As the extended 2019 federal income tax filing deadline approaches on July 15, 2020, the IRS is reminding individuals who have yet to file their 2019 returns that there are a variety of options to help them file their returns. In addition, if they have a balance due on their returns, there are a number of options for paying the balance due in case they do not have the funds currently available to pay. This column reviews these filing and payment options.
Also presented is the deadline for filing for submitted estimated tax payments for the first and second quarter of 2020 and, if necessary, how to amend one’s 2019 federal income tax return.
It should be emphasized that the IRS encourages individuals to file electronically. Electronic filing options include IRS Free File (www.irs.gov/filing/free-file-do-your-federal-taxes-for-free) or commercial tax software. This is because individuals who file electronically will likely be informed of any obvious errors and omissions on his or her return before the return is submitted electronically.
Requesting Extra Time to File 2019 Tax Returns
Individuals are not yet to submit their 2019 tax returns can request a three month extension to file their 2019 federal income tax returns with a due date of October 15, 2020. But it is important to emphasize that an extension to file is not to an extension to pay any tax due on the 2019 return.
To get a 2019 federal income tax filing extension, individuals must estimate their tax liability on an electronic filing request. If a paper form is used to apply for a filing extension, then IRS Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Tax Return) (may be downloaded at www.irs.gov/pub/irs-pdf/f4868.pdf) is used. An estimate of one’s 2019 tax liability must be made on Form 4848 and any amount due must be paid with a check payment included with Form 4868 when it is mailed, no later than midnight July 15, 2020. In determining one’s 2019 federal tax liability, if an individual determines that he or she is due a refund on 2019 federal income taxes, then it is not necessary to file an extension using Form 4868,
Individuals paying any anticipated balance due on 2019 income taxes using IRS Direct Pay (www.irs.gov/payments) or a credit or debit card will get an automatic extension of time to file.
Special rules may apply if an individual is: (1) Serving in a combat zone; a qualified hazardous duty area; or (2) living outside the U.S.
Options for Individuals Unable to Pay Tax Due
If an individual is unable to pay a balance due on his or her 2019 federal income tax return, then the individual should either file the 2019 return or request a filing extension, paying as much as possible with the return or extension. The IRS will bill the individual within a few months of filing the return or the extension. The individual will hopefully be able to pay any balance due at that time, with added on interest charges.
Other options is to pay any balance due include:
(1) Using a credit card; and
(2) Taking out a general purpose TSP loan and using the loan proceeds to pay the IRS the balance due on 2019 income taxes.
Extension of Time to Pay
Normally an individual can request a six-month extension to pay for his or her income tax returns. But for 2019 returns, a three-month extension may be granted since the filing extension was extended three months to July 15. The extension of time to pay can be requested by filing IRS Form 1127 (Application for Extension of Time for Payment of Tax Due to Undue Hardship) (can be downloaded at www.irs.gov/pub/irs-pdf/f1127.pdf).
The individual must show that he or she cannot sell assets or borrow to pay the tax except under terms that would cause severe loss and undue hardship. Statements of assets, liabilities, and receipts, and disbursements for three months preceding the due date of the tax (in this case, July 15, 2020) are required. Form 1127 must be filed by July 15, 2020. An approved extension eliminates the late payment penalty but has no effect on interest charges on the amount due and paid late.
Internal Revenue Code Section 6159(c) requires the IRS to accept proposed installment agreements from individuals who owe federal income taxes of $10,000 or less (excluding interest and penalties) and who agree to fully pay the tax liability within three years. This individual also agrees that he or she has not entered into an installment agreement within the preceding five tax years and has not failed to file an income tax return or pay any tax shown on such returns during any of the preceding five tax years. Finally, the individual also agrees to file and pay all tax returns during the terms of the agreement.
In short, it is important for individuals who owe on their 2019 federal tax returns to do something before July 15, 2020 with regard to filing a 2019 federal income tax return, whether it is filing the return itself and paying any amount due, filing for an extension via IRS Form 4868, filing for an extension of time to pay via IRS Form 1127, or applying for an installment agreement.
First and Second Quarter 2020 Estimated Tax Payments Deadline Also July 15, 2020
For those individuals who must make federal estimated income tax because they have no or insufficient federal income tax withholding from various income sources (for example, investment income or rental income), the deadline for making an estimated tax payment for both the first and second quarter of 2020 is July 15, 2020.
Amending 2019 Federal Income Tax Returns
Some individuals have already filed their 2019 federal income tax returns. Their returns have been accepted by the IRS in recent weeks or months and either any balance due amounts were paid or IRS refunds were issued. But the individuals have now discovered that their 2019 returns have to be amended. Amended returns are a result of inadvertent omission of some taxable income (resulting in an understatement of tax liability) or failing to include some deductions or taking advantage of certain tax credits (resulting in an overstatement of tax liability).
For the first time, the IRS is allowing the electronic filling of federal amended tax returns, Form 1040X. The actual submission of Form 1040X may be done starting July 16, 2020.
State Income Tax Filing Requirements, Including Non-Resident Income Tax Filing
For those individuals who live in states with state and local income taxes, July 15 is likely the filing deadline for submitting a 2019 income tax return. Individuals should check with their state revenue departments about any filing deadlines and procedures for filing extensions.
In addition, those individuals who have rental income coming from states in which they are nonresidents should be aware that if that state has a state income tax, they should file a nonresident state income tax return. In so doing, they are entitled to a state income tax credit on their residential state income tax return for the taxes paid to the other state.
For example, if an individual is a resident of Maryland but owns rental property in Virginia that is generating net income (both Maryland and Virginia impose income taxes on their residents), then the individual must file a nonresident tax return for the Commonwealth of Virginia (in addition to filing a Federal and a State of Maryland income tax return) reporting the rental net income. The individual will receive a Maryland state income credit for any taxes paid to the Commonwealth of Virginia on the rental net income.