As I’m sure you’ve heard, it’s official — though it has a lot less meaning and impact than expected. The IRS has moved the individual income tax filing and payment date from the “usual” April 15 to my birthday: May 17, 2021.
But they did not include estimated tax payments or business returns in this extension. Please give me a real birthday present and contact Congress to request this essential small business relief.
IRS Commissioner Rettig neglected to do a few key things that were necessary to assist small business owners and their CPAs:
– Same as last year, the new date was announced after the March 15 deadline for filing S-Corp and Partnership tax returns; due to a long list of new guidance and still-awaited guidance, this forced us to do extra work to put approximately 75% of our clients in this category on extension.
– The extension does not apply to C-Corps and Co-ops, whose returns are still due on the original date of April 15th. This category represents approximately 15% of our struggling small business clients.
– The May 17th extension is only for 2020 tax year filings and, quite problematically, does not apply to first-quarter 2021 estimated taxes due on April 15th, which almost all of our clients are required to pay.
Furthermore, when recently questioned about whether or not there was a way the IRS could help small business owners by coordinating the first-quarter payment with the new deadline, Rettig flatly refused: “no”. Pressed regarding the consequences that not extending this due date would have on small business owners, Rettig said that they had to draw a line somewhere to keep wealthy taxpayers from “gaming the system” (for one month, really?); that small business owners challenged by this could just call the IRS if they have a problem (because that’s been going so well this season?); and tried to point out that the penalties aren’t really that high (so suck it up, and never mind that the state penalties are out of control?).
I cannot begin to express the frustration and disappointment with this decision, and I am not alone.
“The announcement is far too selective in who is receiving relief,” Barry Melancon, AICPA’s president and chief executive, said in a statement. “Failure to include estimated payments nullifies any benefit of a postponement since the tax return work has to be done to calculate estimated payments.”
“While this is welcome news for some taxpayers, there are a number of concerns that this limited extension does not address,” writes Frank Washelesky of ORBA. “The IRS extension does not extend the time for paying first quarter estimated income taxes for the 2021 tax year. It is difficult for taxpayers to determine the amount of the estimated tax required without, at least, a reasonable estimate of their 2020 tax situation. Without an extension of these payments, the filing extension to May 17, 2021 has minimal value for many taxpayers.”
Here’s what the problem is: most small business owners need to pay quarterly estimated taxes to the IRS based on either:
1) 100% of the prior-year’s tax liability; or,
2) 90% of the current-year’s tax liability (which we can’t know yet, so we extrapolate based on the actual profit from the quarter).
Based on a somewhat complex set of rules (which are often different at the state level), small business owners and their tax advisers calculate the actual amount to submit. But they generally need to know both these amounts — which is impossible if their tax return for 2020 hasn’t been filed yet. See why this mismatch in dates is a problem?
And to spice things up even further, not all states are going along with the IRS rules. Taxpayers and their advisers need to check with each agency separately (here’s a good running list at-a-glance). Illinois recently decided to comply with the IRS dates, meaning that the quarterly estimated tax problem exists with our Department of Revenue as well.
“This selective decision by the IRS unfortunately creates more bureaucracy and confusion and is out of sync with real world stresses that taxpayers, tax practitioners and small businesses are dealing with,” said Melancon.
How can you help?
You can call or email your politicians and ask them to include estimated and corporate taxes in the new deadline.
We in the accounting profession would be greatly appreciative if you could contact your Congressional Representatives and Senators and ask them to move ALL tax return and payment due dates, including estimated tax payments and corporate taxes.
I know it’s a pain, but AICPA insists that this type of grassroots work really does have an impact… and if you care about the physical and mental health of your tax preparer, and about the anxiety level and financial well-being of millions of small business owners, you’ll hopefully take a moment to make our request go a bit further.
Thank you!
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