The July 15 Tax Deadline Is Fast Approaching. It’s Not Just for The 2019 Individual Tax Return

Due to COVID, the IRS changed the tax deadline to July 15, 2020. This was an automatic 3 month extension to file 2019 tax returns and pay the 2019 tax. This is among other tax actions normally due on April 15. Now that July 15th is approaching, please realize it’s not just the deadline for filing your 2019 tax return. It is also the deadline for other things tax related. Here is a rundown.

July 15 Deadline – Tax Forms That are Also Due

1. 1040 Extension
   Anyone unable to file their 2019 individual 1040 tax return by July 15 needs to file a Form 4868 extension. Form 4868 extension gives you until October 15th to file the return. The tax liability shown on the extension should be paid with the extension form. This will help you avoid late payment penalties and interest. Penalties, interest, or additions to tax for failure to pay federal income taxes were disregarded during the April 15–to–July 15 extension-period window. However, these will begin to accrue on July 16, 2020.
   
   CAUTION: Form 4868 extension is an extension for filing, but it is not an extension for paying your tax liability. The Form 4868 instructions say (and tax courts have ruled) that for an extension to be valid, a taxpayer must
   1) properly estimate their tax liability,
   2) enter that tax liability on the form, and
   3) file the extension by the due date of the return, which is July 15th this year.
   
   The monthly penalty for not filing the 1040 tax return by the July 15 Tax Deadline
   – 4½ percent of the tax due for late filing
   – ½ percent of the tax due for late payment.
   The maximum cumulative penalty rate is 25%; however, the ½ percent per month for late payment continues until the tax is paid.
   
   There is a minimum penalty for 2019 returns not filed within 60 days of the return due date, including extensions. That penalty is the lesser of $435 or the amount due on the 2019 tax return.
   
   Important! If you do not owe money, or if you are getting a refund, there is no penalty. This is because the penalties are based on a percentage of the tax due. If no tax is due, then no penalty is assessed.
   
   The IRS also charges interest on late payments and penalties. The rate of interest is subject to quarterly adjustment. It is currently at an annual rate of 5% of the amount owed, with interest accumulating daily.
    
2. Contributions to a Roth or Traditional IRA for the 2019 Tax Year
   July 15 Tax Deadline is the last day for making 2019 contributions to Roth or traditional IRAs. Form 4868 does not provide an extension for making IRA contributions. 
   
3. Individual Estimated Tax Payments for the First Two Quarters of 2020
   Normally, the first installment of estimated taxes for a tax year is due on April 15th. The second installment comes due on June 15th. For 2020, the IRS extended these due dates to July 15th, to coincide with the other COVID-19-related extensions. Taxpayers who fail to prepay the minimum (“safe harbor”) amount may be subject to a penalty for underpayment of the estimated tax. This penalty is based on the interest on the underpayment. The penalty is calculated using the short-term federal rate plus 3 percentage points. The penalty is also computed on a quarter-by-quarter basis. This means even people who have prepaid the correct overall amount for the year may be subject to the penalty if the amounts are not paid proportionally or in a timely way. However, for 2020, penalties for failure to pay federal income taxes during the April 15–to–July 15 period will be disregarded.
   
   Federal tax law does provide ways to avoid the underpayment penalty. For instance, if the underpayment is less than $1,000 (referred to as the de minimis amount), no penalty is assessed. In addition, two options exist for safe-harbor prepayments:
   
   1. The first is based on the total tax on the current year’s return. There is no penalty when prepayments (including both withholding and estimated payments) equal or exceed 90% of the current year’s tax.
   
   2. The second is based on the total tax amount on the return for the preceding tax year. (This does not include credits for prepayments). This is generally set at 100% of the prior year’s tax liability. However, taxpayers with adjusted gross income exceeding $150,000 (or $75,000 for married taxpayers filing separately) must pay 110% of the prior year’s tax liability to meet the safe-harbor test. 
   
4. Individual Refund Claims for the 2016 Tax Year
   The regular three-year statute of limitations for 2016 tax returns normally would have expired on April 15th of this year. However, due to the COVID-19 emergency, the statute of limitations was extended to July 15th. Thus, no refund will be granted for 2016 returns (original or amended) filed after July 15th. An exception is if a net operating loss is being carried to 2016; in this case, the usual three-year limitation for claiming a refund won’t apply as long as the statute is still open for the year when the net operating loss (NOL) occurred.
   However, taxpayers could risk missing out on the following credits if they do not file before the statute of limitations ends:
   – the refundable Earned Income Tax Credit.
   – refundable American Opportunity Tax Credit.
   – or the refundable child credit for the 2016 tax year.
   Caution: The statute does not apply to balances due for unfiled 2016 returns. 
   
5. Foreign Account Reporting Requirements (FBAR)
   For each United States person who has a financial interest in, signature, or other authority over any foreign financial accounts. (This includes bank, securities, or other types of financial accounts in a foreign country.) if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, that person must report that relationship to the U.S. government during each calendar year. This reporting requirement is commonly referred to as FBAR. The due date is the same as that for individual 1040 returns.
   
   This report is submitted online to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). The FBAR’s annual due date is April 15th. However, FinCEN grants an automatic extension to October 15th each year. So if you missed the April due date this year, you still have until October 15th to file the FBAR. Penalties for failing to file a FBAR are severe. Individuals should not overlook overseas family accounts on which they are named as account holders, or online foreign gambling accounts. If in doubt, call this office for further details.

July 15 Deadline – Are You Missing Information?

If your income tax return is pending due to missing information, please forward that information to us immediately. This way we can ensure your return meets the July 15th deadline. Keep in mind that the last week before the due date can be very hectic. Returns may not be completed in time if you wait until the last minute. If you know that missing information won’t be available before the July 15th deadline, please let us know ASAP. That way, we can prepare an extension request (and 2020 estimated tax vouchers, if needed) for you.

If you have not yet completed your returns, please call this office right away at (360) 778-2901. We will schedule an appointment, estimate your taxes, and/or file an extension.