Making the Most of the Extended Tax Season

by | Apr 16, 2021 | Financial Planning

Lingering financial impacts caused by the pandemic are still being felt by many taxpayers, so to aid with navigating the tax filing process, the IRS recently announced that the deadline for 2020 tax filing is automatically extended from April 15, 2021, to May 17, 2021.

With this extension of the filing deadline comes extensions to other important dates. Take some time to review this important information and learn some tips that might reduce your tax burden for 2020.

Extension for 2020 Income Tax Filing

In addition to extended time for filing individual taxes, the IRS extension also allows for taxpayers to delay any federal income tax payments for the 2020 tax year until May 17, 2021, without penalty or interest, which includes those individuals who pay self-employment tax. Any penalties or interest will begin to accumulate on unpaid balances effective the May 17 deadline.

To benefit from this extension, individual taxpayers do not need to file any specific forms with the IRS. Those taxpayers needing additional time beyond May 17 have the option to file a traditional extension until October 15, 2021, via Form 4868.  While filing for the traditional tax extension allows additional time for filing a tax return, the process does not allow for an extended time to pay taxes that are due.

Taxpayers who are making estimated tax payments must still complete those payments by April 15, 2021. Taxes must also be paid as income is earned during the year, whether it be through withholding or estimated payments, which typically occur on a quarterly basis.

Adding to Your Tax Advantaged Retirement Accounts

Due to the tax filing extension, there is now more time to max out your tax advantaged account contributions for 2020. The new deadline for contributions to your retirement accounts, such as Individual Retirement Arrangements [IRAs and Roth IRAs], Health Savings Accounts [HSAs], Archer Medical Savings Accounts [Archer MSAs], and Coverdell Education Savings Accounts [Coverdell ESAs], is automatically updated to May 17, 2021.

Taxpayers will also have until May 17 to report and pay the 10% additional tax amounts eligible for inclusion in their gross income from their 2020 distributions from IRAs or employer-based retirement plans. Form 5498 series returns related to these accounts are extended to June 30, 2021, with the extension announcement.

Don’t Forget…

As you prepare to complete your tax returns this year and beyond, there are some things to remember. Keep in mind these tips to help your process flow smoothly.

State Tax Deadlines

While the current IRS tax extension applies to your federal tax returns, state returns can vary from the federal deadline. Be sure to review your state tax filing agency guidelines to confirm your state filing deadline(s).

Avoid Delay

If you are anticipating a refund with your tax return, the IRS advises to file as quickly as possible. Taxpayers who use an e-file process typically see tax refunds issued within 21 days of the return being accepted.

Tax Planning

High net worth taxpayers want to think about various details such as planning for investment and / or estate and gift taxes, planning for charitable giving, and planning for pass-through equity income. Each scenario can yield considerable outcomes, resulting in varying financial implications for you personally. Avoid surprises by carefully considering your individual situation.

Discuss Your Options with a Financial Planner

Regardless of circumstances in your financial life, it can be valuable to seek the assistance of an experienced financial planner. There are many factors to consider each year which could potentially decrease your tax burden, so having a professional on your team is essential.

If you’re uncomfortable with meeting a financial advisor in person due to the pandemic, don’t worry. We have the technology to meet via the web, on your computer or your mobile device, until you are more comfortable with in-person meetings. If you want to learn more about how to prepare for web meetings, read our guide.

Contact Brookstone Wealth Management Today

If you’re looking to better understand your finances, contact Brookstone Wealth Management today to develop your Financial Fingerprint™. Here at Brookstone, we offer a complete suite of Wealth Management services, supported by an experienced team of financial and legal professionals.

We are owned and led by women, and we focus on coaching, teaching and mentoring our clients. We’d love the opportunity to help you navigate to your True North.