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Thursday, January 27, 2022

Tax Deadline 2021 Is May 17: What You Need to Know | Taxes

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This year taxpayers will have an extra month to file taxes. Instead of the usual April 15 Tax Day, the Internal Revenue Service says taxpayers now have until 11:59 p.m. on May 17, 2021, to get those tax returns postmarked or emailed to avoid interest and penalties.

What else is there to know? Quite a bit more, if you’re curious.

Why Tax Day Changed

IRS Commissioner Chuck Rettig said in a news release, “This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities.”

Still, at first glance, you may wonder if moving Tax Day to mid-May was really necessary. After all, the country has been dealing with the pandemic for at least a year. We’ve all become accustomed to standing 6 feet apart, wearing masks and working from home. Meanwhile, more people are getting vaccinated every day. It’s nice to have the extra time, but from a tax standpoint, did the deadline really need to be moved?

Delaying it made sense to Curtis Campbell, the president of TaxAct, an online tax preparation company.

“We’re facing one of the most complex tax seasons in our country’s history. So many Americans faced unique circumstances in 2020 that will have an immense impact on their tax filing that they may have never encountered before, ranging from unemployment income to stimulus payments,” Campbell says. “The IRS recognized that consumers are still navigating these complexities, and hence extended the deadline. With an extra 30 days, taxpayers will have more space, flexibility and confidence to file their taxes.”

An extra 32 days, actually, but who is quibbling?

Beth Logan, an enrolled agent and owner of Kozlog Tax Advisors in Chelmsford, Massachusetts, admits that she didn’t initially see the need for extra time. She says that she first heard rumblings about pushing the April 15 filing date back early in the year.

“We did have extra work gathering stimulus payment information and entering that data and determining if (Paycheck Protection Program) loans were loans or forgiven tax-exempt income or taxable for some states. For some complex businesses, there are still open questions which the IRS needs to provide some guidance,” Logan says. “But overall, it didn’t look horribly bad. Then I started seeing all the requests for help with deceased parents’ estates.”

Logan says that with over half a million deaths, most of those in 2020, “there are a lot more final returns, estate returns and trust returns to do.”

Those, of course, make tax filing more complicated. For instance, Logan says that revocable trusts with assets included on 1040 forms revert to irrevocable trusts which require separate filings.

“Also, the 1099’s from investment houses need to be manually split between the before death and after death income,” Logan adds.

On top of that, Logan says, a lot of people refinanced their mortgages in 2020, and prorating the interest on the money taken out in the refinance can add to a tax filing’s complexity. She also points out that many business owners, like people who gyms and restaurants, are dealing with significant losses, much of which will be claimed on tax returns.

In any case, one can definitely argue that the IRS had good reasons for moving the date.

How Moving Tax Day Helps the IRS

Jeffrey Wood, a certified public accountant and partner at Lift Financial in South Jordan, Utah, believes the extension has less to do with taxpayers and more to do with the IRS.

“It’s being reported that the IRS still has about 24 million returns that need to be processed, dating back to even 2019. When the pandemic hit, many operations at the IRS across the country were scaled back and limited, especially the processing of mailed paper returns, answering mailed questions and their live phone support,” Wood says, adding that he recently had to call the IRS for a work-related issue and experienced a bit of a delay.

He spent 4 1/2 hours on hold.

“It really is that delayed at times right now,” Wood says.

Campbell agrees that the extra time will also help the IRS address the backlog of the previous years’ returns.

“The extended deadline also allows the IRS more time to focus on distributing the third round of stimulus payments to consumers,” he says.

How You Can Benefit From the New Tax Filing Date

It isn’t only that you have extra time to file your taxes, but the time can help you in several specific ways:

More time to raise the money you owe. Daniel Laginess, an investment advisor, CPA and managing partner at Creative Financial Solutions in Southfield, Michigan, says the mid-May date should help freelancers and small business owners.

“Taxpayers that owe the IRS now have another month before they need to make those payments,” Laginess says. “This is particularly helpful to the self-employed and small business owners who often owe tax liabilities when they file their tax return. The self-employed and small business owners were some of the hardest hit in the last year because of COVID-19.”

More time to sort things out. Again, there are a lot of new issues cropping up. “There is still a lot of confusion regarding the tax liability of unemployment benefits on stimulus checks received in 2020,” Laginess says.

In other words, are unemployment benefits taxed or not? As you may have heard, federal income taxes on up to $10,200 in unemployment insurance benefits for people who earn less than $150,000 a year will not be taxed. Again, that’s on the federal level; your state may or may not go that route.

More time to get your stimulus check straightened out. “The IRS wanted to give taxpayers additional time to file their returns in the event that they currently qualify for stimulus checks but had not qualified based off of previous returns or information the IRS had on file,” Laginess says. “In those circumstances, the IRS urges you to file as quickly as possible, and filing electronically is the most efficient way to receive your stimulus check.”

He adds: “Stimulus checks are not taxable or reportable.”

Will Tax Day Be Extended Again?

Your guess is as good as ours. Last year, the tax filing day was extended to July 15, and so it certainly seems possible that it could be extended. But if it is extended, don’t look for it to be delayed until July. Last year, the July 15 deadline may have thrilled some people, but it annoyed a lot of business executives and tax preparers.

“July 15 was way too late,” Logan says. “The biggest issue was that many states have fiscal years that end on June 30 and must balance their budgets. Moving the tax date to July 15 meant that the money received moved to a different fiscal year.”

What Else Should I Know About the May 17 Tax Filing Deadline?

Here are a few things to keep in mind:

  • You can postpone paying your federal income tax for the 2020 tax year another 32 days (from April 15 to May 17) without penalties and interest.
  • Estimated tax payments that were due on April 15 are still due on April 15.
  • The new May 17 tax deadline doesn’t change the Oct. 15 deadline. As tax filing procrastinators know, Oct. 15 is the deadline to file your taxes if you ask for an extension. As procrastinators also know, the deadline is an extension to file your taxes but not a license to delay paying your taxes.
  • Your state taxes may still be due on April 15. Generally, states will end up moving their tax filing deadlines, but you’ll want to pay attention to what your state does and not assume that the date has been moved.
  • Keep in mind that if you think you’re going to get a tax refund, filing earlier – rather than waiting until May 17 – will help you get your money faster. That’s probably obvious, but in the craziness of this last year, you’d be forgiven for not recognizing that.

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