ARE YOU READY TO FILE?
April 15th is close at hand – are you ready to file? Normally I would tell you to be ready to file by April 15th or file a Form 4868 to extend your filing date to October 15th but the IRS recently announced the moving of the tax filing deadline from April 15th to May 17th (because May 15th is on Saturday).
This extension is not without questions though. It appears that the change affects only Form 1040 series returns, so business, trust and estate tax returns due on April 15th remain due on April 15th. Individuals that file and pay their balance due by May 17th will not owe interest or penalties on the balance due. This also applies to self-employed taxpayers that pay self-employment tax. Any unpaid tax after May 17th will accrue penalties and interest as usual.
The extension does not apply to estimated tax payments. If you will need to pay estimated tax payments for 2021 to avoid underpayment penalties, you will need to make your first estimate payment by April 15th.
If you know you won’t be able to file by May 17th, you can always file Form 4868 at any time to extend the filing of your return to October 15th. As always, I remind you that Form 4868 is an extension of time to file, not an extension of time to pay. You should estimate your tax liability and pay the amount you will owe on your 2020 return by May 17th to avoid any interest or penalties on the late payment.
The IRS also gave us some additional information last week on the provision of the American Rescue Plan Act, passed in March, that exempted $10,200 of unemployment compensation from taxable income for taxpayers with income under $150,000. Since this law was passed well after many taxpayers had already filed their 2020 tax return, and many of those returns had included the full unemployment compensation as taxable income, there were questions about how to handle this overpayment. The IRS almost immediately told us to not file amended returns. Now they have said they will begin automatically processing refunds for affected returns as early as May and continuing through the summer. I’m sure they’ll process the simpler returns first but hopefully it will be a quick painless process for most.
There is a similar issue where some taxpayers had to pay back some of the health insurance subsidy they receive through the Marketplace. We’re still waiting on guidance on this issue but we hope they’ll handle the refunds in a similar fashion.
We still can’t file returns with the unemployment and health insurance subsidy and report it correctly. The software companies are waiting on the IRS for guidance so they can reprogram their software to handle the changes correctly. We’re just going to have to be patient as we work through all these tax changes for both 2020 and 2021.
As always, I am looking for article ideas that you would like me to cover. If you have an idea for a future article, or just have a topic you would like more information on, please send me an email.
At Faw & Associates, we are always available to answer any of your tax or financial planning questions. You can get more information on this or many other topics at our website – www.fawandassociates.com or you can contact us directly by calling our office at (336) 838-3080. You can also email me at jim@fawandassociates.com any time with your question or concern.