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July 15th has come and gone. Now what?
If you’re asking yourself, “What’s the big deal about July 15th?”, either (1) you are all set with your taxes until next year or (2) you should head straight to your tax accountant immediately.
Due to the Covid-19 pandemic, the IRS extended the tax filing deadline for the year 2019 to July 15 for all returns that were due between April 1 and July 1, 2020. Here’s a short list of the calendar-year returns impacted:
Individuals (Form 1040, including Schedule C Sole proprietors & single member LLCs)
Trusts and Estates (Form 1041)
Estate tax returns (Form 706)
Gift Tax returns (Form 709)
C Corporations (Form 1120)
Nonprofits (Form 990)
In addition to the returns listed above, the IRS also extended to July 15th the first and second quarter individual estimated tax payments for 2020 (usually due on April 15 and June 15).
What does this mean for small business owners?
If you own a small business, you may notice that S Corporations (1120S) and Partnerships (Form 1065) are NOT on the list. Why? Because they were due on March 15th - not between the April 1 and July 1 period specified by the IRS rule. Therefore, the returns for these entities were not extended to July 15 and should have been filed by their normal due date, March 15.
Now that we’ve reviewed the importance of July 15, 2020, where do we go from here?
First, let’s talk about extensions.
Extension deadlines have NOT changed - they are exactly the same as any other year: September 15 for passthrough entities (S Corporations and Partnerships), October 15 for individuals, and November 15 for Nonprofits.
As long as you filed an extension by the July 15 deadline, you will not be required to pay any “late filing” penalty imposed by the IRS. You will, however, be on the hook for any “late payment” penalties if the IRS did not receive all of the taxes due for 2019 by the July 15 deadline. In addition to the penalty, interest will continue to accrue from July 15th to whenever you pay the tax amount in full.
It is important, therefore (if you are interested in saving money), that you file your returns and pay any amounts due as soon as possible.
Next, what’s important about 2020 estimated tax payments?
If you’ve owned a business or had significant non-wage income in the past, you are probably familiar with estimated tax payments. If you are new to “non-wage” income, then hopefully you’ve consulted with your tax advisor about this important piece of your tax situation puzzle.
The remaining 2020 deadlines for estimated tax payments have NOT been changed (as of yet); therefore, the 3rd and 4th quarter 2020 tax payments are still due on September 15th and January 15, 2021, respectively.
This year poses some additional complexities, though. Some tax preparers provide estimates for the following year when they prepare your tax return. These amounts may be skewed, though, unless they have been adjusted for your actual results for the 1st & 2nd quarters. Due to Covid-19, some businesses have either suffered or blossomed and your estimated tax payments should reflect your current reality.
If your actual non-wage income for 2020 is significantly below the original amount used to determine your estimated tax payments, you may be significantly overpaid by the end of the year. This means you will have given the IRS unnecessary money that could have been used by you during these potentially financially challenging times.
If your actual non-wage income for 2020 has exceeded your original expectations, then you may be in for a large tax bill at the end of the year if you have not adjusted the remaining estimated tax payments for 2020.
Now is the time to re-evaluate your non-wage income to determine a more accurate projection for your 2020 estimated tax payments.
Conclusion
It’s been quite a year so far. Many of us have seen a lot of changes this year and the future is still uncertain. Don’t let your taxes be a surprise, though. There are steps you can take to keep your tax filing and liability under control. I encourage you to be proactive and aware and hopefully, this article has played a small part in helping you accomplish your tax goals this year.
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