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What are the tax relief measures being taken and do I qualify?

Beyond a new filing deadline, several early measures were taken to ease the tax burden upon individuals and businesses impacted financially during COVID-19. Jeffrey Levine shares what we need to know about tax relief.

Transcript

Tim Maurer:
Tim Maurer back with another episode of Ask Buckingham, a new video podcast series designed to bring clarity and calm in the midst of confusion and chaos by connecting your great personal finance questions with straightforward answers from industry thought leaders. Today’s format is going to be a little different, because we’ve got a bunch of questions specifically related to the meaningful changes being made to our 2019 tax return protocol, and so we’re going to do a rapid fire Ask Buckingham segment with one of the country’s chief resources on matters of personal tax, my colleague and Buckingham’s Director of Advanced Planning, Jeff Levine. Jeff, are you ready?

Jeffrey Levine:
Let’s do this.

Tim Maurer:
Here we go. Well, first off, what’s the headline for us, Jeff? Do we have to pay taxes this year?

Jeffrey Levine:
Well, unfortunately, you’re still going to have to pay taxes, but we’re going to get a bit of a reprieve. So the good news is that in this time of just unprecedented uncertainty, when a lot of people are not sure about how long they may be out of work or reduced hours, etc, the IRS is going to allow us to both extend the deadline for filing taxes, so to give people a little bit of pressure release on that, as well as pushing back the deadline for paying taxes, to provide people with much needed liquidity.

Tim Maurer:
Oh, very good. Well, so do I qualify for this relief? How do I know?

Jeffrey Levine:
Do you have to file a tax return for this year, Tim?

Tim Maurer:
Yes indeed I do, Jeff.

Jeffrey Levine:
Then you qualify, fantastic. And do you have to pay taxes for this year? [crosstalk 00:01:37] Because if either one of those is true, unfortunately, because if either one of those is true, then you qualify. So now I wouldn’t blame anyone for being confused this year, because the IRS has done this very piecemeal. In fact, that’s been one of the most confusing aspects of the relief that we’ve seen so far this year. For instance, at first, they just pushed back the payment, but they said you had to file it the same, so it was very confusing for a lot of people. But recently, the IRS clarified everything. They said, you know what, this is a very difficult time. What we’re going to do is we’re going to push the filing deadline out to July 15th, 2020 for everyone who has a personal income tax return.

Jeffrey Levine:
So whether that be a joint file or a single file or head of household, etc, those deadlines are pushed back again until July 15th of 2020, and because that is the day that the return is due, that is the day that the taxes have to be paid, as well as your first quarter estimates for 2020’s estimated tax payments.

Tim Maurer:
Ah, so we’re kind of syncing everything up there. Now, what about extension date? How has that changed, if at all?

Jeffrey Levine:
So that’s a really, really good question, and the answer is it actually hasn’t. And that’s been one of the confusing things for a lot of people so far, because they say, oh, well surely because my three month delay in the filing deadline, I must also have now six months from that date, which would give us January 15th, 2021 extension. That is not, let me repeat that, that is not what’s going on right now. The IRS rules say when they give people relief in the way that they have for, typically it’s actually done for natural disasters, things like floods, fires, hurricanes, etc, this has happened before many times using for those horrible events. They’ve now applied the same logic here, and what the IRS rules state is that the extension of time from the original filing date and the extension that they’ve essentially just given everybody by default run concurrently.

Jeffrey Levine:
So while we’re having this delay, it’s as if someone had filed an extension on April 15th, so if you ultimately do file an extension on or before July 15th, as of now, you still have until October 15th of 2020 to file that extended return.

Tim Maurer:
Great, but we’re just giving everybody a bit of an extension at this point in time.

Jeffrey Levine:
That’s right. By default, everyone gets til July 15th. If you need more time than that, you can still file your extension by that date and have up until October 15th. And look, we don’t know how long things are going to be a little hectic for, especially in different parts of the country. We’ve got infection curves at different rates. It’s very possible that later this year the IRS could put forth further guidance, extending that extended deadline for either everyone or certain areas. But as of now, people should plan as July 15th is my date, October 15th is my extension if I file one.

Tim Maurer:
Okay, July 15th, I’ve got it. Now, what’s this million dollars that I keep hearing about? A million dollar limit of some sort?

Jeffrey Levine:
So that goes back to what I was just mentioning about the IRS putting things out piecemeal. When they first said it was a delay, they were going to allow you to defer payments of up to one million dollars for your 2019 income tax liability, plus your 2020 first quarter estimate combined. However, when they came out with subsequent guidance saying, you know what, we’re just going to push back the filing deadline for everyone, it makes that million dollar limit, we don’t have to follow it anymore. It’s old guidance. So however much you owe, God willing, you owe $10 million in taxes, it means you had a great year, right? So whatever you owe, you can pay it by July 15th, and again, that is your first quarter 2020 estimate plus anything you owed from your 2019 return. No interest, no penalties.

Tim Maurer:
Well, I regret to say I didn’t have to worry about that one anyway. But I’m glad to hear nobody has to worry about it now. So Jeff, is there a special form that must be filed or any other action necessary to be eligible for this relief?

Jeffrey Levine:
Nope, that’s it. All you have to do is have to have a return. If you had to file a return, it’s automatically extended. If you owe a payment, that deadline for payment is automatically extended, so this makes things very simple for people who need to focus on other things right now.

Tim Maurer:
Great. I’m happy with simple. So does this mean that I can also wait until July 15th, 2020 to make my 2019 traditional IRA, Roth IRA, and/or HSA contribution?

Jeffrey Levine:
You know, it actually does, and interestingly enough, IRS, when they first put out this guidance, they left tax preparers and tax professionals in somewhat of a lurch. In fact, I immediately came out and said, hey, the filing deadline has been extended. Therefore, IRA contribution deadline, Roth IRA contribution deadline, they’re all extended along with it. There were some people who argued the other side, and very credibly, by the way. There was a couple of really strong reasons to feel that way, but the IRS thankfully relatively quickly in Q and A on their website put this issue to bed. They said, yes, absolutely. If you want to make a Roth IRA contribution, an HSA contribution, a traditional IRA contribution, all those deadlines are now extended along with the personal income tax return deadline filing extension.

Tim Maurer:
Oh, great. I’m really pleased with the degree of simplicity that seems to have been added to this thing since we first started talking about it a week ago.

Jeffrey Levine:
It is. It’s much better. I agree. I wish the IRS had done this initially, because there’s still a lot of confusion now between the two guidances, just because people are absorbing so much information so quickly, but certainly this second wave of relief simplified things and was much more impactful for individuals.

Tim Maurer:
Right, so now, if I’m not mistaken, my second quarter 2020 estimated tax payment is also due on June 15th, 2020. Are you saying that if I take advantage of this relief, I’m going to have to pay my second quarter estimated tax payment before I pay my first quarter 2020 estimated tax payment?

Jeffrey Levine:
Yeah. What were we just saying about simplicity? Forget about that. Yeah, this is probably one of the things that remains a little bit complicated for people, is that as of now, the second quarter estimate is still due June 15th. There is no extension for that. And so what you effectively have is a situation where if you make your estimated tax payments throughout the year, as many people do, you will pay the second quarter payment, which is due June 15th, first and then your first quarter estimated tax payment by July 15th, when you file your tax return. Now, obviously you can pay sooner, but those would be the maximum deadlines you would have without incurring any penalties and/or interest.

Tim Maurer:
Okay, Jeff, so what about returns for small business owners, like partnerships and S corps, were they extended as well?

Jeffrey Levine:
Unfortunately not. Those returns were initially due by March 15th and they needed to be filed, or at least file an extension. Unfortunately, the IRS chose not to extend those at this time. Again, this is a very fluid situation. We could see relief in the future, but if you’re a business owner and you have not yet filed either a return or an extension for your small business, your partnership, your S corp, etc, you should do that as quickly as possible to avoid any issues.

Tim Maurer:
Okay. Now, what if I’m just used to the norm and I want to file my tax return by the April 15th, 2020 deadline and I would rather just pay my tax liability now and get it out of the way? Is that okay?

Jeffrey Levine:
Tim, anytime someone asks you, can I give you a check, the answer is yes, and the IRS feels the same way. If you want to pay them sooner, that is perfectly fine. I don’t know why you would want to do that, but if you want to do that and you just want to be done, and look, again, there’s bigger fish to fry at this point in time. If you just want that off your plate and free your mind to focus on more important things, so be it. You can absolutely do that. No problem. File as early as you want. Pay as early as you want.

Tim Maurer:
Well, I appreciate the permission, but I think I’m going to wait until July myself. So what if I’ve already filed my taxes and I have a payment scheduled to automatically be deducted from my account on or before April 15th?

Jeffrey Levine:
So this is a really good question, and unfortunately the answer is not a great answer. You probably have to call the IRS. If you go to the IRS website, there’s actually a phone number that you can call to tell them to suspend previously made payments or previously scheduled payments. It’s a somewhat laborious process. As you can imagine, the IRS is also somewhat inundated right now. So how quickly that call gets answered, it’s a little bit tough. But that is probably the best way to go about it, at least for the time being.

Tim Maurer:
All right, now what if I’m expecting a refund? In the case of that good news, is there any reason for me to wait to file my tax return?

Jeffrey Levine:
Probably not. If you’re expecting a tax refund and you have the ability to file your tax return, you’re healthy, you’re able to get around or communicate with your tax preparer, your tax preparer is able to do the filing for you, then absolutely, I would suggest going ahead and filing as soon as possible for two reasons. One, there’s no reason to let IRS or Uncle Sam hold your money any longer than they have to, and B, one of the best parts of filing early is that it helps to prevent identity theft and someone filing a return essentially as you, but before you.

Jeffrey Levine:
So if you can beat them to the punch, then their return is the one that gets rejected, not yours. So filing as soon as you can is typically a good idea. However, in this situation, again, for those who can’t, there’s extensions. But if you have the ability, by all means, yes, file as soon as possible.

Tim Maurer:
Well, and it’d be nice if I was receiving a refund. Of course, my strategy has always been owe a little bit and wait as long as humanly possible to pay that back to the government. But thank you so much, Jeff, and thanks for tuning in to this episode of Ask Buckingham. If you have a question that you’d like to see us address, you can do so by navigating to the website, askbuckingham.com, or emailing your question to question@askbuckingham.com, where I’m sure Ivan, our fantastic producer, is going to put some little doohickey up there in the screen that you can just click that and go directly to the website.

Tim Maurer:
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