Archive for the ‘IRS’ Category

IRS Extends Estate & Gift Tax Returns to July 15th

Friday, March 27th, 2020

If you have to file an Estate Tax return (Form 706) or Gift Tax return (Form 709), the IRS announced today that those are being extended to July 15th. The details are in Notice 2020-20. Here is the legalese:

The Secretary of the Treasury has determined that any person (as defined in section 7701(a)(1) of the Code) with a Federal gift tax or generation-skipping transfer tax payment due or the requirement to file Form 709 (United States Gift and Generation-Skipping Transfer Tax Return) on April 15, 2020, is also affected by the COVID-19 emergency for purposes of the relief described in this section III (Affected Taxpayer)…

For an Affected Taxpayer, the due date for filing Forms 709 (United States Gift and Generation-Skipping Transfer Tax Return) and making payments of Federal gift and generation-skipping transfer tax due April 15, 2020, is automatically postponed to July 15, 2020.

This relief is automatic; there is no requirement to file Form 8892 (Application for Automatic Extension of Time to File Form 709 and/or Payment of Gift/Generation-Skipping Transfer Tax) to obtain the benefit of this filing and payment postponement until July 15, 2020. However, an Affected Taxpayer may choose to file Form 8892 by July 15, 2020, to obtain an extension to file Form 709 by October 15, 2020 (any Federal gift and generation-skipping transfer tax payments postponed by this notice will still be due on July 15, 2020).

Individual Return Deadlines

Friday, March 27th, 2020

We prepare tax returns for individuals throughout the United States, so we have to keep track of the deadlines–and that’s a task right now. So we created a spreadsheet with the information so we can see this at a glance (there’s also a pdf version).

These may be of use to others, so we’re sharing them. We’re going to try to update this every Monday. Note that we believe the deadlines noted are accurate, but this is (obviously) a fast-changing situation. Deadlines that are before July 15th are in bold.

As of this morning, Arkansas, Hawaii, Michigan, New Hampshire, New Jersey, Rhode Island, Tennessee, and Vermont have not extended their state deadlines.

Extensions, IRAs, HSAs, and 2016

Wednesday, March 25th, 2020

Yesterday, the IRS released guidance on the July 15th due date. The IRS guidance confirmed my previous post that not all tax filings have been extended. Among the clarifications:

  • Estate and Gift Tax returns (Form 706 and 709) were not extended. This means that if you are filing a Gift Tax return for 2019 you need to either extend your personal return by filing Form 4868 or file a Gift Tax Extension, Form 8992. This is another trap for the unwary: taxpayers who file their individual returns timely in, say, June and concurrently file a Form 709 Gift Tax Return will be filing the Gift Tax return late.
  • The deadline to file tax extensions (Form 4868 for individuals and Form 7004 for C-Corporations and trusts/estates) is July 15th.
  • Second quarter estimated payments are due (for the moment) on June 15th (1st quarter estimated payments are due on July 15th). However, the stimulus bill that will likely pass Congress appears to change the deadline for the 1st through 3rd quarter federal estimated payments to October 15th.
  • The deadline to contribute to an IRA or Roth IRA is now July 15th.
  • You can contribute to an HSA for 2019 until July 15th.
  • If you are filing a claim for refund for 2016, that claim still must be filed by April 15, 2020 to be timely.
  • The IRS changes do not change state tax deadlines. However, many (likely most) states will move to the July 15th deadline.

Kudos to the IRS for getting this out quickly.

One other comment on payments: Tax software companies are working with the IRS to modify tax software to allow scheduling of tax payments after April 15th. This will likely take a couple of weeks to get done as this must be tested by both the software companies and the IRS.

UPDATE: The IRS can now handle payment scheduling through July 15th, and the software company we used announced we can schedule federal tax payments for dates up to July 15th. I’m not sure what will happen with estimated tax payments or the various states at this point, but that’s definitely a step forward.

Not All Tax Returns Have Been Extended

Monday, March 23rd, 2020

Friday night, the IRS made it official regarding income tax returns due on April 15th; they are now due on July 15th. However, not all returns have been extended.

First, while I expect most states to conform to this deadline it may take a week or two for this to occur. The AICPA is maintaining a list. Local property taxes are also still due as normal (in most areas).

But when we look at federal returns, not everything was extended. Let’s look at this form by form:

  • Forms 1040, 1040-NR, 1040-SR, 1041, and 1120: These are now due on July 15th.
  • Forms 1040-ES: This is where it gets confusing. First quarter payments due on April 15th have been extended to July 15th. However, second quarter payments due on June 15th are still due on June 15th. There is legislation pending in Congress that would extend the deadline for paying the first three quarters of estimated tax payments to October 15th. Some states (e.g. California) have extended second quarter payments to July 15th.
  • Forms 1065 and 1120-S: These were due on March 16th and were not extended.
  • Forms 706 (Estate Tax) & 709 (Gift Tax): These are now due on July 15th per IRS Notice 2020-20.
  • Form 720 (Excise Tax): These are still due on the original due dates.
  • Form 941 and Other Payroll Tax Forms: These are still due on the normal dates.
  • Form 990 (Non-Profits and Charities) Series: These are due on May 15th. As of today, they have not been extended.
  • Form 3520A: This was due on March 16th and was not extended.
  • Form 3520: This is still due on April 15th. However, an extension of time for Form 1040 extends the time for Form 3520. It’s unclear whether anyone not filing an extension has until July 15th to file Form 3520. The simple solution for anyone filing Form 3520 is to extend your return by filing Form 4868 or Form 7004.
  • Forms 4868/7004 (Tax Extensions): These are now due (assuming the underlying return has been extended) on July 15th. It is unclear how long an extension will be for (will extended returns be due on October 15th or January 15, 2021?).
  • Forms 8804/8805: The due dates of these have not changed from April 15th.
  • Form BE-10 Series: These are still due on May 29th. This is the required every five-year survey of US ownership of foreign entities.
  • Backup Withholding Payments: These are still due as normal.
  • FBAR (FINCEN Form 114): This was not extended. However, while the FBAR is due on April 15th, there is an automatic extension until October 15th.

I’m sure I missed a tax or two (and I’ll expand this as needed), but there are traps for the unwary.

Tax Day will be July 15th

Friday, March 20th, 2020

Secretary of the Treasury Mnuchin tweeted this morning (literally two minutes after I finished the previous post):

It will likely take a few days for the official IRS guidance to appear on this, but this was really the only course of action that could be done. I would expect every state to quickly conform to this change.

Secretary Mnuchin: It’s Time to Extend the Tax Filing Deadline to July 15th

Friday, March 20th, 2020

UPDATE: Two minutes after I finish this post Secretary Mnuchin announced that the tax deadline has been extended until July 15th.

I don’t want the deadline extended just to have it extended; however, it’s a necessity given what almost all tax professionals and their clients are going through today. Almost no tax professionals are seeing clients face-to-face. Many professionals have had to close their offices, or are working from home with reduced (or no staff). Given that over half of all tax returns are prepared by professionals, we’re between a rock and a hard place.

I’ve lost 25% of my staff. Now, we’re not a big firm but I suspect that between staff reduction and slower speeds of working from home, the 25% reduction in what we can do is typical of most tax firms (and it might even be better than most). I know we’re not getting to everything by April 15th.

Additionally, you are supposed to estimate your income when filing an extension. (Technically, if you don’t do that your extension can be ruled invalid by the courts and/or IRS.) That’s simply not going to happen this year. Yet the only thing firms will be able to do is simply file $0 extensions–there won’t be time to do anything else.

Consider firms in California. Yesterday, Governor Newsom ordered all businesses (except ‘essential’ businesses–and tax firms aren’t) closed, with sheltering at home. There will be firms where extensions don’t get filed!

My understanding is there is legislation pending in Congress that would extend the deadline to July 15th. Under the circumstances we’re in, Secretary Mnuchin should simply announce that the filing deadline and all payment deadlines (except wage withholding) are extended to July 15th. Right now, second quarter estimated payments are still due on June 15th!

Americans have a lot more to deal with than filing tax returns. Secretary Mnuchin, it’s time to do the right thing.

IRS Issues Official Guidance Extending Payments (but NOT Tax Filing Deadline) Until July 15th

Wednesday, March 18th, 2020

The IRS issued Notice 2020-17 extending tax payments until July 15th for most individual and corporate taxpayers. The Department of the Treasury also issued a press release noting the deferment of payments.

Again, the tax filing deadline has not been extended from April 15th. It may be in the future–while I can still work, many areas of the country (such as the San Francisco Bay Area and the Puget Sound) are under virtual lockdown. It would make a lot more sense to simply extend the deadline…but that has NOT happened.

Tax Deadline NOT Being Extended; Payment Deadline Extended for Most by 90 Days

Tuesday, March 17th, 2020

Secretary of the Treasury Mnuchin appeared at a press conference with President Trump. They stated that there will be a massive stimulus package. Additionally, Secretary Mnuchin stated that the tax deadline would not be extended because much filing can be done online:

We encourage Americans who can file taxes to continue to file taxes on April 15 because for many Americans, you will get tax refunds and we don’t want you to lose out on those tax refunds.

However, you can defer payment for 90 days in most circumstances:

If you owe a payment to the IRS, you can defer up to $1 million as an individual, and $10 million to corporations, interest-free and penalty-free for 90 days. File your taxes, you’ll automatically not get charged interests or penalties.

The problem with not extending the deadline is something we’re seeing in the San Francisco Bay Area: What if all non-essential businesses are ordered to close? (Tax preparation firms are not essential businesses.) I think there’s a good chance this will impact other areas of the country besides the Bay Area. We’ve already made plans for this. While we can do some work from home, the speed we can do things at is definitely reduced. Additionally, some of our staff simply can’t work from home because of security issues. If we’re ordered to close we will be forced to file extensions for many returns. Unfortunately, I strongly suspect this will happen throughout the United States.

In any case, there is some relief though I think it would have been far better to have simply extended the deadline to July 15th.

Today *Is* the Partnership and S-Corp Filing Deadline

Monday, March 16th, 2020

During a news conference last week President Trump stated something to the effect that he was ordering Secretary of the Treasury Mnuchin to extend tax filing deadlines. That has not happened as of the moment I’m writing this.

Today is the deadline for filing S-Corporation and partnership returns (including LLCs that file as partnerships). If you have not filed your return you must file an extension today. Your tax professional can do this electronically. If you need to do it, download IRS Form 7004 (you can find the instructions here), complete it, and mail it using certified mail to the IRS. You now have a valid extension.

While the tax professional community expects the personal deadline to be extended, that has not happened yet. That means that personal returns are due on April 15th. It’s possible–indeed, highly probable–that deadline will be extended. But we all have to wait and see as to if or when that will occur.

It’s Time to Start Your 2020 Mileage Log

Tuesday, January 7th, 2020

I’m going to start the new year with a couple reposts of essential information. Yes, you do need to keep a mileage log:

Last Thursday was the first business day of the new year for many. You may have resolved to keep good records this year (at least, we hope you have). Start with keeping an accurate, contemporaneous written mileage log (or use a smart phone app–with periodic sending of the information to yourself to prove that the log is contemporaneous).

Why, you ask? Because if you want to deduct all of your business mileage, you must do this! IRS regulations and Tax Court rulings require this. Written is defined as ink, so that means you need a paper log or must be able to prove your smart phone log is contemporaneous.

The first step is to go out to your car, and note the starting mileage for the new year. So go out to your car, and jot down that number (mine was 80,008). That should be the first entry in your mileage log. I use a small memo book for my mileage log; it conveniently fits in the center console of my car. It’s also a good idea to take a picture of the odometer;

Here’s the other things you should do:

On the cover of your log, write “2020 Mileage Log for [Your Name].”

Each time you drive for business, note the date, the starting and ending mileage, where you went, and the business purpose. Let’s say you drive to meet a new client, and meet him at his business. The entry might look like:

1/4 90315-90350 Office-Acme Products (1234 Main St, Las Vegas)-Office,
Discuss requirements for preparing tax return, year-end journal entries

It takes just a few seconds to do this after each trip, and with the standard mileage rate being $0.575/mile, the 35 miles in this hypothetical trip would be worth a deduction of $20. That deduction does add up.

Some gotchas and questions:
1. Why not use a smartphone app? Actually, you can but the current regulations require you to also keep a written mileage log. You can transfer your computer app nightly to paper, and that way you can have the best of both worlds. Unfortunately, current regulations do not guarantee that a phone app will be accepted by the IRS in an audit.

That said, if you backup (or transfer) your phone app on a regular basis, and can then print out those backups, that should work. The regular backups should have identical historical information; the information can then be printed and will function as a written mileage log. I do need to point out that the Tax Court has not specifically looked at mileage logs maintained on a phone. A written mileage log (pen and paper) will be accepted; a phone app with backups should be accepted.

2. I have a second car that I use just for my business. I don’t need a mileage log. Wrong. First, IRS regulations require documentation for your business miles; an auditor will not accept that 100% of the mileage is for business–you must prove it. Second, there will always be non-business miles. When you drive your car in for service, that’s not business miles; when you fill it up with gasoline, that’s not necessarily business miles. I’ve represented taxpayers in examinations without a written mileage log; trust me, it goes far, far easier when you have one.

3. Why do I need to record the starting miles for the year?
There are two reasons. First, the IRS requires you to note the total miles driven for the year. The easiest way is to note the mileage at the beginning of the year. Second, if you want to deduct your mileage using actual expenses (rather than the standard mileage deduction), the calculation involves taking a ratio of business miles to actual miles.

4. Can I use actual expenses? Yes. You would need to record all of your expenses for your car: gas, oil, maintenance, repairs, insurance, registration, lease fees (or interest and depreciation), etc., and the deduction is figured by taking the sum of your expenses and multiplying by the percentage use of your car for business (business mileage to total mileage driven). Note that once you start using actual expenses for your car, you generally must continue with actual expenses for the life of the car. Be careful if you (or your family) have multiple vehicles. You will need to separate out your expenses by vehicle.

So start that mileage log today. And yes, your trip to the office supply store to buy a small memo pad is business miles that can be deducted.