Remember back in July when you got an extension to file your taxes and October felt so far away? Time has been all out of whack for most of the year, right? Three months was SO much time. Well, we reach that 10^th month next week, so it is time to start to get things ready to fill out your return and get it filed.

That means that now it is time for the regular spiel when it comes to the tax extension deadline. And it starts with, what are you waiting for? If you are expecting a refund, wouldn’t it be nicer to have it in your pocket than letting the government hold onto your money? If you are expecting to have to pay, wouldn’t’ it be better to get that under control and stop having to worry about it? Furthermore, if you are in that situation of having to pay, remember that your extension was only an extension to file, not an extension to pay any taxes owed, so you are probably already gathering penalties and interest that also must be paid. The quicker you get on those, the less they can be.

That deadline is rapidly approaching, but there is deadline news all over the place and it feels like it pulls in many directions, again like the rest of this year.

For instance, for those who had to file on September 15 and missed that deadline, it’s possible that penalties for late filing could be avoided by writing “COVID-19” across the top of the tax return. This is not necessarily a hard and fast rule, but communication with the IRS indicates that those who are making good-faith efforts to file in a difficult time could received some forgiveness. (Read more about that here).

Now, will this also carry over to individuals who will be filing on the October 15 deadline? It seems to be setting a precedent that there are some situations where that could be the case, but again, that is not set in stone, so I recommend still making all possible efforts to get it done on time.

But of course, this banner year of 2020 could not be satisfied with just a pandemic, so it has also thrown the wildfires at many on the west coast. There, the IRS has offered some concrete help, extending many deadlines for three more months. If you want more information on that, you can read the agency’s news release here.

Beyond immediate deadline talk, though, is just filing taxes for next year, too, which is just another few months away for starting, so I wanted to include a final link that could have meaning in that period. There you can see what the new Form 1099-NEC will look like for those who receive nonemployee compensation as part of their income (largely those who earn income as a contractor and not an employee). This is a new form this coming year and will replace the 1099-MISC form for many.

 

A lot of times when one thinks of owing the IRS money for the year, the only thought is of this happening on April 15 (you know, in regular years anyway). However, the agency may be expecting money up to four times a year, and there can be penalties if they are not getting it as they wish.

First, I don’t want to use scare tactics here. If you get a majority of your income as a regular employee in a job where you receive a W2 at the end of the year, then you likely are having enough taxes withheld from your paycheck that there is no need for extra payments. So, if that’s the case and your situation hasn’t significantly changed since last year, then you need not pay attention to this.

Beyond that, though, the situation of many people HAS changed this year. A great number are making money in new ways, and some of those are doing so as contractors, which means taxes are not automatically being withheld from that income. The IRS does not always like when that’s the situation.

Overall, if you expect to owe $1,000 or more when you file your taxes for the year, the IRS expects some of that as the year goes on. Again, if enough is being withheld from your paycheck, there are no worries. It also doesn’t take all that much income from other places to reach this mark, though. Unfortunately, there is no easy and quick answer as to what puts you in this situation. Taxes are complicated, so there are no absolutes like ‘If you made X amount of dollars as a contractor and paid no taxes, you will owe Y amount of dollars in taxes.” These answers are dependent on individual situations.

If you then want to get a handle on your individual situation, you can find some information and links here from a recent IRS release about making estimated tax payments. And if you need more than that, as always you can set up an appointment with us and we can make plans to help mitigate whatever tax situation you are in.

It is not only contractors who may end up with surprising numbers come tax time, as many are also receiving unemployment compensation for the first time. It may hurt to think that these funds, which are being received to help one through a difficult time, will be taxed.  It may hurt even more, though, if one doesn’t realize that withholding taxes from those funds when they are received is voluntary and must be opted into. The IRS has another release about that situation here.

These aren’t going to be the only two new situations that people find themselves in this year. So, in this time where everyone is battling more difficulties than they deserve, it can pay to try to get a grasp on the tax implications of all that newness before receiving another unpleasant surprise next year.

 

As we come out of the summer, the hope of life returning to a ‘normal’ level continues to receive some basis for optimism. A lot of this came from the job market in August, which saw payroll numbers rise as unemployment fell (read more here), where large companies were a big part of adding jobs during the month (as seen here), and some areas are seeing small business growth (as stated in this article). At the same time, many schools across the country are opening or using hybrid models, and even though there are also stories of this not always going well, it does help with that sense of normalcy.

Although all of this feels great, let it not make us complacent. There are still many industries that are waiting for their resurgence (restaurants, airlines, etc.) and this can only be achieved when the pandemic is under control. So, things aren’t as bad as they have been this year, but they’re not as good as we want them to be. Continue taking steps to control the spread and transmission of the virus as we take the uplift from good news when it comes.

Not all the payroll news is fully good, though, as President Trump’s executive order deferring payroll taxes is being largely ineffective. Much of this is due to the limitation of the office of president. The president can defer such taxes, but it takes an act of Congress to forgive them. And even though that deferral could have started at the beginning of the month, it is not being universally used.

A big reason for this is that it is a voluntary move that an employer opts in to. At the same time, though, if an employer does that, it gains a headache in making sure that the numbers are properly recorded, paid back by the end of April next year, and remaining on the hook for any taxes not paid by employees no longer with the company at the end of that period.  If you want to get more in-depth on this, you can read this article, but that is the basic layout for why it is easy to see why employers are choosing not to engage in this program.

So who knows what we can expect over the new few months. Hopefully people will steadily keep going to work and the numbers of those infected with and dying from COVID-19 will continue to decline. But will that lead to people continuing to take measures to hold off the spread or will it make things more lax? Will there be government action to create goodwill before the election or will the two sides just get further entrenched? As has felt the case for the last six months, answers are not always easy. But we remain here to help in any way we can as we continue to travel the road forward together.

 

This week, I want to look at some numbers I saw in a recent article, even if they come from a study that says a little over half of tax clients are not positive that their tax preparer fully minimizes their tax payment.

I would like to hope that we do better than that here. And I assume if you are reading this, you are either a client who does like what we do or someone looking for advice from elsewhere. So hopefully that means you are either on the positive side of this question or looking to join us and get there (and if that’s the case, please contact us!)

To dig into the article a little more, I find it interesting that it also points out that 46% of people were disappointed with the size of their tax refund. It may not feel like it on first read, but that question does not necessarily reflect upon the tax preparer at all. We could do a great job for someone on their tax return, the best job even, and they still can end up disappointed with the final number.

Without fail, every tax season comes with passing along bad news to some clients. Some were expecting a large refund and get a smaller one, some were expecting a refund and end up paying, some were expecting to pay a little and end up paying more. Even with that disappointment, though, I think those are the people who should leave our office with the most confidence in the work we have done. Even if they are unhappy with the outcome, they should know we gave them the best outcome they can (legally) obtain.

These tend to be the clients with whom we have the most conversation during a return. They are surprised and they want to know what happened. Those whose final number on their return is around what they expected, though, don’t always end up delving into what we did. I suspect that in here lie most of the respondents from the article who are not sure they had their tax situations maximized. Instead, things were not surprising and that makes it ‘good enough.’

So this is a plea for communication. If you think you might qualify for something that we are unaware of, tell us. If you think you might be able to get a deduction that we are unaware of, tell us. I mean, nothing will get worse by asking. If the answer is no, you are not going to have to then pay more. And in turn, we hope to communicate well enough that you are confident you are submitting a tax return with the best possible result. We are in this together, after all.