Impacts of the 2020 Tax Season Extension
Unfortunate Impacts of the 2020 Tax Season Extension
I’m sure you all know by now that the IRS has provided a bit of relief for taxpayers for the 2020 tax returns (2021 filing season) and that we have until May 17th to file and pay 2020 taxes due, if there are any. There are several problematic issues with this extension of which the public is likely not aware.
- First, the states have to “play along” and extend to 5/17/20201 in turn. If they don’t, the federal extension does NOT work, because you can’t file a state return without preparing the federal one first. This must be reviewed on a state-by-state basis. For example, the state of North Dakota announced very quickly after the federal announcement that they were extending their filing deadline, but the state of Ohio did not announce the extension until this morning. We are in the process of reviewing the state decisions for our clients who are located across our country. Also, if you have local or school district taxes in your locale you will have to monitor those due dates, as well. We are doing so for our tax clients. If you are not a tax client, be sure to reach out to your tax professional regarding due dates for your state and local taxing agencies.
- Second, the IRS did NOT extend the time to make 2021 Quarter 1 estimated tax payments. If you are a taxpayer who makes quarterly estimated tax payments, you know that we estimate tax payments partly on the prior year tax return, i.e., 2020 tax return. That means we have to prepare the tax return by April 15th for clients who expect to have estimated tax payments. If we do not have the 2021 Quarter 1 estimated tax payment calculated and payment scheduled to be paid no later than April 15th.
- Third, the IRS is encouraging us to prioritize those taxpayers with refunds first and to not delay those returns. That is exactly what I want to do for my clients and what I was able to do last year. Unfortunately, because the IRS did not extend the Quarter 1 estimated tax payments, that prioritization does NOT WORK. I now have to prioritize clients who are going to PAY ahead of those who will likely receive refunds to help those with estimated tax payments avoid penalties and interest.
To further compound an already complex and fluid situation, many taxpayers who will likely owe estimated taxes are also the same taxpayers (i.e., small business owners) who are trying desperately to get their PPP 2.0 loans through the process. That has been a process wrought with problems and delays. My experience has been that 40% of my clients who applied for PPP 2.0 in January have STILL not received their funding and I have not yet been successful in navigating the endless errors and validation checks in the SBA’s system. While I think they may be extending the time period for PPP 2.0, at this time it’s still set to close on 3/31.
How does the PPP scenario have anything to do with the tax extension issue? Consider this: The taxpayer/employer has limited working capital and must decide between paying employees or paying estimated taxes. The PPP funds would help that taxpayer do both!
While I rarely use my CPA firm for political purposes, I think it’s important to communicate this disconnect that is currently happening. I am advocating for my clients by writing to my congress men and women, and my representatives. I believe they need to hear the real-world story of how these decisions are affecting their constituents and are, in my opinion, nonsensical. You may consider whether this is something you, too, would want to do.
Posting Date: March 25, 2021