COVID19 Tax Update

COVID19 Tax Update

While this is usually Turbo Tax’s busiest week of the season, they may have noticed a decrease in submitted taxes this week. This is due to the fact that the Treasury and IRS, have extended the tax deadline by 90 days in response to the novel coronavirus. The new federal tax filing deadline for this year is now July 15th. While the extension may come as a reprieve for many, taxpayers who are ready to file and make their tax payment without straining their bank account are encouraged to file in order to get their refund as soon as possible. Well, here are some answers to some common questions you might have.  

Do I need to file an extension in order to take advantage of the new filing deadline? 

No, you do not have to file any extensions or take any action. The new filing deadline of July 15th automatically applies to all taxpayers. 

Is there also an extension of the tax payment deadline? 

Yes, the new tax payment deadline is also July 15th. You do not need to take any action for this either. This deferment of tax payments is interest fee and penalty free, simply pay by July 15th. 

Does this mean I have more time to contribute to my IRA? 

Yes, a bonus to the extended due date of taxes is also that you now have until July 15th to contribute to your IRA for 2019. 

Will this affect when I get my refund?

No, the Treasury Department will continue processing refunds as soon as your taxes are filed. You should receive your refund within the normal time frame (9 out of 10 refunds are received within 21 days when filed electronically). 

What do I do if I already filed my taxes and scheduled my payment for the April 15th deadline? 

If you’ve already filed and scheduled your payment, but want to take advantage of the new deadline, you’ll have to cancel your payment and reschedule it. In order for this to go into effect, changes to the payment needs to be made no later than 11:59 p.m. ET, two business days before the scheduled payment date. 

What if I need more time then the July 15th deadline to file or pay my taxes? 

If you need additional time to file, you will then need to request an extension using Form 4868. This extension will give you until October 15th to file your taxes. However, tax payments need to be made by July 15th. Payments that are made after the July 15th deadline are subject to interest and penalties. 

Does the deadline also apply to state taxes?

A majority of states in the country have also extended their due date to the federal July 15th tax deadline. However, some states have created different deadlines and guidelines. It’s important to determine what your state has decided so that you do not unintentionally accrue any penalties.

The CARES Act: Important Deductions

The CARES Act: Important Deductions

A $2.2 trillion, 300 page bill, the CARES act set records when it was signed into law in March 2020. But while most people were focused on the stimulus check, unemployment, PPP loans, and EIDL loans, the package also came with a significant amount of tax relief and tax deductions. Here’s what you need to know about how the CARES act might influence your taxes.

First: The Stimulus Check and Individual Tax Deductions

The stimulus check that was distributed in 2020 was actually a tax credit for 2020 taxes. This doesn’t effectively mean anything to most people; the only reason you would really need to know this is if you didn’t receive your stimulus. If you didn’t receive your stimulus in 2020 — and should have received it by all other requirements — you will be able to claim it when you go to file your 2020 taxes. A tax credit is not a tax deduction.

There are a few other minor changes for individuals: individuals taking a standard deduction in 2020 will be able to take an additional $300 in charitable giving, tax-deductible charitable contributions were raised from 50 percent to 100 percent of adjusted gross income, and the losses from pass-through entities can temporarily be applied to non-business income on an unlimited basis. 

But the rest of the deductions are for corporations.

Deferred Payments of Social Security Tax

For employers, the employer’s share of social security tax can now be deferred up to two years. Self-employment tax corresponding to this employer’s portion can also be deferred by up to two years. The only exception is if the PPP has been taken and forgiven during this time period.

The Refundable Employee Retention Tax Credit

Though this wasn’t discussed as often as the PPP, the employee retention tax credit can offer substantial bonuses to companies affected by COVID-19. The tax credit is equal to 50 percent of wages that were paid from March 13, 2020 to December 13, 2020, and for some it may actually be more than the PPP forgiven loan. The maximum credit is $5,000 per employee, and wages included health care. But it is not possible to get both the employee retention tax credit and the PPP.

Increased Tax Deductions for Net Operating Losses

Tax deductions for net operating losses were increased from 80 percent to 100 percent from 2018 to 2020. Further, the $500,000 limit on tax-deductible net operating losses have been suspended until 2021. Net operating losses can be carried back up to five years, so retroactive tax refunds may be in play. 

Increased the Limit for Tax Deductible Charitable Contributions for Corporations

Corporations usually have a limit on tax deductible charitable contributions of 10 percent, but the limit has been increased to 25 percent. Further, the limit of tax-deductible contributions of food inventory was increased from 15 percent to 25 percent of income. Both meant to encourage corporations to donate more, especially in food inventory that restaurants may have otherwise lost.

These deductions and credits need to be considered when businesses and individuals are planning their taxes for the next year. Businesses, in particular, may want to consult with a CPA regarding the changes that are being made and how it might influence them.