Whether it is a global pandemic shutting the economy down for months on end, a stock market crash that leaves formerly giddy investors frightened and nervous, or a housing crisis that makes real estate a risky bet, living through times like these are never easy.
Even so, how you handle yourself and your money during the crisis could make all the difference in the world. If you do it right, you could come out stronger, wiser, and richer on the other side.
Handling taxes can be especially difficult during times of crisis. If your income is uncertain, it can be hard to predict how much you might owe the IRS or how you can make those payments. For those who are self-employed or independent contractors, this economic uncertainty can be even greater.
So when the economy takes a turn for the worse, what can you do about your taxes? Here are some tips to make tax time less taxing when crisis strikes.
Research Filing Extensions and Be Aware of New Deadlines
When economic turmoil takes hold, tax filing deadlines may be extended or otherwise relaxed. This is a great opportunity for you to do your homework and see how much time you really have. If you are struggling to make your tax payment, you may have some breathing room, relieving some of your stress.
In the wake of the COVID-19 pandemic, the IRS extended the normal tax filing deadline from April 15 to July 15, and many state and local governments did the same. The same may happen in future crises, and it never hurts to find out for sure.
File Promptly if You Are Expecting a Refund
Getting extra time to file can be a welcome relief if you owe money to the IRS, but if the tax agency owes you, it makes sense to file as quickly as possible. During a crisis, the IRS will often have issues with processing tax refunds. They can be short-staffed and have to follow different procedures than normal. The sooner you file, the sooner you will have your tax refund money, and that cash could make a world of difference to your financial situation.
How you handle that tax refund is important as well, so while you’re waiting for the money to arrive, make a plan for how to use it. If you have the extra cash to do so, contributing to an IRA or other tax shelter could reduce the amount you owe going forward, giving you even more money to work within the years to come.
File Promptly if You Are NOT Expecting a Refund or Might Owe Back Taxes
The IRS is starting to enforce collections again, but they also can see the financial crisis we’re in. With almost 40 million Americans unemployed we now have the highest unemployment rate since the Great Depression.
The outlook is still uncertain and the IRS knows Americans need to get back to work and buying things to stimulate the economy. It’s tougher to do that with a huge tax bill looming over your head.
So right now, the IRS will likely consider settlements and more favorable terms to taxpayers in trouble, especially if their income drastically decreased due to COVID-19. So it’s important to file your taxes and be up to date in order to explore tax relief options.
IMPORTANT: We highly recommend readers to reach out to our firm first. Our clients never have to talk to the IRS, and resolving your IRS and state tax problems through our firm can save you money and time in the long run. You might also be eligible for other relief programs or get your penalties and interest forgiven. Don’t hesitate! Reach out to our firm today for a consultation. www.mytaxcoaching.com.
If Your Investments are Down, Use It To Reduce The Amount You Owe
It is easy to feel depressed when you watch the stock market tumble and reach new lows every day, but there could be a silver lining to that financial cloud. Engaging in strategic tax-loss harvesting now could reduce your tax bill substantially when filing season rolls around. This means you sell investments at a loss in order to reduce your tax liability.
If you have investments that have not worked out like you hoped, selling them now and locking in the loss can be a great way to offset capital gains and lower your taxable income. This strategy is not the right choice for everyone, but it can be effective in certain circumstances. Make sure you know this is the right choice for you.
No matter the crises, whether global pandemic, real estate downfall, or the stock market crashing, tax time is already hard enough. These things can just make it more so.
If you want to stay financially solvent and avoid penalties, interest and other serious consequences, the action steps listed above can help you do it.
My Dearborn, Michigan CPA firm specializes in tax resolution. We also serve clients virtually so don’t hesitate to reach out. If you want an expert tax resolution specialist who knows how to navigate the IRS maze, contact our firm and we’ll schedule a no-obligation confidential consultation to explain your options to resolve your tax problem once and for all.