Due to the Covid relief, experts are preparing for a flood of tax extensions
Senator Angus King, I-Maine, announcing the $ 900 billion Covid-19 Relief Act on Capitol Hill on December 1, 2020.
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The IRS may not have extended the deadline for Americans to file their tax returns as it did last year, but there is a chance millions of taxpayers will be requesting additional time to file their taxes this season.
“There will be more renewals than normal this year, and that’s fine as long as people pay their estimated taxes,” said Tracy Marrin, director and director of tax advice at financial services and advisory firm Rehmann. “Better to extend the return and perform it properly than to file it and change it later.”
Potential penalties and interest on taxes owed apply from March 15 for corporate taxpayers and from April 15 for individuals. Taxpayers can apply for an extension of six months up to the registration deadline.
The complexity this year comes from the relief efforts by Congress to support individuals and businesses affected by the pandemic. The tax implications of the CARES Bill, the Consolidated Funds Bill signed by former President Trump in late December, and President Biden’s as yet undefined $ 1.9 trillion aid package are astonishingly complex.
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“It’s all very cheap for taxpayers, but it’s also very complicated,” said Adam Markowitz, CPA in Leesburg, Fla. Who expects to generate around 400 personal and 100 business returns this year. “We have 8,000 pages of legislation and 5,000 pages of IRS guidelines to follow, and I have to ask clients three times more questions this year than before.”
Complexity is greatest for business owners, especially those who have received credit through the Payroll Protection Program. Additional guidance in the Consolidated Funds Act resolved a number of issues – notably the ability to deduct expenses covered by an issued PPP loan.
However, there are still many unsolved problems for business owners, with solutions depending heavily on the individual circumstances of each business.
“There are unknown questions at every turn,” said Marrin. “For customers who received a PPP loan in 2020, there is a gray area for how the expense is split between the loan and the retention balance.
“If they haven’t applied for a loan yet, they may want to wait and extend the loan,” she added.
Marrin also noted that changes to tax reporting rules for partnerships will slow filing down.
“We have just received final instructions for the partnership rules and with any remaining unknowns, guidance and updates will continue throughout the year,” she said. “That delays everything.”
Even for business customers who are counting on the money from tax refunds, Marrin recommends other options like taking out a second PPP loan or deferring labor taxes instead of initiating a return by March 15 that needs to be changed.
“Changing the rate of return is a problem,” she said. “When you need the money and have all the information you need to prepare your return, we’ll expedite filing.
“But there’s no point in filing a file if you can’t properly prepare the return,” added Marrin.
The uncertainty as to whether and which states will comply with federal tax regulations for relief payments, deductions, and credits can also lead to a further extension of state returns.
Individuals could also have problems
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Individual tax advisors just have it a little easier. Markowitz said that anyone “has nothing to do with filing a tax return without speaking to a tax advisor” in at least one of the following six circumstances:
- You made more than $ 75,000 in 2019 or 2020 – $ 150,000 for couples – or you will this year.
- You had a dependent child who turned 17 in any of the last three years.
- They had a baby last year or will this year.
- You made more money last year than you did in 2019.
- You received unemployment benefits last year.
- You own a business.
While Markowitz is optimistic that 60% to 70% of his individual customer returns will end up being submitted on time, there are many unanswered questions that suggest waiting for a return to be submitted. For example, the next proposed stimulus payment of $ 1,400, for example, may be eligible for all dependent adults in a household.
“If you had fewer dependents to claim in 2020, you may not want to file in time,” he said. “If you had more, you will want to file a file to recapture the stimulus payments.”
There’s also an outdoor shot showing Congress making unemployment benefits tax-free. Extending it, rather than changing a return later, might make sense if that occurs.
However, what could despair Markowitz this filing season is cryptocurrency tax issues for some of his millennial clients.
“Every time you inhale a cryptocurrency a transaction has to be reported. If not properly reported, you will go broke,” said Markowitz. “If I get another customer who has done something with Dogecoin that makes his tax life more complicated.”