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The IRS officially extended the individual income tax return due date to May 17, 2021 to accommodate changes from the American Rescue Plan Act (ARPA). As the IRS and U.S. Treasury continue to roll out guidance on the ARPA, some taxpayers are not sure whether or not it makes sense to file their returns now or later. Here are a few items to consider as you make your decision.
Missing Information
Are you still waiting on a Form K-1?
Has your business closed last year's books?
If you are still waiting on information needed for to prepare your personal tax return, it might make sense to file an extension. Many tax preparers will not prepare your return until all of the information is available. The closer to the due date you provide your tax information, the more you risk having to rush the tax preparation process (some tax professionals charge a rush fee).
State Tax Laws
As of March 2021, Californians are still waiting on the state legislature to pass the bill that allows employers to deduct up to of $150,000 of expenses paid with Payroll Protection Program (PPP) loan forgiveness. A handful of other states are also waiting for their legislature to provide guidance on their conformity or nonconformity to recent federal tax laws.
If you live in a state where relevant tax law changes are still in process, discuss the cost and benefit of extending your tax return with your tax preparer.
Tax Planning
Do you need to start tax planning for 2021? If you started a new business, incurred new investments or have some other reason for which you need to create next year's tax plan as soon as possible, then it might make sense to file your 2020 tax return now instead of later.
Taxpayers who normally pay estimated taxes might want to file their tax returns now to determine their first quarter estimated tax payment. Entrepreneurs, independent contractors, investors and other taxpayers that do not have taxes withheld from their income might be required to pay their first quarterly estimate for 2021 on April 15th (that's right, the IRS did not extend this estimated tax due date).
Also keep in mind that, although a tax return extension is allowed, your tax liability is still due on May 17th. If you expect to owe tax this year, be sure to provide your tax preparer with good faith estimates to determine your tax liability. This will help guard against any late payment penalties.
Trust and C-Corporation tax returns are still due April 15th. Tax-exempt organizations with a calendar year end must file their return or an extension by May 17th as usual.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. This business and websites listed are not endorsed by The Little CPA. You should consult your own tax, legal and accounting advisers before engaging in any transaction.