Tax Payment 2020

March 23rd, 2020

Hello everybody,

I got a call from an old acquaintance/client the other day… A guy I haven’t heard from in many years. He said he heard about the IRS extending the payment and filing deadline this year from April 15, 2020 – to July 15, 2020. Great news!  But, what about his 2019 Individual Retirement Account contribution? Is that due date also extended? A good question. Are all things that usually happen on April 15 also covered by the sweeping Federal Emergency Action?? What about our California Tax Returns?

For years some of my clients already misunderstood this April 15 tax deadline. There has always been confusion about the fact that a tax extension does NOT give one more time to PAY- it simply allows one more time to FILE the paperwork.

However, this year, the IRS is allowing us an extra three months to do both; file the forms and pay the tax dollars!

First, let’s look at how the rule works in a regular year:

  • We must pay all the income tax due for last year by April 15! 
  • We may file an “Extension of Time to File”, which gives us until October 15 to file the tax forms!
  • California FTB works the same except the 6-month Extension is automatic, which means that you don’t need to send them an Extension form. Also, the CA FTB rules about payments mirror those of the IRS.

Now we can get to the good stuff… What are we allowed for 2019 Tax Year?

IRS Notice 2020-18 states

  • All persons and businesses are considered affected taxpayers
  • For affected taxpayers, all tax filings and tax payments that are due April 15, 2020 are automatically postponed until July 15, 2020.
  • Affected taxpayers do not have to File Forms 4868 or 7004. **See below.
  • There is no limitation on the amount of the payment that is postponed.

*This line may confuse people. If one needs to extend their time to File until Oct 15, they must still file an Extension this year. In this case, the Payment is still extended to July 15.

CA FTB COVID-19 Extensions to file and pay – 2019 Taxable year

California makes it easy for us. Their Notice states:

  • All personal and business entities are included and listed in the Notice
  • All tax Payments that were due April 15, 2020 AND June 15, 2020 are automatically postponed until July 15, 2020. IRS does NOT make this distinction.
  • The CA Automatic 6-month Extension of Time to File remains in place. Effectively, all tax returns are due October 15.

The fact that FTB didn’t mention the allowed payment amount, which usually means they’re going with the Federal limits.

So, what do we think about my guy’s IRA contribution?

Neither the IRS nor the FTB mentioned any other internal tax return deadlines except filing and payment. So, get that regular IRA Contribution to the bank by April 15!

I’ll wrap this up by saying that this will affect businesses that adopted a fiscal year differently and is beyond the scope of my letter today.  I’m hunkered down in my home office, like everybody else. Please reach out if you have questions. I’d love to hear from you!

Sincerely,

Mike

Ps. In case you’re getting a refund. Please don’t delay filing your 2019 tax returns! The IRS is tasked to process refunds as quickly as possible!

 

References:

IRS Notice 2020-18

https://www.irs.gov/pub/irs-drop/n-20-18.pdf

Franchise Tax Board – COVID-19 Extensions to file and pay – 2019 Taxable year

https://www.ftb.ca.gov/about-ftb/newsroom/covid-19/extensions-to-file-pay.html


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