As part of the CARES Act enacted earlier in the year, the April 15th Tax deadline has been pushed back to July 15th. Unfortunately, there’s more to the story than just pushing the deadline back three months. For some people, this actuality might not make much of a difference in their day to day lives, but for others, July 15th could be a financial nightmare. As with most years, taxpayers who are unable to file this year’s deadline can file a request for extension to October 15, 2020. Understandably, the deadline to file the request itself was moved to July 15. It should be noted that the extension to October 15th is only an extension to file and does not extend the time to pay federal or state income taxes beyond July 15, 2020. The CPA’s at SD Associates are here to help you with tax preparation and are sharing four important things you should know before the July 15th tax deadline.
Everything That’s Due on July 15th
In addition to postponing Tax Deadline, the IRS also postponed the first two 2020 quarterly estimated tax payments. The first two 2020 quarterly payments are normally due by April 15th and June 15th. These were both extended to July 15th as well. These payments affect independent contractors and other self-employed individuals. Because of the postponement, it’s possible that these individuals may owe half of their estimated taxes in addition to any taxes owed from their 2019 tax return. This could be a disaster for individuals who have been affected by the economic shutdown or hardships due to the pandemic.
How to Avoid the Penalty
Anyone with taxable income is required to pay estimated taxes, even if you’re an independent contractor, self-employed or a retiree. Individuals who are self-employed or are a contractor are required to pay quarterly taxes in April, June, September, and January. To avoid IRS penalties, you must owe less than $1,000 in taxes for the year and pay at least 90% of taxes owed in 2020 or 100% of taxes you paid for in 2019, whichever amount is smaller. If you don’t pay enough, IRS Form 2210 can help you see how much you owe in penalties for underpaying. It’s too early to know whether the penalties will be waived, or the safe-harbor percentages will be lowered in 2020, but sources are suggesting it will “probably be considered.”
Stimulus Payments and the PPP Loan Program
What is required to file taxes in 2020? Stimulus checks, loans from the PPP and unemployment benefits will all need to be considered when compiling required documents, which could contribute to further complications. For individuals who received the COVID-19 stimulus check, many wonder if this payment will be treated as taxable income. If so, it needs to be considered for estimated taxes. While the IRS has stated that “the payment is not included in gross income and, therefore, taxpayers will not pay tax on it,” you will still need to report it when you file your 2020 tax return. Experts are advising that it shouldn’t affect the amount of taxes owed or the amount you receive from your refund next year.
As for small businesses who received funding from the Payment Protection Program, you may be wondering what is required to file taxes for your business in 2020. In Notice 2020-32, provided by the IRS, no tax deductions are permitted for expenses that are funded by the PPP loan. This can affect the estimated tax calculation for individuals who pass their income through an S Corporation, LLC, or sole proprietorship. This means that your 2020 taxable income could be potentially higher.
Unemployment claims have surpassed 40 million since the start of the pandemic. If you are one of the millions of individuals who have filed for benefits, chances are this is the first time in your life you’ve ever had to do so. You’re not alone, and some confusion has arisen about the tax treatment. Unemployment benefits are taxable by the IRS and states that have income tax. Because of this, you will need to make estimated-tax payments on this income unless you have elected to have federal income taxes withheld using Form W-4V.
Our environment is ever changing in the wake of COVID-19. At SD Associates, we want you to know that we are here for you, providing everything you need to file your taxes this year. From consultation services to our helpful tax preparation services, we will be here with you every step of the way if you need help navigating these uncertain waters. Call us today (215) 517-5600 or contact us here.