How do you spell tax relief?

On March 18, 2020, the IRS released Notice 2020-17, which provides substantial tax relief designed to help taxpayers and investors dealing with economic fallout from the COVID-19 pandemic. The primary benefit of this relief is an extension of time to pay your taxes. Specifically, with certain conditions, individuals (and trusts) may defer income tax payments that otherwise would have been due on April 15, 2020, until as late as July 15, 2020.

Simply put, the relief works like this:

You still must file either your 2019 income tax return or an extension by April 15, 2020. However, you can delay paying up to $1 million of your outstanding 2019 federal tax liability and your first quarter 2020 estimated tax payment, combined, until as late as July 15, 2020, without incurring any penalties and/or interest.

Of course, when it comes to taxes, nothing is ever really that simple, so here are answers to a few common questions we’ve already been receiving:

Question: Do I qualify for this relief?

Answer: Do you owe the IRS a payment for 2019 income taxes? Do you have to pay a first quarter 2020 estimated tax payment? If the answer to one or both of these questions is “yes,” then you are eligible to receive relief!

Question: Is the $1 million maximum the same for everyone?

Answer: The $1 million maximum applies to all taxpayers (except corporations), including trusts, regardless of filing status.

Question: Is there a special form that must be filed, or other action necessary to be eligible for this relief?

Answer: No. The relief is automatic.

Question: Does this mean that I can wait until July 15, 2020, to make my 2019 traditional IRA, Roth IRA and/or HSA contribution?

Answer: No. The deadline for making these contributions is the filing deadline, not the payment deadline. Because this relief only delays the payment deadline, contributions to the accounts mentioned above must continue to be postmarked by no later than April 15, 2020.

Question: What if I owe more than $1 million between my outstanding 2019 tax liability and my first quarter 2020 estimated tax payments?

Answer: To avoid accruing penalties and/or interest, you must pay any amount you owe in excess of the $1 million maximum amount eligible for relief by April 15, 2020. The balance of your payment can then be made by July 15, 2020.

For example, suppose that you owe a balance of $900,000 to cover your 2019 tax liability, and you have a first quarter 2020 estimated tax payment of $250,000. That means you have $1,150,000 of total payments that would normally be due on April 15, 2020.

To avoid any penalties or interest, you would need to make a payment of at least $150,000 by April 15, 2020. The remainder, $1 million, could be paid as late as July 15, 2020.

Question: If I’m not mistaken, my second quarter 2020 estimated tax payment is due on June 15, 2020. Are you saying that, if I take advantage of this relief, I’m going to have to pay my second quarter 2020 estimated tax payment before I pay my first quarter 2020 estimated tax payment?

Answer: Yep! This is going to be a very weird year for many of us in many ways.

Question: I plan to file my tax return by the April 15, 2020, deadline and would rather just pay my tax liability now so that I don’t have to worry about it. Is that OK?

Answer: Yes. Uncle Sam is always happy to take your tax payments early.

Question: What if I’ve already filed my taxes, and have a payment scheduled to automatically be deducted from my account on or before April 15, 2020?

Answer: You may call IRS e-file Payment Services 24/7 at 1-888-353-4537 to inquire about or cancel your payment. We would suggest, however, that you wait at least seven to 10 days after your return was accepted by the IRS before calling. So, if you filed within the last week, you may have to wait a few more days before calling to stop your payment.

Question: I’m expecting a refund. Is there any reason for me to wait to file my tax return?

Answer: If you expect a refund, it is generally better to file your tax return as soon as possible. Nothing associated with this relief changes that equation.

Summary of Deadlines

April 15, 2020: File your 2019 income tax return or an extension. If your outstanding 2019 tax liability and first quarter 2020 estimated tax payment exceed $1 million when combined, pay the amount in excess of $1 million.

June 15, 2020: Pay your second quarter 2020 estimated tax payment.

July 15, 2020: Pay your outstanding 2019 tax liability and your outstanding first quarter 2020 estimated tax payment.

It’s important to note that this relief only applies to 2019 federal income tax liabilities. If you owe state taxes as well, be sure to check with your tax preparer to see if any additional relief is available at the state level.

This information could change quickly and without much or any notice as additional guidance becomes available, so we will continue to keep you informed.

Mitch

Mitchell Bloom is President and founder of Bloom Financial, LLC. Bloom is a boutique financial planning firm. It specializes in transactional tax planning. It also focuses on retirement income planning, estate planning, and investment management. The company prides itself on its cornerstone, “Financial Advice in Plain English.” With over 36 years of helping 100’s of clients with retirement planning, Mitch has taught classes for some of the largest institutions in Colorado. Over the last three years, modernization of financial services technology has streamlined and simplified client financial planning facilitation. It has also expanded outreach capacity, planning options, and reporting capabilities. This new partnership best helps individuals and families with highly appreciated businesses, stock, crypto, art, CRE, and rental properties. It also serves highly compensated executives and business owners. The Bloom Financial/FourStar partnership increases clients’ reach in the ever-evolving world of financial planning breakthroughs, tactics, and tools. The firm consults industry economists in addition to different viewpoints of The Capital Market Assumptions 10-year Outlook. For example, the decade starting in 2024, assumptions for U.S. equities range from Vanguard’s 4.2%-6.2% to BNY Mellon’s 7.4%1, 2. These numbers are well below the market average. President, Mitchell Bloom said, “the standard 60/40 model portfolio may be facing a tough decade ahead. One of our goals is to improve clients’ chances of investment success using diversified alternative investments. We get excited teaching clients about our Core-Satellite investment philosophy commonly used by institutional investors and universities like Yale and Harvard. For clients who qualify, we tilt their Satellite portfolios towards alt funds. These invest in start-ups, angel investments, private equity, hedge funds, and real estate.” Bloom’s mission is to help clients become liberated from the stress and anxiety of understanding taxes, markets, retirement, and the transfer of wealth to the next generation. Over the last 36 years, Bloom has developed a nationwide team of trustees, tax attorneys, CPAs, business brokers, certified financial planners. They also work with insurance auditors, art appraisers, custodian banks, third party service providers, and investment advisory firms. FourStar Wealth Advisors is a Registered Investment Advisor firm headquartered in Chicago. FourStar Wealth is an independent firm without the conflicts or restrictions of the old school firms. We believe success in achieving financial goals starts with a comprehensive wealth strategy. We help you define what is most important to you and formulate the strategies suited for your needs This applies to whether you are accumulating wealth or investing for income, solidifying your retirement plan, or devising a distribution approach that meets your lifestyle and legacy goals. Bloom is a Registered Investment Advisor Representative with FourStar Wealth Advisors of Chicago and is partnered with Buckingham Strategic Partners for portfolio management, financial planning, and back-office support. Founded in strategic investing that is scientific, consistent, and above all, based on decades of research and innovation. Buckingham Strategic Partners Investment Committee has included noted academics Dr. Harry Markowitz, winner of the Nobel Prize in Economics in 1990, and Dr. Meir Statman, one of the pioneers in the field of behavioral finance. Passion and integrity are at the heart of the firm’s values, actions, and culture.