On Friday, the IRS announced an automatic extension on the time we need to file and pay our taxes. For this year, the April 15 deadline is pushed out to July 15.
Luke Sotir, a financial professional at Equitable Advisors based in Wellesley, Mass., says the extension can help free up cash for small business owners and other people who pay their taxes quarterly.
Sotir says that if you pay taxes quarterly, this extension pushes your first payment for 2020 out to July 15. “That means that money is available for other purposes — it’s an easy way to get it,” he says.
For small business owners, that extra liquidity could help keep people from being laid off. “It’s potentially a great help,” Sotir says. “It’s very handy if you have a cash flow problem, because it can give you some peace of mind. It can reduce anxiety and stress.”
Even people who are self-employed and people with side-hustle income might benefit from access to cash.
Time savings if you’re busy now
The extension also helps if you’re busy, whether you’re a healthcare worker or first responder, or you’re working from home and your schedule is crazy. “Things are a little hectic right now,” Sotir says.
With a July 15 tax deadline, you don’t have to worry about getting your taxes done in the next few weeks. And if the craziness doesn’t let up for you, you can request another extension until October 15.
You’ll still have to pay in July
It’s important to keep in mind that the extension doesn’t change how much you will eventually owe.
“It’s not a waiver of the amount due, it’s just an extension. Don’t let the opportunity turn into a negative by mishandling it. For a lot of people, it’s an easy way to get into trouble and do the wrong thing,” Sotir says.
Are states pushing out their tax deadlines?
It’s difficult — perhaps impossible — to file your state taxes without first calculating your federal taxes.
Sotir anticipates that most states will follow along and extend their filing deadlines — many already have. If your state doesn’t, you can request an extension at any time. Check online with your state’s department of revenue.
Not everyone needs an extension
“For a lot of people, it’s not going to matter,” Sotir says. “If you get a refund or owe a little bit it’s not going to make much difference.”
And if you don’t need to free up the cash you’ve earmarked for quarterly tax payments, just go ahead and file, he adds.
Of course, if you expect to get a refund you should file as soon as possible. “Just file and get your money,” he says.
What if you’re planning to retire soon?
The tax extension itself shouldn’t affect your retirement plans. But with recent market volatility, some people are rethinking their retirement.
Sotir says that people who are planning to retire in 2020 might want to look at their retirement contributions. For example, he has one client who was planning to retire this year and was maxing out his contributions by his retirement date. He’s now thinking about working longer, which means he can spread out those contributions through the end of the year.
And small business owners may want to press pause on their plans. “If your retirement is focused on selling a small business to someone else, you can hold off and see how things go,” he says.
What if you’re recently retired?
Again, it’s market volatility more than the tax filing extension that might factor into your planning.
“Everyone should take a good look at what’s going on and see if the assumptions you made have to be tested. If you have a good plan you should be in good shape,” Sotir says.
He says he’s getting calls from clients asking if they should reallocate into more equities. “I’m telling people that could be appropriate, but to be careful right now. They shouldn’t rush into anything — this is unprecedented,” he says.