To Wait or Not to Wait ...

In its latest effort to help combat the economic impact of the COVID-19 pandemic, the Treasury Department and the IRS announced this week that the tax deadline would be extended from April 15 to July 15 to give people more time to file and pay their taxes. All U.S. taxpayers and businesses will now have a three-month extension to file their taxes without interest or penalties. Though our initial reaction to this news might be a sense of relief, it’s important to consider the following when deciding when to file.

• The IRS extended the federal income tax filing deadline from April 15 to July 15.
• U.S. taxpayers and businesses now have a three-month extension to file their taxes without interest or penalties.
• If you expect a refund, it’s a good idea to file before July 15.
• If you expect to owe the IRS money, it might also be beneficial to file before July 15, depending on your situation.
• Use the additional time to ensure that you file the most accurate return possible.
• Estimated tax payments for LLCs, partnerships, and S-corps have also been extended.
• Keep in mind that the extension does not necessarily coincide with state tax deadlines.

If You Expect a Refund

It’s still a good idea to file before July 15.

• If there were no drastic changes in your income and finances from 2018 to 2019 and you expect a refund, file before July 15 so that you get your tax refund.
• According to the IRS, the average refund as of March 6 is $3,012. Having an emergency fund has never been more important as we face the economic uncertainty of the COVID-19 pandemic.
• The other benefit of filing before the July 15 deadline is that if it turns out you owe the IRS money, you will know exactly what you owe and you’ll have more time to budget and pull the money together.

If You Expect to Owe the IRS Money

You can wait until July 15 to file and pay, but it might also be a good idea to file before July 15.

Here’s why:

• If you have the cash to pay your tax bill now, it might not be that beneficial to wait three months. You probably have little appetite for risky assets at the moment, so it’s unlikely that you’ll invest the money in an attempt to get some yield or appreciation. And there is always the temptation to spend it. Remember: unlike other debt issuers, the IRS does not forgive tax liabilities.
• Even if you don’t have the cash to pay your IRS tax bill now, once you file you will know the exact amount of your tax liability, and you’ll have more time to pull the money together by July 15.
• We might be much busier in July and no longer under self-quarantine orders. Instead of rushing to gather tax documents and potentially running the risk of missing important deductions, why not take advantage of this time to do a more thorough analysis of your finances?
• Of course, if you have a large bill and simply don’t have the money, then it makes a lot of sense to wait as opposed to, say, paying the bill with a credit card.

The Extension Does Not Apply to Your State Returns

It’s important to note that the extension does not apply to individual states, so check the tax deadline with your state tax agency. Many states are extending the deadline, but there is no uniformity in this approach to date.

If You Expect a Refund

Many of our clients have businesses (LLCs, partnerships, S-Corps) and must normally pay the first estimated tax payments for 2020 profit by April 15. This deadline has also been extended to July 15. It’s important to note that estimated payments are based on projected profit for the year and by default most software programs assume 110% of last year’s profits. That assumption, of course, might be way off the mark in 2020 given the impact of COVID-19. It will be important to evaluate your company’s financials as July 15 approaches and adjust accordingly.

In closing, though getting a three-month extension might sound great, it doesn’t necessarily mean you should wait until July 15 to file. You should carefully consider your situation and file when you think it is best for you and your family.

Below are some additional articles I found helpful:

• Find Your State Tax Deadline
• Filing and Payment Deadline Extended to July 15, 2020
• Tax Deadline Extension: What You Need to Know

Disclosures: Non-deposit investment products are not FDIC insured, are not deposits or other obligations of MYeCFO, are not guaranteed by MYeCFO, and involve investment risks, including possible loss of principal. The information contained in this article is for informational purposes only and contains confidential and proprietary information that is subject to change without notice. Any opinions expressed are current only as of the time made and are subject to change without notice. This article may include estimates, projections, and other forward-looking statements; however, due to numerous factors, actual events may differ substantially from those presented. Any graphs and tables that make up this article have been based on unaudited, third party data and performance information provided to us by one or more commercial databases or publicly available websites and reports. While we believe this information to be reliable, MYeCFO bears no responsibility whatsoever for any errors or omissions. Additionally, please be aware that past performance is no guide to the future performance of any manager or strategy, and that the performance results displayed herein may have been adversely or favorably impacted by events and economic conditions that will not prevail in the future. Therefore, caution must be used inferring that these results are indicative of the future performance of any strategy. Index results assume re-investment of all dividends and interest. Moreover, the information provided is not intended to be, and should not be construed as, investment, legal, or tax advice. Nothing contained herein should be construed as a recommendation or advice to purchase or sell any security, investment, or portfolio allocation. Any investment advice provided by MYeCFO is client-specific based on each client’s risk tolerance and investment objectives. Please consult your MYeCFO Advisor directly for investment advice related to your specific investment portfolio.