For more than six decades, the month of April has been synonymous with tax season in the United States. Ever since 1955, the tax filing and payment deadline has been April 15th – or a day or two later if that date happens to fall on a weekend or a holiday. In normal times, if you have a tax liability and fail to file your tax return by midnight on the due date, you’ll face a penalty charge and interest starts accruing on your unpaid balance. But things are different this year. As the COVID-19 pandemic gained a foothold on the country, forcing the closure of non-essential businesses and pushing workers to file for unemployment benefits in record numbers, the IRS announced a tax extension. Here’s all you need to know about the new tax day 2020.
Related: Real Estate Taxes: Everything a Beginner Investor Needs to Know
When is Tax Day 2020?
The Treasury Department and the Internal Revenue Service announced that the federal income tax filing deadline is automatically extended from April 15 to July 15, 2020. Meaning, taxpayers now have an additional three months to file and pay their federal income taxes for 2019. This tax extension is designed to give financial break and payment relief to individuals and businesses having a hard time making ends meets during the spread of the coronavirus.
Individuals, trusts, estates, corporations as well as those who pay self-employment tax all qualify for the extra time. This means that anyone, including Americans who live and work abroad, can wait until July 15 to file their 2019 federal income tax return and pay any tax due. It also doesn’t matter if you’re sick, quarantined, or perfectly healthy but trying to keep others safe by staying at home – you now have a new tax day 2020 deadline to consider when filing tax returns.
Keep in mind that the IRS has closed some of its offices and is not currently processing paper tax returns. Meaning, you’ll need to file taxes electronically – it’s part of our new normal in 2020 and beyond. You don’t need to call the IRS or file any additional forms to qualify for the new federal tax filing and payment relief. Moreover, you’ll automatically avoid interest and penalties on the taxes paid by July 15, regardless of how much you owe. And if you need additional time to file beyond the tax day 2020 deadline, you can request a filing extension.
What About State Income Tax?
After the federal tax deadline was extended, some states quickly followed suit. On April 1st, New Jersey was the final state to postpone its last day to file taxes, announcing a new July 15 deadline. The no-interest, no-penalty status also applies to many state and city extensions. However, while every state has now extended its tax filing and/or tax payment due date beyond the original April deadline, new deadlines for individual income tax payment and tax filing due dates vary between states and don’t match the federal deadline.
In total, 41 states tax income – either at a flat rate (meaning everyone pays the same percentage of their income to the government regardless of how much they earn) or a progressive rate, which means the tax rate is determined by income. Seven states have no individual income tax – these are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.
Related: Real Estate Investing for Beginners: How Is Rental Income Taxed?
Many states, including Alabama, California, and Michigan, have extended the deadline to July 15, the same date as federal income taxes are due. On the other hand, some states have set an earlier deadline. For example, Mississippi extended the tax deadline to May 15, and Virginia set May 1 as the tax day 2020 deadline, but it won’t charge late penalties on payments made by June 1. You can check the full list of state tax filing and payment deadlines for 2020 here. The IRS urges taxpayers to check with their state tax agencies for more details.
Should You Wait Until the Last Day to File Taxes?
While a 3-month extension is nice, and it is human nature to procrastinate, the IRS urges taxpayers who are owed a refund to file as quickly as possible. If you’re a real estate investor and you’re owed an income tax refund for 2019, consider filing your state and federal income taxes before the July 2020 tax day deadline. If you need the extra time to gather your tax forms and prepare your return or meet with a tax professional, take it by all means. But, remember that if you’re expecting to get a tax refund, you won’t receive it until you file.
As of now, the IRS is continuing to pay out most of the direct-deposit refunds within three weeks. Besides, many people have already filed those 2019 income tax returns. According to USA Today, the IRS reported that it received 90.6 million federal income tax returns through the week ending March 27 (down 2.4% from a year ago). Moreover, the IRS has issued $203.4 billion in income tax refunds so far (down only 1.3% from the same time a year ago). And the average tax refund is $2,908 (up 1.2% from a year ago). Here are some good reasons to file your taxes as a property investor sooner than later:
1) You Might Get a Tax Refund
No one enjoys doing their taxes and it was nice to see tax day 2020 moved to July 15. So it’s not a surprise that people are taking advantage of the 90-day IRS tax extension delaying the prospect of doing their taxes. But, keep in mind that every day that you delay filing your taxes also delays when your tax refund payment arrives. In general, it takes about 3 weeks for the IRS to process a tax return and issue a tax refund.
As mentioned, the typical federal tax refund payment went up from $2,833 in 2019 to about $3,000 for the 2020 tax season. Direct deposit tax refunds are even bigger, averaging $3,030 or so this year compared to $2,961 in 2019. Who couldn’t use that kind of money right about now? So, assuming that you’re getting a refund, it’s best to file your taxes sooner than later so that you can get your money from the IRS sooner than later as well.
2) Your State Taxes May Be Due Soon
As mentioned, while the IRS moved the federal tax filing deadline to July 15, it has no control over when state returns are due. And while most states followed the new tax day 2020 deadline set by the IRS, a few states aren’t adopting the federal filing guidelines. This adds to the chaos in what’s already one of the most confusing US tax seasons. Every state with an income tax has made some change to its filing process this year to give taxpayers more time. However, filers in three states – Mississippi, Virginia, and Idaho – are still required to file state returns earlier than July 15.
Wondering when is the last day to file taxes 2020 in these states? It varies – the tax filing deadline shifted from April 15 to May 15 in Mississippi, to June 15 in Idaho, and to May 1 in Virginia. So if you’re investing in real estate in one of these states, you’ll need to hurry and file before those deadlines. And even if your state taxes aren’t due for months, you may want to file soon for the same reason explained above with federal taxes. For information specific to your state, go to your local government website.
3) Your Tax Return Could Impact Your Stimulus Check Amount
Under a provision of the CARES Act, American citizens can qualify for a coronavirus stimulus check. However, the amount of money you’ll be paid is determined by your income as reported on your most recent tax return. In other words, if you haven’t filed a return this tax season (for the 2019 tax year), then your stimulus payment is going to be based on your 2018 tax return and not your 2019 return.
If your adjusted gross income on your most recent tax return was $75,000 or less, then you’ll get the biggest stimulus check payment possible which is $1,200 per adult. However, if you made over $99,000 according to your tax return, you’ll get no stimulus check whatsoever. So, if your income changed significantly from 2018 to 2019, this would affect how big your stimulus check will be, or even if you receive one at all. If your gross income dropped in 2019 below the $99,000 or $75,000 threshold, then you should absolutely file your taxes right away before the tax day 2020 deadline to ensure you get a stimulus check for the proper amount you’re owed.
For more information, read: Coronavirus Stimulus Package & $170B Tax Break.
