Tax Law Changes Due to COVID-19

Many U.S. citizens have been subjected to financial and other difficulties due to the pandemic. In March, 2020, the U.S. Treasury Department issued an extension of time for filing, and paying, income taxes for individuals. The good news is that you have until July 15, 2020, to file your 2019 individual income tax returns and pay your taxes. Even better news is that you will not be penalized for filing the returns and paying your taxes after April 15, 2020, which is the original legal due date. This exception for the filing date is only applicable to this year due to the disruption in the economy and the “safer at home” implementation protocol for reducing the spread of COVID-19.

Confusion arises when you are one of the taxpayers required to make estimated tax payments to resolve your tax liability. For example, the typical estimated tax payment schedule would be April 15, 2020, June 15, 2020, September 15, 2020 and January 15, 2021. The confusion arises when the original due date for your 2019 return has been extended beyond the payment date for your second quarterly estimated tax payment. To reconcile this quandary, the IRS changed the order of the required estimated tax payments to be as follows: 1st quarter – July 15, 2020; 2nd quarter – July 15, 2020; 3rd quarter – September 15, 2020; and 4th quarter – January 15, 2021. 

Additional time to file returns and pay taxes is an anomaly for U.S. tax filers. Typically, an extension of time would be requested by filing a Form 4868 with the IRS on or before April 15. Consequently, if additional time is needed to complete and file your 2019 returns beyond the extended due date of July 15, you must file a Form 4868 to request additional time to file until October 15, 2020. Remember, the tax you owe for 2019 must be paid by July 15, 2020, or additional penalties and interest may be incurred. To alleviate these onerous penalties and interest, remit your estimated amount owed with your filing of Form 4868.

For those of us that are charitably minded but lack the required level of expenses that qualify for itemizing deductions on our individual return, the IRS is allowing an “above-the-line” deduction of $300 for qualified charitable contributions. My philosophy is to support my favorite qualified exempt organizations despite the ability to deduct the contribution. The pandemic has dealt a cruel blow to the finances of many exempt organizations during a time the need is much greater than anticipated. Take advantage of this opportunity to provide support for our citizens in need of these services and deduct up to $300 without itemizing your deductions for your 2020 income tax returns.

Individuals who wish to be generous in their contributions to exempt organizations can donate even more than the previously law allowed in 2020. Under prior law, the limit for cash donations was increased from 50% to 60% of the taxpayer’s adjusted gross income. The CARES Act suspends the limit of 60% and allows you to contribute 100% of your adjusted gross income to qualified exempt organizations. This provision of law was intended to help the funding shortfalls of the exempt organizations during the pandemic. The suspension applies to cash contributions only (of course, a check or other forms of cash will suffice) and not to contributions of property. Let’s support these organizations that provide a substantial service to our communities!

Lastly, join me in taking the necessary actions to eliminate or thwart the spread of the virus. Each of us has a responsibility in our community to do our part. Adhere to the three “W’s”: Wear a mask, Wait for six feet in distance between you and others in small gatherings to avoid close contact and Wash your hands. All people, including our friends in other countries, should care for one another and work together to rid our world of this deadly virus.

Related Podcasts

Strategies for Using Your Stimulus Check

Have we secretly transported to another universe? We can’t sit in a restaurant and eat dinner. We can’t attend a movie theatre. We can’t even visit our friends. All of these changes in life because of one thing – a virus. Have we experienced a paradigm shift in our lifestyle in the United States? I say NO WAY!

The United States Treasury has begun the process of issuing stimulus payments to qualified American citizens. Checks and direct deposit payments started crediting the checking and savings accounts of my fellow countrymen earlier this week. Most of us will receive a benefit of $1,200, some will receive a lesser amount and others will receive nothing. What do you do with this sudden inflow of money?

One of the most basic strategies of using your stimulus benefit is to establish a plan that addresses your most critical needs. For example, if you are in need of shelter, food or medicine, you should utilize the funds for these purposes. What if your mortgage is a federally-backed loan (such as FHA loans)? You may be granted payment relief for 6 – 12 months! If you are renting, perhaps your landlord will allow you to defer a month or two so that you can focus on the more important matter of your health. Any medicines you may require to maintain your health would be the focus for using your stimulus check.

If your basic living needs are met, you should consider saving the stimulus funds to enhance your emergency funds. It is vital that you maintain a minimum of 60 – 90 days of living expenses in a readily available account for emergencies. Guess what? The current pandemic we are living through is one of the emergencies for which this fund would be utilized! By maintaining access to funds that will allow you to live your life as you desire, at least for a period of time despite the ever-changing world around you, is both comforting and empowering. To know that your lifestyle can continue through times of struggle gives you the mental confidence to meet other challenges that may arise in life.

Let’s assume that you accumulated ample savings in your emergency fund. You may wish to review your debts and pay down, or even better pay off, certain high interest debts such as credit cards. I am not a big fan of credit cards due to the ease of abuse of such unsecured credit that allows individuals to live beyond their means. The phrase my father often tells me come to mind pertaining to credit cards – “give a man enough rope and he will hang himself”. During times of economic distress, many credit card companies will lower your interest rate for a period of time, if you contact them, and have been making your payments consistently and on time. Once the card is paid in full, place it in a zip-lock bag, then place the bag in a plastic container of water. Next, place the container in your freezer. This will require some effort on your part to free the card from the ice causing you to expend energy and time thinking about the use of the card.

Should you have none of the above needs, consider yourself a lucky person! The use of your stimulus benefit could be a very positive act such as contributing to an Individual Retirement Account (IRA) for a tax deduction. By saving for your future with an IRA, you will be preparing for the future in a bold way. Your needs are met today, for the next 90 days and for your future!

Related Podcasts