If you haven’t gotten around to filing your 2020 taxes, you only have 32 additional days to file your tax return. The IRS announced on Wednesday that it would extend the deadline from April 15 to May 17. For residents of Texas, Louisiana and Oklahoma, the deadline was extended to June 15 due to the severe winter storm in February.
The accountants had asked the IRS to postpone the deadline. The tax season didn’t start until February 12, about two weeks later than usual. The US $ 1.9 trillion bailout plan was passed mid-tax season, and the IRS has not yet issued guidance on some of its provisions, making tax season an especially complicated one.
7 Things to know about extending the tax period
What does the tax extension mean for you? Here are seven things you should know when trying to decide if you should take advantage of it.
1. You don’t have to do anything to get the extension.
Like last year’s extension, which gave taxpayers three months more time to file their tax returns, this is done automatically. The IRS won’t penalize you as long as you file by May 17th.
2. The IRS continues to process returns as usual.
If you’re receiving a refund and don’t need more time to get your return in order, there’s no need to wait until May 17th to submit it. The same is true if you know you owe money and can afford to pay for it. Most online returns are processed within 21 days, according to the IRS.
But whatever you do, DO NOT submit a paper return. The IRS is still working on a tremendous backlog of 2019 mailed returns. If you submit on paper, you will likely wait months for them to process your return.
3. Waiting for a file can delay your stimulus money.
If you are eligible for economic stimulus money and haven’t received it, your 2020 tax return could be your ticket to cash. If you’ve never claimed before and no one can claim you as dependent for 2020, filing a return can get you $ 3,200: a $ 1,800 rebate claw back balance from the first two payments of $ 1,200 And $ 600 and the final stimulus check of $ 1,400.
Parents of children born in 2020 will also receive more funding for submission. These little stimulus babies will receive $ 1,100 in credit on the first two rounds in addition to $ 1,400 for the third payment.
4. You have more time to fund your IRA and HSA.
The tax day is the deadline for funding an individual retirement account (IRA). That means you now have until May 17, 2021 to maximize your Roth IRA or traditional IRA contribution for 2020. The limits for 2020 and 2021 are $ 6,000 if you’re younger than 50 or $ 7,000 if you’re 50 or older.
The same goes for your health account or HSA. In 2020, individuals can contribute up to $ 3,550 while families can contribute $ 7,100. These limits will increase to $ 3,600 and $ 7,200, respectively, for 2021. Individuals 55 and over can save an additional $ 1,000 for each tax year.
You can still make a contribution for 2020 even if you have already submitted. This is easiest when you are funding a Roth IRA. Your contributions are non-deductible so you don’t have to report them when you return. However, it’s more complicated with deductible contributions to a traditional IRA or HSA. If you’ve already submitted, you will need to submit an altered return to take advantage of the benefits.
5. Your state taxes may still be due by April 15th.
If you live in any of the 41 states with income taxes, your state taxes might still be due on April 15th. Check your state’s tax authority website to see if your deadline has been postponed. ‘
6. Freelancers still have estimated payments to make by April 15th.
If you are a freelancer or do a side gig without a W-2, you must make estimated quarterly payments by January 15, April 15, June 15, and September 15. These deadlines apply.It hasn’t changed. So plan to pay your freelance taxes for January 1 through March 31 through April 15 as usual.
7. Your deadline will still end on October 15th if you submit an extension.
You can automatically get more time to complete your tax return by filing for a tax extension. However, the regular deadline of October 15 still applies. Remember that with an extension you will have more time to file, but you will not have more time to pay. If you owe taxes, you will face penalties after May 17th.
What Should You Do If You Can’t Afford Your Taxes?
If you can’t afford your tax bill now, be honest with yourself. Do you think your financial situation will change dramatically in two months?
If the answer is no, then it really doesn’t make that much sense to postpone filing. You can submit your return even if you can’t afford to pay for anything. Typically, you can qualify for an IRS payment plan online in a matter of minutes.
Regardless of when you submit, all you know is that the penalties for not submitting are much more severe than for not paying. If you do not submit a return, you will be charged 5% per month plus interest up to 25% of your bill. If you don’t pay, you’ll only pay 0.5% (or 0.25% if you have a payment plan) plus interest up to 25% of the balance.
Bottom line: whatever you do, never try to hide from the IRS.
Robin Hartill is a certified financial planner and senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advisory column. Send your tricky money questions to [email protected].