Question of the Week
Happy Five-Minute Friday everyone!
I hope you had a good week. We’re less than a week away from this year’s first tax deadline. With a lot of the chaos around us – a pandemic, racial injustice and a faltering economy – the deadline may have snuck up on you.
So this week, I want to cover three important things to keep in mind if you’re still needing to file.
Where to get help
If you’re still looking for help, you may have a hard time finding someone who can fit you in before the deadline. But that doesn’t mean you shouldn’t look. If you’re looking for a trusted preparer, the IRS has a directory that you can use to search your zip code and preparer credentials such as an attorney, CPA or enrolled agent.
You can also try organizations like the National Association of Tax Professionals, the National Association of Enrolled Agents and the American Institute of Certified Public Accounts.
If all of those fail or are too overwhelming, don’t be afraid to reach out for recommendations from similarly-situated friends. You can also file yourself online by using free or low-cost software.
Don’t forget your estimated tax payments
The other deadline that falls on July 15th is the deadline for estimated tax payments. Self-employed individuals got a reprieve because of Covid-19, but now your 1st and 2nd quarter payments are due.
You have to pay estimated payments if you’re an individual, including sole proprietors, partners and S Corporation shareholders and expect to owe tax of $1,000 or more when you file your return.
When trying to figure out how much you owe, I always recommend you, or your tax professional, estimating tax owed through tax projections. The projections should outline your gross business income, adjusted gross income, taxable income, taxes, deductions and credits for the year. You should also make adjustments for situations where your income may increase or decrease the second half of the year, you have large, lump sum expenses, and/or retirement contributions you may make.
I also like to give my clients percentages that they can use throughout the year based on their gross income. For example, I will have a client take 15% or 20% of every all income and put it in a tax account so the money is there and ready come time to pay the estimateds.
You can still file an extension
Lastly, don’t forget you can file an extension, if you’re not ready. The all-important form that you need to request an extension is Form 4868. You can file the form online if you or your tax professional has Efile access. Or you can mail the paper form into one of the IRS service centers. (You can find your particular service center on the form’s instructions.) If you choose to mail the form, make sure to get it postmarked by 7/15.
If the IRS accepts your extension request, you get until October 15, 2020 to file your return. You should know that the extension only gives you additional time to file, not to pay. If it turns out that you didn’t properly estimate your balance due, you will owe interest when you do file and may incur a failure to pay penalty. (Although owing a balance or filing the form without payment doesn’t negate the extension.)
Quote of the Week
“In this world nothing can be said to be certain, except death and taxes.” – Benjamin Franklin
Task of the Week
Take some time this weekend to assess where you are with filing your return and paying your estimated tax payments. With five days left, you still have some time to deal with everything calmly and with reduced stress.