Quick question: When is Tax Day?
If you said April 15, most years you would be right. But, this year, the year of COVID-19, it is July 15.
The annual ritual of collecting receipts, funding IRAs and Roths and filing for extensions has been up-ended just as much of our lives have been by the global pandemic. Moving Tax Day three months out from the traditional April 15 deadline has given Americans some extra breathing room and assets to get through this period.
But, a tax-free spring has given way to the reality of summer and now the scrambling begins anew to make sure your clients pay up for the stellar performance of the markets in 2019. This year’s turmoil of closed businesses, laid off employees and stay-at-home workers is presenting a new set of problems for advisors and the clients they serve. Many of your clients will rely on you more than ever to keep them in the government’s good graces.
Here are some tips for helping your clients gather documents, get ready for the taxes they owe and file them in the midst of a pandemic.
Remind your client what’s coming: This new deadline has been lost in the flood of headlines about the pandemic. The good news is that they have had an extra three months to pay for last year’s taxes and many got stimulus checks that will not be taxed. The bad news is that they still owe taxes and the July 15 deadline is not being extended.
State tax deadlines: Most states have aligned with the July 15 filing deadline or earlier except for Hawaii – July 20 – and Iowa – July 31.
Clients who are out of a job: For those who have been furloughed or laid off, it can be a stressful time to have to pay out money for taxes. The IRS has options through the Taxpayer Advocate Service that can provide guidance for those who don’t have the means to pay their taxes. And, the agency established the People First Initiative that will work with those in need, backing off debt collection during the run-up to July 15.
Hidden taxes: You should remind clients that severance pay, payments for vacation and sick time as well as unemployment compensation are taxable. They also will have to pay taxes if they withdrew money from pensions unless they were transferred to another qualified plan.
Fewer deductions: Job hunting and moving expenses are no longer deductible and many taxpayers will find they are no longer able to accumulate enough itemized deductions. Small business owners still have a range of deductions including the Qualified Business Income deduction that enables a 20 percent deduction of qualified business income as well as REIT dividends and qualified publicly traded partnership income.
Get your client organized: Gather all the materials you maintain about their account that demonstrates the income they accumulated in 2019. To avoid any surprises, make sure they file all of the right forms showing income they earned.
When in doubt, ask for an extension: Anyone can request a six-month filling extension through IRS form 4868. At the same time, clients can request more time to pay the taxes they owe.