Income Tax 2020 – Even More Time (a Sequel)

Categories : Financial, News
March 24, 2021

In last week’s blog post, we reported that taxpayers would probably not be granted an extension to file 2020 tax returns. After last year’s 3-month delay for 2019 returns, the customary April 15 deadline looked like a sure thing this time. However, many politicians and taxpayers had requested to have the entire U.S. population receive another delay. In Texas, winter storm-affected taxpayers had been granted a full delay until June 15, 2021, including for required 2021 tax payments.

Before the digital ink dried on that blog posting, IRS announced a month-long delay for every American. Because May 15, 2021, is a Saturday, the new due date for non-Texas taxpayers was extended to May 17, 2021. However, this nation-wide delay is limited in scope, and the Devil is in the details. From the IRS website (emphasis added), we found that:

“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.”

Setting aside our wounded pride from having to admit we were incorrect about a general delay, we promised to report on any developments. We also addressed certain steps taxpayers can take to improve their own situations, both for 2021 and into the future. Here is an updated summary of possibilities from last week:

  • Perhaps the easiest and most common tax reducer is the Traditional IRA, which can be funded for Tax Year 2020 until April 15, 2021, filing date (which has now been extended to May 17, 2021).
  • Small business owners can open and/or fund Small Business Retirement Accounts, including SEP IRAs and Individual(k) Plans, until their actual filing date, even if further extended.
  • For some tax-reducing transactions, it is already too late to affect 2020 returns. However, the next 4 (now 8) weeks afford many people an opportunity to reduce current and future taxes, improve future financial independence, and better plan for cash flow.
  • This is also a good time to remind taxpayers that 2021 charitable contributions are deductible “above the line” up to $300 for individuals, and $600 for married filing jointly. (These are the most valuable deductions a person can take.)

For taxpayers who are required to make quarterly tax payments (Form 1040-ES) for 2021 income, this means that by April 15, you must submit your Q1, 2021 installment. The cost of late payments includes interest and penalty. It is not worth the money, nor the hassle, of making a mistake.

One of the main difficulties taxpayers face is estimating current year income. This is not made easier by delaying last year’s tax return preparation. Generally speaking, we believe that most taxpayers would benefit from acting as though no extension had been granted. Storm-affected people may be in a different situation, but for the rest of us, there seems to be little benefit to waiting until May 17. Filing for an extension remains, however, perfectly legal and automatic.

Van Wie Financial is not a tax preparer, and we do not render tax advice. We routinely assist clients with tax planning, often working closely with clients’ tax preparers. Don’t waste the opportunity to improve your tax planning, now and in the future.

Van Wie Financial is fee-only. For a reason.