Although the 2020 tax filing deadline has been moved from the standard April 15 to July 15, you might be wondering what to do if you’re still not ready to file your return. Here’s what you need to know.
You can file for an extension, giving you more time to prepare your return
For many filers, tax time can be a chore—poring through confusing forms and sometimes getting stuck in paperwork limbo. Missing data, a complex situation, or lingering hopes that you can sneak in one more deduction might have you wondering whether you can get everything done before the deadline. Plus, what if you’ve been struggling with the recent global events that have caused major disruptions?
The good news is an extension has been granted for the 2019 tax year—from the standard April 15 deadline to July 15, 2020. But if you still require more time, you might consider filing an extension.
Here’s what you need to know if you’d like a little more time to get everything done. But remember you’ll need to file something—a return or an extension—by the July 15 deadline.
First of all, if you’re looking at your paperwork and thinking you could use just one more deduction, you might be in luck. If you have an Individual Retirement Account (IRA) or Health Savings Account (HSA), but didn’t max them out last year, you can still get a tax deduction if you qualify—as long as you get the money into your account by July 15.
For the 2019 tax year, the federal tax filing deadline has been extended—to July 15, 2020. And according to the IRS, because the filing date for federal returns has been postponed, the contribution deadline for IRAs and HSAs has also been extended to the July 15 date.
Some states are extending filing deadlines as well as payment deadlines, so check with your state tax authority to find out how the current conditions may affect you. The situation remains fluid, though, so stay up to date on the latest as we all work through what’s shaping up to be a challenging year.
“Review your contributions to accounts like IRAs and HSAs,” said Eric Nisall, a tax professional specializing in small and online businesses. “You can still make previous-year contributions until tax day.”
In fact, you can even open an account. If you planned on opening an IRA last year and didn’t make it happen, you can still open one, fund it, and take the deduction. The same goes for an HSA. As long as you qualify for an HSA, you can open one and make a previous-year contribution.
Nisall warned that you need to double-check everything before making your contribution, though. There should be a choice for “previous-year contribution.” Be sure that box is checked before you submit. Otherwise, you could end up contributing to the wrong year.
Before moving forward, make sure you’re eligible for these accounts. There are limits to IRA deductions, including income limits, so your contributions might not make a difference on your return. And although there are no income limits associated with claiming a deduction for an HSA, you do need to have a high-deductible health plan in order to open one.
With a tax extension, you have until October to turn in your paperwork, giving you some breathing room if the paperwork really isn’t ready.
“If there’s any doubt that you’re going to make it by the deadline, just file for an extension,” Nisall said. “Filing for an extension doesn’t mean you have to wait. It just gives you the option.”
He pointed out that it’s better to have an extension and take the time to complete your return the right way, rather than rush through things and wind up having to file an amended return later. An extension can be filed online with a single form. You get automatic approval by filing Form 4868.
“Once that’s in place, you have the ability to file whenever it works for you, up until October,” said Nisall. “If you end up filing before tax day anyway, fine. If you need until September to get your documentation together, you have that time.”
Realize, though, that even if you file an extension, you’re still on the hook for payment. If you know you’re going to owe, do your best to estimate your tax bill, Nisall suggested. The IRS still expects to be paid, even if you haven’t finished your tax return. You’ll be assessed 1% of the amount owed for each month you don’t pay.
Failure to file your tax return on time comes with a bigger penalty than you might expect: 5% of the balance you owe. However, if you file for an extension, your penalty is only 0.5%. It’s still a penalty, but it’s much smaller (and if you end up filing on time, you avoid that penalty too).
There might be several reasons to file for an extension, including:
Even if you’re not quite ready for tax time, you still have choices. You can file for an extension if you need a little extra room to get it right, and you may still be able to claim deductions for previous-year contributions. Take a few minutes to review the situation and decide if an extension is the right move for you.
Maximum contribution limits cannot be exceeded. Contribution limits provided are based on federal law as stated in the Internal Revenue Code. Applicable state law may be different.
TD Ameritrade does not provide legal or tax advice. Please consult your legal or tax advisor before contributing to your IRA or making tax decisions.
The key to filing taxes is being prepared. TD Ameritrade provides information and resources to help you navigate tax season.
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