The tax deadline is coming Wednesday after tax season was extended by three months to give taxpayers and preparers more time to deal with the novel coronavirus pandemic, but many of them will be dealing with extensions and amended returns in the months ahead.
“It seems like people have been really busy,” said Bill Smith, managing director of CBIZ MHM’s National Tax Office. “It’s like the regular season was going from the middle of February until early July. It has been crazy with all the changes with the CARES Act and having to look back with clients to see what losses they had to carryback and with the retail glitch.”
The CARES Act rolled back the limits in the Tax Cuts and Jobs Act on carrybacks of net operating losses, allowing NOLs to be carried back five years. It also made a technical correction in the TCJA to fix what became known as the “retail glitch” that was preventing stores and restaurants from getting a full tax break on renovations and improvements.
Those two changes alone are likely to generate many amended tax returns in the months and years ahead. However, there are many open questions ahead about matters such as the “mailbox rule,”: which requires tax returns to be delivered or postmarked by July 15. But with the IRS still contending with millions of pieces of unopened mail that have been sitting for months in trailers and are starting to be opened by IRS employees who have been required to return to work, despite cases of COVID-19 in some of the IRS facilities.
“If you can file by fax or paper, one of the issues we never did resolve was whether the mailbox rule would protect you if you have to send paper, if the IRS service center is closed, or if it’s rejected and comes back,” said Smith. “It’s not clear whether you are or not. I haven’t seen anybody talking about that.”
He noted that there was recently a change on an IRS web page that said mail might be returned, but it didn’t provide any guidance.
“Typically if you were relying on the mailbox rule, you’d have to show the IRS received it within a certain time,” said Smith. “We’re saying use one of the designated private delivery services and keep all of the documentation, if it comes back or gets lost.”
One issue that the IRS did address was about balance due notices, which may contain the wrong due date. Instead of reprinting the entire notice, the IRS is enclosing an insert in the envelope with the correct due date, which has been extended until either July 10 or July 15, 2020, depending on the type of tax return and the original due date.
Steven B. Zelin, managing member at Zelin & Associates CPA LLC in New York, noted that there are a few other wrinkles this year from the coronavirus. “If you are a regular civilian, you should assume your face mask is not tax-deductible,” he wrote. “Unless the IRS says otherwise, consider face masks comparable to aspirin and vitamins. You may be allowed to pay for your face masks with a flexible spending account (FSA) or a health savings account (HSA) bolstering your claim for HSA or FSA reimbursement by obtaining a letter of medical necessity from your doctor.”
Taxpayers may be wondering about some other deductions this year. “While many of you are now working from home, you cannot deduct home office expenses unless you are an independent contractor or self-employed,” Zelin noted. “U.S. stimulus payments are not taxable. Unemployment benefits are taxable. Unemployment benefits are subject to federal, state and local income taxes. Also taxable, a stimulus tax package gift from Uncle Sam, the extra $600 per week given to recipients of unemployment compensation, who have lost jobs during the coronavirus pandemic. You will get a Form 1099G that will tell you how much in unemployment benefits you must report on your 2020 calendar year's tax return. If you opted not to have taxes taken out from each payment, you will most likely owe additional tax to the IRS.”
One uncertainty for those who will be filing for an extension is how much in estimated taxes they should pay. “Everybody is trying to get that as low as possible because everybody is having a terrible 2020 so they want to keep as much cash as possible in their pockets,” said Smith. “I’ve seen several instances where day traders lost tremendous amounts of money in 2020.”
Ed Mendlowitz, a partner at WithumSmith+Brown and Accounting Today columnist, noted that many clients, such as restaurants are in such bad shape that they may end up not being able to pay their accountants for all the work they’ve been doing. Even with the lengthened tax season, many of his clients were still bringing in their paperwork late in the season. He laments that many accountants won’t be able to get away for vacation after tax season, as they usually can, what with matters like the Paycheck Protection Program loans for their small business clients, plus the travel restrictions around the country. Mendlowitz doesn’t know of any accountants who are taking a vacation after this tax season, even though it’s been an especially long one.
Smith is seeing a similar trend. “It used to be that all the preparers would take a week off after April 15,” he said. “You can’t travel as much, so everybody is saying I’m just going to be working anyway.”
