The extended tax deadline has given most taxpayers an extra three months to file and make any payments needed. Here's how you can use that time to save and be ready to file by the new deadline.
To help ease the burdens that taxpayers are facing with Coronavirus (COVID-19), the IRS, Treasury, and federal government have instituted an extension for this year's tax deadline. This extension moves the federal income tax deadline from its original date of April 15 to July 15 for most calendar year tax filings. Individuals, small businesses, and corporations can likely benefit from these changes in some way.
No matter what your tax filing situation is, here's how you can take advantage of the extended tax deadline.
How individuals can take advantage of the new deadlines
There's a lot you can do with an extra three months. If you currently have enough to pay the taxes that you owe, it's often best to pay as soon as possible so you can rest easy and not think about taxes again until next year. You probably shouldn't use the money you had set aside to cover any other expenses or purchases. There isn't a plan currently to extend the deadline again, and if you spend that money now, there's no guarantee you'll have the funds come July.
There are several ways you can use this extra time to your advantage. For example, you could transfer the money you've saved to pay your tax bill into a high yield savings account, which could earn you some interest during the three-month extension period.
The extended tax deadline also gives you more time to make contributions to certain types of accounts that have deadlines coinciding with filing your tax return. You now have more time to make contributions for the 2019 tax year for your:
- individual retirement accounts (IRAs),
- health savings accounts (HSAs),
- Archer medical savings accounts (Archer MSA), or
- Coverdell education savings accounts (Coverdell ESAs).
If these contributions result in tax deductions for you, they could lower your tax liability. If you're in a strong financial position and still earning income, setting money aside in these accounts can offer potential tax benefits and help you better prepare for your future at the same time.
How corporations can leverage the extended deadlines
Tax returns for calendar year C-corporations are typically due on April 15 just like individual returns, but this deadline has also been extended to July 15. This means corporations can hold on to the money they would otherwise use to pay their tax owed for an extra three months.
- This opportunity could provide a small amount of extra income to your corporation if you keep the amount of tax owed in an interest-bearing bank account.
- Corporations can also use this money temporarily to continue operations during this time when they might not have had the means to do so otherwise.
- The key thing to remember is that corporations will still have to pay the amount of tax owed by July 15. If you spend the money you had set aside for taxes, you'll still have to find a way to pay the amount owed by the new deadline.
If your corporation usually files an extension, the new extended deadline may give you the ability to file on time this year without filing an extension. Since you now have an extra three months to file on time, you may be able to get your tax returns done without filing the usual extension paperwork.
How other small businesses can benefit from the later deadlines
In some cases, small businesses may be able to benefit from the later deadlines, too. Many small businesses are flow-through entities, such as S-corporations or partnerships. The tax returns for these calendar-year businesses were due on March 15, and their deadlines were not extended. For fiscal year businesses with deadlines that range from April 1 to July 14, these deadlines were extended until July 15.
- S-corporations and partnerships generally do not pay tax when they file their return. Instead, the business income typically flows through to the owners of the businesses who have likely had their tax deadline extended. Small business owners can then use the individual extended tax deadline to delay paying their personal tax until July 15.
- Other small business owners may run their business as a sole proprietorship, which reports on an individual tax return's Schedule C. In this case, the deadline is extended just as an individual tax return filing requirement is extended. These business owners can take advantage of the extended deadline on their individual tax returns.
When you're ready to file your tax return, or if you need to file a tax return extension to get even more time to file, TurboTax can help you or your business take advantage of the tax breaks you qualify for.
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