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Tips for Advisors to Navigate the May 17 Tax Deadline

US News & World Report -  Money logo US News & World Report - Money 5/6/2021 Coryanne Hicks
a group of people looking at a laptop: Happy black bank manager with face mask using touchpad while talking to her clients on a meeting in the office. © (Getty Images) Happy black bank manager with face mask using touchpad while talking to her clients on a meeting in the office.

The IRS extended the 2021 tax filing deadline for 2020 taxes from April 15 to May 17. This extension is the IRS's way of helping American taxpayers "navigate the unusual circumstances related to the pandemic," IRS Commissioner Chuck Rettig wrote in a statement.

The IRS is giving extra support to victims of the winter storms in Louisiana, Oklahoma and Texas, who have until June 15 to file their federal tax returns and make payments.

Here's how financial advisors should approach the extended tax deadline.

What Advisors Should Know About the May 17 Tax Filing Deadline

Taxpayers outside of Louisiana, Oklahoma and Texas have until May 17 to file their federal returns and make payments for 2020. There's no form to file or special request required to receive this grace period, says Eric Bronnenkant, a certified financial planner, certified public accountant and head of tax at Betterment.

"This special extension is a true 'free lunch,'" he says. "It has no dollar limitations and includes any self-employment tax due."

This is an extension for federal tax returns, not necessarily state returns. "Since states frequently march to their own beat, it would be wise to check each state's deadline," Bronnenkant says. Links to each state's tax agency website are available on the Federation of Tax Administrators website.

What the extension does not include is estimated tax payments for tax year 2021, which were still due on April 15, and will be due on June 15. Pandemic or no pandemic, taxes must still be paid as clients earn income throughout the year. For most employed individuals, this is done through withholdings on their paychecks by their employers. But individuals with income that's not subject to withholdings, such as self-employed income, interest and dividends, need to make quarterly estimated tax payments.

Taxpayers who need an extension beyond May 17 for a 2020 tax return can submit an extension request for Oct. 15 by filing Form 4868 through a tax preparer, tax software or the IRS directly, as in previous years, says Trina Patel, financial advice manager at Albert, a personal finance app. The difference this year is that clients have until May 17 – as opposed to April 15 – to make this extension request.

Be aware that the Oct. 15 extension does not apply to tax payments. "You must pay your taxes by May 17, 2021 or you will be subject to penalties and interest," says Paul T. Joseph, attorney, CPA and founder of Joseph & Joseph Tax & Payroll.

May 17 is also the last day to request a refund for a 2017 tax return, he says. Usually taxpayers have until three years after the original tax filing date to request a missing refund. But this year, taxpayers get an extra month. After May 17, however, the IRS will not honor a request for a 2017 refund, Joseph says.

If your clients suspect they're due a refund from previous years, they can request a copy of their tax transcript for free from the IRS's website. Tax transcripts summarize return information and are available for the prior three years. IRS copies of actual tax returns are also available as far back as six years but come with a fee.

What to Do Before the May 17 Tax Deadline

The May 17 extension doesn't only apply to tax returns. The IRS also extended the deadline to contribute to individual retirement accounts – both traditional and Roth IRAs – and health savings accounts to May 17. Advisors can encourage clients to take advantage of this by making contributions to any accounts they haven't already maxed out.

"Making a 2020 traditional IRA or HSA contribution may entitle an individual to a deduction, which may also help qualify for additional stimulus payments if some portion were lost due to income limitations," Bronnenkant says. "This contribution strategy may also help reduce the taxation of unemployment benefits." He recommends running estimates through tax software beforehand to see the potential impact of contributions on an individual's tax situation.

That said, the best planning your clients can do before May 17 may be simply to get their tax return filed sooner rather than later. "If you are expecting a tax refund, you should file taxes as soon as possible, so you can get your refund back sooner," Patel says. Refunds are expected to be distributed within 21 days of e-filing.

Copyright 2021 U.S. News & World Report


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