Julius Caesar Had His Ides of March – You Need to Avoid Having Your Ides of July
Due to the corona virus pandemic, the IRS due date for filing your 2019 Form 1040 has been postponed until July 15, 2020. If Form 4868 is filed requesting an extension of time to file, the due date for filing your 2019 Form 1040 can be extended to October 15, 2020. In addition, your 2019 final tax liability must be paid no later than July 15, 2019 to avoid interest and penalty assessments.
If your federal income tax W-2 withholdings are sufficient to pay your taxes due, this is all good news.
However, if you are self-employed and are required to make quarterly estimated tax payments, or if you have substantial non-wage income and need to make quarterly estimated tax payments, beware of the Ides of July. In addition to postponing the deadline for filing and paying your 2019 taxes until July 15, the due date for fling both your first and second quarter Form 1040-ES also have been postponed until July 15. This means that three tax payments fall due on the same day.
If you are thinking that you can wait until July 15 to address your 2019 taxes, that can be a very costly mistake! Why? The balance due can be significantly greater than you anticipated meaning that you will not be able to pay your 2019 taxes in full. If you are currently in an installment agreement with the IRS, you have violated the terms of that agreement which will require that corrective action be taken. If you were in an Offer-in-Compromise agreement and are within the first five years of that agreement, that OIC is now null and void and the forgiven taxes, interest and penalties of your OIC are now due.
To avoid the underpayment of tax penalty for tax year 2020, the safe harbors for avoiding that penalty will be based on your 2019 tax liability. After paying the 2019 balance due, will you have sufficient funds to pay your 1Q and 2Q 2020 estimated tax payments? The course of action could lead to you becoming non-compliant in the 2020 tax year.
Tax Planning Tip #1
Appreciate the difference between having your return prepared and having it filed. We recommend that you have your 2019 tax returns prepared ASAP. You then have two options.
Option #1: If you prefer to wait until the due date (July 15) to file your 2019 tax returns, you can do so even if your returns are prepared before that date. (Perhaps this is course of action is desirable because you wanted your Economic Stimulus Payment based on your 2018 tax return). Having your returns prepared well before the July 15 due date, allows you to know how much you owe the IRS for 2019 and how much your 2020 1Q and 2Q estimated payments will be. That will give you about 45 days to plan how you will manage your cash resources to pay your 2019 taxes and 2020 estimated tax payments.
Option #2: When your 2019 tax return is prepared, file it. Filing as early as possible is one of the IRS recommendations to minimize ID theft. When you file a tax return before the due date, you are not required to remit payment with that return. You can file the return, and remit payment by the due date (July 15).
Tax Planning Tip #2
If you have always filed your taxes by check, consider using one of the IRS online payment services. Find the one that best suits your needs. I personally like the IRS’s Electronic Fund Tax Payment System (EFTPS) program. The EFTPS program allows you to schedule payments in advance and within certain limitations to alter those payment amounts and due dates if needed. Thus, you can file your 2019 tax return today, and also schedule your 2019 and 2020 tax payments to be made on July 15, 2020. You can also direct your tax professional to file the return when it is completed and then have the funds withdrawn from your checking account on July 15 to pay your final tax liability
If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
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About F. Bryan Haarlander, EA, CTRS:
Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.
A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.