Most taxpayers are familiar with the traditional April 15 tax filing deadline, however much fewer are aware of another important tax filing deadline – October 15. This year, the April 15 filing deadline was postponed to May 17. For the increasingly large number of taxpayers who opted for an extension of the deadline, the extended deadline remains October 15th, which is the last date they can file their 2020 taxes without potentially incurring penalties.
As the extension filing deadline approaches, the AICPA is addressing some common questions many taxpayers still have:
1. What happens if I filed an extension on May 17 and I end up owing taxes?
There will likely be penalties and interest on the balance due, but it is important to go ahead and get the return filed by the due date of October 15, even if you are not able to pay the tax at that time. There could be additional penalties assessed for failure to file the tax return in a timely manner, so it’s better to go ahead and file.
2. My CPA/tax preparer has finalized my tax return to be filed, but I am not able to pay the balance due. What should I do?
As mentioned before, it is important to go ahead and file the return and pay as much as you are able with the return. If you are unable to pay the balance of the tax due, you have several options. You may be able to apply online with the IRS for a payment plan, request the IRS to temporarily delay the collection process, or alternatively determine if you qualify for an offer in compromise to settle your tax debt for less than the full amount.
3. Oops, I forgot to file an extension on May 17. What happens now?
Remember the advice to file as soon as possible – that still applies. Penalties and interest may be assessed from the original due date of the return and those will just increase with the delay of filing the return and making any payments due.
4. My CPA/tax preparer is asking if I received an economic impact payment during 2020 or early 2021. How do I know if I received a payment and what the amount is? How will this impact my filing and/or return?
There were two economic impact payments that may affect your 2020 tax return. If you did not receive these payments, you may be eligible to claim a credit towards your 2020 tax liability. If you did receive payment(s), you will not include the payment(s) in your taxable income on your federal return or pay income tax on the payment(s). The payment(s) will not reduce your refund or increase the amount you owe when you file your 2020 return (see IRS FAQs). If you don’t know if you received a stimulus payment, you can find out when and how your payment was sent with the IRS Get my Payment tool.
5. I have been receiving advance child tax credit payments that started in July. Does this affect my 2020 return in any way? How will it affect my 2021 return?
Changes to the child tax credit as part of the American Rescue Plan Act, passed in March 2021, included that half of the total estimated credit would be paid in advance monthly payments beginning in July 2021. The other half of the credit will be claimed on your 2021 return. If you have changes to your eligibility for the child tax credit or would like to find out more information about the payments that have been made to you so far, check out the manage payments tool on the IRS website.
“Tax time can be very confusing for a lot of Americans, and recent laws and economic impact payments can increase the complexity of tax filings,” said April Walker, CPA, Lead Manager for Tax Practice & Ethics with the AICPA. “It can be easy for those who took an extension in April or May to forget about the October filing deadline but falling behind on tax filings can result in bigger problems for taxpayers down the road. We encourage taxpayers to talk to a tax professional to help them meet their tax obligations and avoid unnecessary penalties.”
About the American Institute of CPAs
The American Institute of CPAs® (AICPA®) is the world’s largest member association representing the CPA profession, with more than 428,000 members in the United States and worldwide, and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting. The AICPA sets ethical standards for its members and U.S. auditing standards for private companies, not-for-profit organizations, and federal, state and local governments. It develops and grades the Uniform CPA Examination, offers specialized credentials, builds the pipeline of future talent and drives continuing education to advance the vitality, relevance and quality of the profession.