Some nonetheless must pay taxes regardless of the brand new Might 17th to April 15th deadline
The IRS and Treasury have extended the tax filing season, moving the April 15th deadline to May 17th.
However, the extension does not help every taxpayer.
This is because it does not include estimated tax payments still due on April 15th.
Some taxpayers are required to make estimated quarterly tax payments throughout the year to avoid penalties. The estimated tax is used to pay dues on non-withholding income, including self-employment income, interest, dividends, rent and alimony, according to the IRS.
This mostly affects the self-employed, as well as those with small businesses such as sole proprietorships, partners, and S Corporation shareholders – generally anyone who does not work for an employer who withholds taxes from their paychecks.
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In the 2018 tax year, more than 9.5 million individual returns filed for the year included estimated payments. That is around 6% of the 154 million returns submitted.
“While we appreciate the IRS’s recognition that postponing the filing deadline is indeed necessary, the announcement is far too selective on who receives relief,” said Barry Melancon, Chartered Accountant, Chartered Accountant and President and CEO of the American Institute for CPAs, in a statement made on Wednesday. “In fact, the taxpayers most likely to benefit from this extra time are taxpayers who are able to meet the initial filing deadline.”
In 2020, the IRS adjusted the deadline for the first of four estimated tax payments to July 15 from April 15, which is the extension of the entire tax return. However, the remaining three payments were not pushed back – the second quarterly payment was also due on July 15, 2020.
More work for the taxpayer
If the estimated payments are not taken into account, the deferral of the deadline will be effectively lifted for some taxpayers, according to the AICPA.
This is because the calculation of the estimated tax payments includes other tax preparations, all of which must be completed by April 15th.
To avoid penalties for underpaying estimated taxes, individuals who owe more than $ 1,000 in tax after withholding taxes and credits must pay the IRS at least 90% tax for the current year or 100% tax for the previous year, as the case may be which value is smaller.
That is, in order to calculate a quarterly estimated payment, taxpayers must either project their income for the year or keep the previous year’s income ready as they would have for their tax return.
“You have yet to complete the 2020 return to get a bottom line estimate,” said Rhonda Collins, director of tax content and government relations for the National Association of Tax Professionals. “So it will still be a bit of work for the taxpayer.”
In addition, small businesses and the self-employed who pay estimated taxes are particularly hard hit by the pandemic and may have several issues that would make tax filing difficult. Some may have loans through the paycheck protection program, a disaster loss loan, or some other grant.
“When all of these things are on top of each other, there really is no relief to these people,” Melancon said.
Not a relief for most small businesses
Meeting the estimated April 15 tax deadline can help those who need to make the quarterly payments to properly manage their cash flow year-round, said Sheneya Wilson, CPA and founder of Fola Financial in New York.
Even if you make estimated payments, you can still calculate what you owe on April 15 and use the extension to file your tax return later, Wilson said.
The taxpayers most likely to benefit from this extra time are taxpayers who are able to meet the original filing deadline
CPA, CGMA, President and CEO of AICPA