As the delayed July 15 filing deadline for 2019 tax returns approaches, taxpayers should be weighing the benefits of extending their deadline to Oct. 15.
The Internal Revenue Service’s postponement of this year’s filing deadline for all individual taxpayers, from the usual April 15 to July 15, gave welcome breathing room during the disruptive early months of the Covid-19 pandemic.
But taxpayers have the option to take even more time to prepare their returns. This extension needs to be requested, but it you file an extension form by the tax filing deadline you are granted three more months to prepare and file a tax return. This doesn’t delay paying what’s owed—any estimated unpaid taxes must be paid by the earliest filing deadline, which this year is July 15, or penalties and interest may be applied to the amount overdue.
A Break for Small-Business Owners
Delaying filing a 2019 return could give business owners time to assess any losses directly related to the Covid-19 pandemic. The IRS allows losses due to unexpected and unusual circumstances—typically natural disasters such as tornadoes, floods and earthquakes—to be deducted against income on the prior year’s tax returns.
“It has to be a tangible loss, so a good example would be a food business owner whose inventory went down, or an owner who had to completely shutter a business due to Covid 19,” says Edward Rigby, a tax partner at accounting firm Prager Metis.
Those $1,200 Stimulus Checks Again …
Delaying filing could also help some taxpayers maximize benefits under the Cares Act, the broad economic stimulus bill passed in March.
Consider the one-time $1,200 payment, the centerpiece of the bill’s stimulus for individuals. Adjusted gross income for singles must be under $99,000 to qualify, and under $198,000 for couples who file a joint return. Technically this is a credit for the 2020 tax year, but eligibility for the payment depends on the latest income information available to the federal government. It will look at 2019 income, but if that’s not yet evident because a tax return hasn’t been filed yet, it will look back to 2018 income.
While the IRS has sent most payments, “if someone hasn’t received a stimulus check and they would qualify based on a 2018 return but not their 2019 return because their income went up, that would be a reason to get an extension and not file yet, because the IRS will then issue a check based on 2018 income,” says Bob Charron, tax practice leader at Friedman LLP, a New York-based accounting firm.
But if the reverse is true—you don’t qualify for a check based on your 2018 income, but your 2019 income was low enough for eligibility, you may want to file your 2019 as soon as possible, Charron says.
Real-Estate Investors Get A Break
Another timing strategy involves a provision in the Cares Act that allows individual taxpayers who are real estate owners to claim 100% bonus depreciation for improvements to non-residential properties since 2017.
Taxpayers must claim the depreciation prior to 2021. They have the option to claim it either retroactively on their 2018 returns or against their 2019 or 2020 income.
Most folks will want to claim the depreciation in their highest income year, Charron says. While income for 2018 and 2019 is already clear, it may be too early to predict what 2020’s income will total. By extending the filing deadline, you get three more months to get clarity on how 2020’s income will shape up to decide the best year to claim the depreciation, Channon says.
There is a chance that the IRS could again push the first filing deadline out further, which would postpone the tax payment deadline beyond July 15 and could give taxpayers enough extra time to gather more information for their 2019 return without filing for an extension. Last week, Treasury Secretary Steven Mnuchin indicated there is a chance of another postponement.
For folks owed a tax refund, the IRS says it will pay taxpayers interest on their refunds for the period beyond the typical tax filing deadline of April 15, whether they have filed their tax returns already or not.