been a Fall Tax School instructor and author and reviewer of the University of Illinois federal tax workbook. And additionally, I’ve been a tax practitioner in business for more than 30 years. And I don’t know whether this is time to take a deep breath by dreading or being excited about what is facing us. Well, the first thing that’s facing us is the discussion about January the 15th. We talk about January the 15th. I want you to see that January 15 is not our driving day this year. Look when it falls, ladies and gentlemen. It’s falling on a Saturday. When that happens, we go to the next business day, which would mean that our normal January 15, deadline items would be on Monday the 17th. Well, that’s Dr. Martin Luther King’s birthday. So the next business day after the 15th is actually going to be Tuesday the 18th. So that’s going to be the first item for you to note from this time is that on your calendars, you want to note January 18 as the day of reckoning for the items we’re going to talk about here in our first month of filing season in 2022.So, what exactly are we going to have do on January the 18th? Remember, again, we’re talking about the 18th, not the 15th. So we’re going to be talking about fourth quarter 2021 federal and state estimated tax payments, I might reference you to a blog I did several weeks ago that talked about are we potentially not needing to do that fourth quarter estimate based on the fact that clients may have premium assistance coming if they bought their health insurance on the marketplace. I want to spend a little bit of time on employee deferrals to qualified pension plans, such as solo simple and 401k. So you might notice that I put the term employee in quotes. I did that on purpose because I want you to think about these plans. Even if you have someone who is completely self-employed, it might be just you involved in the company. And the fact that you wear two hats, you wear one hat as an employee, and you wear another hat as an employer. Now that being said, from the employee side, say take for example, a simple plan. If you’re going to fund that employee deferral or a 401k plan where you’re going to fund say 19,000, or $26,000, as an employee deferral, those deposits are due no later than the 15th day of the month, after the month it was supposedly withheld, which would be December in our conversation. So that means that these employee deferrals have to be made by January 15. Oh, January 15, is not a business day. Monday, the 17th is not a business day. So, they will be due on Tuesday, January the 18th. That would include the employee side of a solo 401k plan, a simple 401 or a traditional 401k plan. Conversely, the employer are matching now you’re putting on that other hat as I’m describing it, that money is not due until the entity’s due date. So you’ve got two pieces to the puzzle here. Let’s say for example, you have a self-employed person who files a Schedule C, and they go ahead and they fund a solo 401k. Maybe you fund a solo 401k. And you’re over the age of 50. Or you’re 50 or over, let’s say. So you want to put $26,000 into your solo 401k plan. Plus you want to do an employer match on that profit of your business. What are the due dates? Well, for the $26,000, Tuesday, January 18. Matching on the employer side would be April the 18th, which I’ll describe to you in a little bit, or October 15 If an extension is filed. Now, I’ve talked with a lot of pension type administrators, and they’ve said there could be an argument made, that these contributions have to be made as frequently as payroll tax deposits are made. So, the fact that you’re seeing this on January the 10th of 2022. Might be a circumstance where if there are other employees involved in the funding of these plans, and we’re wanting to get employee deferrals in that they should be going in as frequently as federal tax deposits are going So I want you to keep that in mind as well. But in the kind of global approach that I’m taking in this discussion, if you’re funding something for yourself or your client as a self-employed person, they’ve got two pieces. We’re not talking about a SEP, if we’re dealing with a SEP that’s perceived to come all from the employer. So, we’re dealing with those plans where there’s a combination of an employee deferral, and an employer match. The employee deferral due January 18. The employer match by the due date of the entity. Could be a partnership, S corporation, C corporation, or sole proprietor, as I illustrated.

Speaking of payroll tax deposits – so monthly depositors, the due date will be also January 18. The 15th is not a business day, January 18, drives everything. And I want you to really consider those clients that I had mentioned in a previous blog that I did, about the idea that the infrastructure bill that the President signed back on November 15, eliminated the employee retention credit for the fourth quarter of 2021. And that’s retroactive to October 1. So that’s why I’ve got here that you want to discuss making a payroll tax deposit for those who expected they would have the employee retention credit in the fourth quarter. Since it was repealed, they probably need to get a payroll tax deposit made. It could be subject to penalties for underpayment of payroll taxes. And this doesn’t apply for recovery startup businesses. Recovery startup businesses, which I also described in a previous blog would still have ERC available to them in the fourth quarter of 2021. But for most businesses, it’s been eliminated for the fourth quarter. And I can’t draw enough attention to this fact. Because of the amount of ERC involved, and how how deep and and and punitive the penalties could be for underpayment of payroll taxes. So that would be something to talk with your clients with very quickly.

Well, here are some items that aren’t due on January 18. But a good time to start planning with your clients now or talking to them. How about talking with the fiduciaries who might handle a complex trust? You know, a complex trust is one where distributions of income or principal or at the discretion of the fiduciary. A simple trust, conversely, says, hey, income is treated as distributed, even though it’s not. Well, this might be the time to talk about how much income has come into that trust this year. And does the fiduciary want to make distributions under what we call the 65-day rule. And for you code heads out there, that’s IRC 663 B. In this complex trust world, what can happen is, if distributions are made by the 65th day of the year, which is roughly March 5, if distributions are made, they can be treated as though they happened last year. So if the fiduciary is contemplating making distributions, it would be important to do those before March 5th. You’re not going to eliminate income tax, but you’re going to pass that taxable income from the trust over to the beneficiaries. Somebody’s got to pay tax, but perhaps the individual level will be a lower rate of tax than at the trust level. But again, 663 B makes this allowance, it’s up to the fiduciary to make the distribution under the 65-day rule.

It’s also important, you know, we’re early in the month, we’re not quite yet into the full heat of the tax season. But you know, as all of these dates are sneaking up on us, they have a very sneaky way of becoming right in front of us sooner than we expected. So, start to get that 1099 information from clients. I had a couple of people reach out to me in the last week who said they need to issue 1099 to some of the people that did contract work for them in this past year, told them we need the W-9 filled out in their information as to who issued it and etcetera. Let’s get that information in now so we don’t have some crunch time come January 31. That date is not different. January 31 does fall on a normal business day. So January 31, deadline for getting 1099 and W-2s out mailed at least to the recipients still applies for this year.

Well, let’s talk about some March due dates. On the 15th. We’ve got S-Corps and your calendar partnerships are due. That’s not new. But you want to keep in mind since these pass-through entities has significantly late filing penalties – at the very least you want to make accommodations so that extensions are filed by that March 15 due date. You know, we’ve got those penalties for failure to file. If you can’t get the S Corp or calendar your partnership due by March 15 or done, excuse me, by March 15, let’s make sure we at least get that extension filed by that time.

So, when you mark the calendar, we look at, here’s a March 2022 calendar, we see that March the 15th falls on Tuesday. So that is a normal business day there would be no change in that due date. And so that’s about it for March. Although I’ve seen a lot of calendars that want to circle March the 17th since it is St. Patrick’s Day, but for those of us who are dealing with tax season, March 17 is just another day in tax season, isn’t it? But the 15th is important for what I just mentioned.

So, we move forward in our calendar, we talk about April due dates. So you’re going to see here in a moment that April 18 Is the tax filing deadline in both 2022 and 2023. And I’ll explain that to you. I’ll show you on a calendar form in just a moment. So since April 18 is going to be our driving date, our driving due date, personal extensions will also need to be filed by April 18. If we’re dealing with calendar, your C corporations, the return or the extension will also be due. Trust returns that are on a calendar year also are due on April 18. Or again the extension needs to be filed. I wanted to make one note about trust returns that remember when we file an extension, it is only to September the 30th. While on personal returns and on our C Corp returns, that extension is all the way to October the 15th.

Also, IRA funding deadline for 2021 would be April 18. April 18 is going to drive everything. That’s going to make it a little bit easier this year since these 18ths are becoming so important. January 18 – the first one coming up. April 18 – kind of wrapping up the filing season without extension. So, IRA funding – due by April 18. First quarter estimated tax payments due April 18. And then we get right back into our 941 business. I know we have the monthly filing requirements for many clients. Might also have three-day business day filing requirements for clients. But those first quarter 940 ones will be due to be filed on April the 30th.

So, let’s talk about why April 18 is driving everything this year. I mean, when you look here at the calendar, you see that April 15 falls on a Friday. Well, that certainly is a business day. So why isn’t the why is the due date Friday, April 15. The driving factor ladies and gentlemen, and it’s going to be important to us both this year and next year, is actually April the 16th. Beyond the fact that it’s my baby beaners 35th birthday if you can believe that. April 16 is Emancipation Day in DC and Maryland. When Emancipation Day happens, it’s federal holiday, when it happens to fall on the 16th. And the 16th is a Saturday, it is observed the previous business day. So, for this year, since it is falling on a Saturday, that makes April the 15th a holiday. While the next business day would then be Monday, April the 18th. So April 18 becomes the deadline. And since it’s the deadline for filing, it’s the deadline for all the other rules I gave you such as funding IRAs. Now what happens next year, in April 2023, the 16th is going to fall on Sunday. So, since it falls on Sunday, when the 16th falls on Sunday, it’s observed the following business day, which makes Monday April 17 2023 also a holiday so that the filing deadline in 2023 will be Tuesday, April 18 2023. So it doesn’t have anything to do with COVID. It has everything to do with where April the 16th falls. If April 16 happens to fall during the week. it’s recognized on that day.

Well, earlier I made a comment about 940 ones being due on April the 30th. We’ll take a look at this. I actually made a mistake. That April 30 date is not a business day. So those first quarter 941’s are going to go forward to the next business day, which is going to get us May 1, Monday May 2. So May 2 is going to be the first quarter 941 due date because Saturday, April 30 is not not a business day. So that’s the important consideration to have and how the calendar drives us.

Now one other thing I want to leave you with as we’re kind of wrapping up our time that we have together is somewhere after this filing deadline in here, I hope you put out some time to put aside for yourself. Maybe go someplace warm, I’ll put a little sunshine here, and get some time in for yourself to recuperate and and face another year, taking care of your clients and be happy with your accomplishments. And know this – all of us here at Tax School will be here with you throughout the filing season and the filing deadlines. Pay attention to the weekly blogs that we send out. We’re going to try to keep these in this in this video or audio format so that you can in fact listen maybe while you’re getting your day going, and we look forward to working with you and being a part of your success. And so for all of us here at the University of Illinois Tax School, this is Tom O’Saben with a smiley face, saying “we’ll say goodbye for just a while”.