Last-Minute Tax Planning Tips

COVID-19 continues to change all aspects of the world around us, and taxes are no exception. In writing this article, we are representing changes implemented as of April 1, 2020. While we hope this provides you with tax planning ideas and guidance, please check with your trusted financial advisors for the most up-to-date information that may impact your choices and tax filing path.

CFP® professionals are uniquely qualified to guide you through these uncertain times. Additionally, you can review updates to tax laws on the IRS website and on the appropriate website for your own state income tax boards.

Despite the change to a July 15 tax filing deadline, tax planning should still be on your mind. Here are a few helpful tax planning tips for you to consider as you prepare to file.

• July 15 is the new April 15. In consideration of the extreme financial stress everyday citizens face due to the vast “shelter in place” directives being implemented, the federal government has extended this year’s tax filing date to July 15. Not only may you file on this later date, you may pay any taxes normally owed by April 15 when you file July 15. Treasury Secretary Steven Mnuchin has indicated that anyone following this process will automatically not be charged any interest and/or penalties for filing and paying up until July 15. However, many of us expect refunds when we file, so it is recommended to file your returns soon to benefit your cash flow during this volatile time.
• Are quarterly taxes typically due April 15 for tax year 2020 also included in the extension? Many of you pay quarterly taxes, especially those who are self-employed. You may defer the taxes you would normally pay April 15 for the first quarter until July 15. However, for those of you paying quarterly taxes throughout the year, changes have not been applied yet to taxes that would normally be due on June 15 for the second quarter. Please check the IRS website for further guidance as that deadline approaches.
• How are contributions to IRAs and Roth IRAs affected? The July 15 extension also applies to IRA and Roth IRA contributions. Know your funding limits and if you are uncertain, consult a tax pro. For example, in 2019, the limit on annual contributions to IRAs and Roth IRAs increased to $6,000 with an extra $1,000 for those age 50 and older. If you are not sure of which plan to use, reach out to your trusted CFP® professional financial planner for advice tailored to your personal circumstances. And if you are a business owner, consider funding a more sophisticated retirement plan, such as a SEP IRA. You can often invest more than traditional IRA and Roth IRA limits into these plans and fund all the way up to the October 15 extension deadline.
• Pay attention to the details on your investment company 1099s. It seems every year 1099s are released by investment companies later and later. The silver lining is that far fewer corrected 1099s are issued close to the normal April 15 filing deadline. That said, take a moment to be sure you have all of your 1099s. Then, review thoroughly, paying close attention to the details which often come in the form of schedules attached to the 1099. For example, muni bond interest may or may not be tax free on your federal and/or state returns based on many factors. Also, ensure that qualified dividends and other preferentially taxed income is reported correctly on your income tax returns so you don’t overpay. When considering capital gains, check the basis information and holding dates to be sure you agree. Mistakes are made, and this is your chance to correct them. Report errors to the issuer as soon as you can, and let your preparers know if they need to make adjustments and document differences on your tax returns using supplementary notes or schedules.
• Begin preparing for July. Americans who are experiencing day-to-day cash flow issues during these uncertain times may need to pay bills now and wait to pay taxes still owed for 2019 until July 15. You can take advantage of the late payment date and conserve cash if you need to. The government enacted the payment delay for that very reason. However, establish a cash conservation plan so that you are prepared to pay in July. Otherwise, you risk creating an unwelcome tax debt lasting beyond July 15 that might adversely impact your long-term financial planning goals.

Be sure to think ahead about what you can do to control your tax burden in the current year for next year’s filing season. It’s a lot easier to make changes to your tax obligations before December 31 than after!

If you need more guidance, find a CFP® professional in your community.

Wishing you all a safe tax season.

No representations or warranties are made as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented. This is solely an opinion piece. The opinions expressed are exclusively of the authors and are subject to change without notice. The content referenced is strictly for informational purposes and should not be regarded as a comprehensive or accurate analysis of the topic(s) discussed. Always consult a CPA or tax Professional prior to implementing anything referenced or discussed in this piece and to obtain individualized and professional advice.