The IRS postponed to May 17, 2021, the date to file 2020 Forms 1040 and 1040-SR and to pay any related tax. However, the due dates for estimated tax payments for 2021 were not postponed. The first 2021 estimated tax installment was due April 15, 2021. Per the IRS, if an individual taxpayer has a 2020 overpayment and elects to credit the 2020 overpayment against the 2021 estimated tax, the date on which the 2020 overpayment is applied against the 2021 estimated tax depends on: (a) the date(s) of payment, and (b) the extent to which an overpayment exists as of April 15, 2021. An extension of time to file has no effect on either the date of payment or the date on which an overpayment exists. Example: Assume that an individual taxpayer: (a) owes $40,000 in income tax for 2020; (b) made no payments toward that tax by April 15, 2021; (c) owes $10,000 for the first estimated tax installment for 2021 due on April 15, 2021; and (d) paid $50,000 toward the 2020 tax on May 17, 2021. As a result, the taxpayer has a $10,000 overpayment for 2020. Because the payment was not made by April 15, 2021, no overpayment existed as of April 15, 2021, and the overpayment would not be available for crediting on April 15, 2021. Instead, the overpayment would be credited against the 2021 estimated tax installment as of May 17, 2021, the date of payment. The taxpayer’s $50,000 payment on May 17, 2021, caused the taxpayer’s payments to exceed the taxpayer’s liabilities. Therefore, the taxpayer became overpaid on May 17, 2021, and May 17, 2021 is the date the $10,000 overpayment is available for crediting, even if the $50,000 payment made on May 17, 2021, was paid with an application to automatically extend the due date to file the 2020 return to October 15, 2021. Remember, an extension of time to file has no effect on either the date of payment or the date on which an overpayment exists. Also, the IRS enjoys calling this a penalty (which is what Congress originally called it), but it is really an interest charge. The current rate is 3% and many taxpayers would rather have their funds working in the business and will simply pay the “interest” penalty each year. Other filing due dates Form 1040, U.S. Individual Income Tax Return, is due May 17, 2021. Note that SEP-IRA contributions can be made for last year until the tax filing deadline. Filing an extension will generally allow you to delay filing a tax return until October 15. Also remember that on December 20, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law. The legislation made many significant retirement plan changes, including later deadlines for adopting a new 401(k) plan or amending a traditional 401(k) into a safe harbor plan. For most small businesses, these changes took effect January 1, 2020. The SECURE Act extended the deadline for employers to adopt a new traditional 401(k) plan from the last day of the tax year until the due date of that year’s tax return (including extensions). That means the deadline for employers to adopt a new calendar-based plan will depend upon their tax status. While this change would not give employees more time to make salary deferrals, it would give employers more time to decide whether or not they want to adopt a new 401(k) plan in order to make a year-end profit-sharing contribution. Also, the April NV Sales Use Tax Report is due May 31, 2021. This is a general discussion. Discuss your specific situation with a qualified CPA. Michael D. Bosma, CPA, is Principal-in-Charge of Keystone CPAs. His monthly NNBW column, “Covering Your Assets,” focuses on effective planning strategies for every business owner. Reach him for comment at mbosma@keystone.cpa.
