To Wait or Not to Wait ...

The New July 15 Tax Deadline

Yuliana Mendez - MYeCFO Financial Advisor

In its latest effort to help combat the economic impact of the COVID-19 pandemic, the Treasury Department and the IRS announced this week that the tax deadline would be extended from April 15 to July 15 to give people more time to file and pay their taxes. All U.S. taxpayers and businesses will now have a three-month extension to file their taxes without interest or penalties. Though our initial reaction to this news might be a sense of relief, it’s important to consider the following when deciding when to file.

Key Points

  • The IRS extended the federal income tax filing deadline from April 15 to July 15.
  • U.S. taxpayers and businesses now have a three-month extension to file their taxes without interest or penalties.
  • If you expect a refund, it’s a good idea to file before July 15.
  • If you expect to owe the IRS money, it might also be beneficial to file before July 15, depending on your situation.
  • Use the additional time to ensure that you file the most accurate return possible.
  • Estimated tax payments for LLCs, partnerships, and S-corps have also been extended.
  • Keep in mind that the extension does not necessarily coincide with state tax deadlines.

If You Expect a Refund

It’s still a good idea to file before July 15.

  • If there were no drastic changes in your income and finances from 2018 to 2019 and you expect a refund, file before July 15 so that you get your tax refund.
  • According to the IRS, the average refund as of March 6 is $3,012. Having an emergency fund has never been more important as we face the economic uncertainty of the COVID-19 pandemic.
  • The other benefit of filing before the July 15 deadline is that if it turns out you owe the IRS money, you will know exactly what you owe and you’ll have more time to budget and pull the money together.

If You Expect to Owe the IRS Money

You can wait until July 15 to file and pay, but it might also be a good idea to file before July 15.

Here’s why:

  • If you have the cash to pay your tax bill now, it might not be that beneficial to wait three months. You probably have little appetite for risky assets at the moment, so it’s unlikely that you’ll invest the money in an attempt to get some yield or appreciation. And there is always the temptation to spend it. Remember: unlike other debt issuers, the IRS does not forgive tax liabilities.
  • Even if you don’t have the cash to pay your IRS tax bill now, once you file you will know the exact amount of your tax liability, and you’ll have more time to pull the money together by July 15.
  • We might be much busier in July and no longer under self-quarantine orders. Instead of rushing to gather tax documents and potentially running the risk of missing important deductions, why not take advantage of this time to do a more thorough analysis of your finances?
  • Of course, if you have a large bill and simply don’t have the money, then it makes a lot of sense to wait as opposed to, say, paying the bill with a credit card.

The Extension Does Not Apply to Your State Returns

It’s important to note that the extension does not apply to individual states, so check the tax deadline with your state tax agency. Many states are extending the deadline, but there is no uniformity in this approach to date.

If You Expect a Refund

Many of our clients have businesses (LLCs, partnerships, S-Corps) and must normally pay the first estimated tax payments for 2020 profit by April 15. This deadline has also been extended to July 15. It’s important to note that estimated payments are based on projected profit for the year and by default most software programs assume 110% of last year’s profits. That assumption, of course, might be way off the mark in 2020 given the impact of COVID-19. It will be important to evaluate your company’s financials as July 15 approaches and adjust accordingly.

In closing, though getting a three-month extension might sound great, it doesn’t necessarily mean you should wait until July 15 to file. You should carefully consider your situation and file when you think it is best for you and your family.

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