What the Extended Tax Deadline Means for You

In mid-March, the Internal Revenue Service (IRS) announced an extended tax deadline for 2020 tax year filings. You may be wondering, why was the tax deadline extended? The answer will likely not come as a surprise.

The IRS delayed the familiar April 15 fed tax deadline in part because of changes to the taxation of unemployment income received in 2020. Additionally, the IRS “wanted to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic.”

To help you understand what these changes mean for you, we’ve answered your top questions about the extended tax deadline.

What Is the New Federal Tax Extension Deadline?

The federal income tax filing due date for individuals for the 2020 tax year is now May 17, 2021. There are, however, caveats to the federal tax extension deadline.

Do I Need to File An Extension?

The tax date extended automatically to May 17, 2021, meaning you do not need to file any forms or call the IRS to receive this one-month extension. Nothing further is needed to take advantage of the elongated tax filing period to prepare and file your 2020 taxes.

Is Tax Day Extended For Businesses?

No. The extended tax deadline of May 17, 2021, applies only to individual taxpayers. For freelancers and self-employed Americans, however, it’s important to note that tax day was extended for those paying tax on self-employment income. Consult a tax professional to discuss your specific self-employed and business tax filing status. 

What If I Need Tax Day Extended Beyond May 17?

The IRS allows taxpayers to apply for a federal tax deadline extension, and this year is no different. If you need additional time to file beyond the new May 17 deadline, you are able to request an extension until October 15 by filing Form 4868 through your tax professional, tax software like TurboTax or by using the Free File link at IRS.gov. 

This IRS Form gives taxpayers extra time to file their 2020 tax return. It’s important to note that this extended tax date does not stretch the due date to pay your taxes. If you will owe 2020 federal income tax, you should still plan to pay it by the new federal tax extension deadline of May 17, 2021, to avoid paying interest and penalties. Consult a tax advisor for more information.

Are My Quarterly Estimated Tax Payments Extended Too?

Quarterly income tax is generally due to be paid by individuals who receive money that’s not subject to income tax withholding and/or do not have federal income tax withheld automatically. This money may include, but is not limited to:

  • Self-employment income
  • Interest
  • Dividends
  • Alimony
  • Rental income

The new May 17, 2021, fed tax deadline doesn’t apply to any estimated quarterly tax payments you may be making throughout the year. Those are still due on April 15, 2021. 

Is the Tax Deadline Extended Further for February Winter Storm Disaster Relief?

Yes. The IRS issued a special extended tax deadline for taxpayers in Louisiana, Oklahoma and Texas. These are the states where FEMA declared a disaster in reaction to the winter storms in February. In these three states, the new deadline for filing individual and business tax returns, and making tax payments this year, is now June 15, 2021.

Do I Have More Time to Make IRA Contributions for the 2020 Tax Year?

When the IRS extended the tax deadline, it allowed individuals more time to make 2020 contributions to:

  • Individual retirement arrangements (IRAs and Roth IRAs)
  • Health savings accounts (HSAs)
  • Archer medical savings accounts (Archer MSAs)
  • Coverdell education savings accounts (Coverdell ESAs)

You also have until May 17 to take advantage of the possible tax benefits of making contributions to these accounts. 

Furthermore, May 17, 2021, is the new due date for reporting and paying the 10% tax penalty due on early distributions from IRAs, 401(k)s or other employer-sponsored retirement plans in 2020.

Does The Extended Tax Date Apply to State Taxes?

While May 17, 2021 is the new federal tax deadline, the extension does not apply to the state tax filing deadlines in 42 states (plus Washington D.C.) 

To avoid state tax penalties, it’s crucial that you check with your individual state to see when your tax filing deadline is this year.

None of the information provided above is intended to be tax advice. Please consult an attorney or tax advisor.

Read more: 11 Ideas for What to Do with Your Tax Refund This Year

11 Ideas for What to Do with Your Tax Refund This Year

It’s a tax season like no other. Given all that’s going on in the world, it’s understandable that for many folks, priorities have shifted. This year’s tax refunds will likely be greeted with exhausted enthusiasm. But what should you do with your tax return to get the most out of your refund this year?

While the average refund decreased by 11.4% from 2019 to 2020, Americans still received, on average, a refund of over $2,500, according to the IRS. If you’re expecting a tax refund this year, you may be inclined to put that money to use in different ways than in previous years. Let’s take a look at what to do with your tax refund to enhance both your financial and emotional well-being.

Used correctly, your tax refund can help you accomplish a number of goals simultaneously. Ideally, you’ll add to, replenish or start a savings account to prepare for the next emergency, as well as plan for your future and take care of yourself and your loved ones. You can also use your tax refund to pay off debt, start a business and even set some money aside to make a difference in your community. 

Here are 11 of the best ways to use your tax refund this year:

1. Pay Off Debt

If you have outstanding high-interest debt on credit cards, payday loans or other bills, paying those off (or at least down considerably) may be the very best way to use your tax refund. Start with your highest interest debt and pay it down as much as possible. If you can pay it off in full, that’s even better. If not, consider a debt consolidation loan with a lower interest rate to pay off high-interest debt. Once paid off, consider closing that high-interest credit card in favor of one with a more favorable interest rate. 

Choosing to use a tax refund to pay off debt could give you more financial freedom month-to-month, save you money immediately (by not paying as much interest) and relieve stress. 

2. Put Your Tax Return Toward Creating an Emergency Fund

One of the best ways to use a tax refund is to ensure that your future is more secure. If you have a savings account, add to it. If you don’t, use your tax refund to start one! 

Of all the lessons we learned in 2020, having an emergency fund that can help you and your family in the event of unexpected financial struggles, job changes or a global pandemic is one of the most important to heed. 

As you decide how to use your tax refund, be careful not to let the bulk of it sit too long in your checking account, as it’ll likely start to dwindle as you adjust your spending upward with all that extra money easily accessible. 

3. Pay for Home Improvements or Car Repairs

Repairing or remodeling your home isn’t simply about trying to increase its value. Enjoying where you live is critical for your emotional well-being and happiness. Renovating your home, even in small ways, can increase the quality of your life and make you a happier person every day. Not to mention, there are a lot of affordable home renovations that can help you save money over the long run, such as installing more efficient appliances or windows. You might even find some good tax season deals. Just be careful: Big sales can lead to impulse buys if you’re not careful. 

But homes are likely not the only thing in your life that need a little maintenance. If you’ve been ignoring that check engine light and putting off automotive repairs, consider spending some of your refund on fixing your ride this year. Doing so might save you a lot of money down the road.

4. Donate Some of Your Tax Refund to Charity

There are probably a few causes that you wish you could financially support throughout the year but cannot while juggling a mortgage, internet and phone bills, and the rest of your monthly living expenses. And your favorite charity could probably use your support this year more than ever. 

If you’re getting a refund, tax season is one time you can make your wish come true. Donating money doesn’t just help you for next tax season (most charitable giving is tax deductible). It can help your community in the moment and, in turn, give you a sense of fulfillment that’s impossible to put a price tag on.

5. Treat Yourself with Your Tax Refund

It may seem frivolous to spend money from your tax refund on a special treat, but treating yourself to something nice doesn’t necessarily mean you’ve fallen victim to the dreaded ‘impulse buy.’ For example, after the year we’ve had, planning a vacation once it’s safe to take one could do a world of good for your well-being. 

When you think about what to do with your tax return this year, consider finding different ways to practice self-care with anything from a deep tissue massage to cooking lessons, a new fishing rod to that dream vacation.

6. Save for Retirement

The money from your tax refund could go a long way toward bringing your retirement into focus. There are a few ways to use your tax return to save for retirement and, in turn, potentially help with your tax situation next year:

  • Depositing money in an IRA at your bank
  • Investing in a traditional or Roth IRA through a trusted financial services firm (IRA contribution limits have been set at $6,000 for 2021)
  • Setting some of your refund aside in your bank account to offset an increase in your 401(k) contribution

7. Invest in Yourself

One of the best ways to use a tax refund could be to invest in yourself through a professional degree course, gaining new technical skills or even enrolling in graduate school. And doing so may have future tax benefits of its own through the Lifetime Learning Credit! 

According to the IRS, “this credit can help pay for undergraduate, graduate and professional degree courses — including courses to acquire or improve job skills.” Additionally, this credit is worth up to $2,000 per tax return and there’s no limit on the number of years you can claim it.

8. Invest in Your Children

The cost of going to college shows little sign of decreasing, so why not use some of the money from your tax refund to start a 529 College Savings Plan for your children if you have any? Like traditional retirement plans, the earnings in a 529 plan grow tax deferred (meaning that while you can’t deduct your contribution on your federal taxes, you won’t have to pay taxes on your withdrawal to pay their college tuition years from now). 

This useful nest egg may help your child start their academic and professional life with less debt on the path to getting their diploma. However, keep in mind that if you don’t anticipate the funds in your 529 plan covering your child’s entire tuition, it may impact their ability to secure financial aid. As always, do your homework and consult a financial advisor with questions.

9. Start a Business

Whether you’ve been longing to turn your hobby into a side hustle by starting your crafty business on Etsy or need seed money to finally open your dream breakfast café in your hometown, the money from your tax refund could go a long way toward starting a new business. 

10. Buy a Life Insurance Plan

The sticker shock of life insurance plans can be jarring. If buying life insurance has been cost prohibitive in the past or your employer doesn’t offer it, spending some of your tax return this year to secure your family’s future could be one of the wisest decisions of your life. 

11. Take Care of Your Mental Health

Finally, if you’ve been wanting to try therapy but couldn’t afford it because therapy is not covered by your health insurance, put your tax refund to work to improve your mental health this year. When all is said and done, this may end up being the very best way to use your tax refund. 

Read more: Learn how financially savvy people put their tax refund to work

Filing Taxes: What You Need to Know Before Tax Season

It’s that time of year! To help you prepare ahead of filing taxes this tax season, we’ll discuss:

  • What documents and information to gather
  • Why you might want to consider last-minute deductions
  • The best time to file depending on whether you’re expecting a refund versus owing additional tax

Keep in mind that for specific questions or concerns about filing taxes, it’s best to consult a trusted tax professional. 

Decide Who Will File Your Taxes

How complicated do you expect your tax situation to be? Did you have a major change last year, like a divorce or marriage? Or did you start a business, cash out a 401(k) or have a child? If so, you may need professional help filing your taxes. That’s why it’s always best to know early on whether you’ll need a pro. (Keep in mind that their prices could rise closer to the April 15 tax filing deadline.) 

The Internal Revenue Service reports that more than 80 million taxpayers used paid professionals to complete and submit their tax returns last year. If you plan to go this route, it’s important to organize your receipts, forms and other documents well before tax time. 

You May Be Able to File Your Taxes for Free

If your tax situation doesn’t require a professional this tax filing season, you may want to look into IRS Free File. This public-private partnership between the IRS and the tax preparation software industry provides brand-name tax filing products for free to many Americans, which means you could prepare and file your federal income tax online for free.

Gather Documents

Now is the time to gather up: 

  • W2s
  • 1099 forms
  • Donation receipts
  • Calculated childcare costs
  • Medical bills paid out of pocket
  • Investment interest tax forms
  • Property tax receipts
  • Student loan interest payments
  • Anything else related to your financial life from the past calendar year 

You or your tax professional may not need it all, but being armed with more is better than less when it comes to tax filing. 

Compile Personal Information

Chances are you have your own Social Security number memorized. Whether you file taxes electronically yourself or with the help of a tax professional, you’ll need to have your spouse’s Social Security number if filing taxes jointly, and those of the dependents you’ll claim as well. 

Additionally, you may need addresses, dates, and dollar amounts of vacation and rental properties if you bought or sold them last year. Now’s the time to pull together and write down all of this information to make tax filing season seamless. 

Have a Copy of Last Year’s Return on Hand

Cross-referencing this year’s return with your last can be helpful in making sure you don’t forget something, like a deduction you’re still eligible for or a source of passive income you need to claim. 

Consider Last-Minute Retirement Plan Contributions

The 2020 IRA contribution limit was $6,000 plus $1,000 in catch-up contributions for those 50 and older. If you have extra savings and haven’t maxed out your retirement plan contribution yet, you may be able to reduce your taxable income to pay less tax this year.

Be Mindful of Tax Scams

One thing you need to know before filing taxes is that there are many tax scams out there to be mindful of, including tax preparers promising to deliver a bigger return. Remember that you sign your returns under penalties of perjury. Even if you work with a tax professional, it is you who’s responsible for any incorrect or misleading information, whether it’s a mistake or fraud. Make sure the person preparing your taxes is well-credentialed to reduce your risk. Additionally, you should never respond to telephone calls or emails claiming to be from the IRS or the U.S. Treasury. The only way the IRS will correspond with you is through the U.S. Mail, meaning that those phone calls and emails are not on the level.

Need More Time?

If you need an extension this tax filing season, you can submit a request by April 15, 2021, or your particular tax deadline. You can push your due date out up to six months. And you won’t be alone in doing so, either. Last year, 12 million Americans needed more time for filing their taxes.

Make a Plan for Your Refund

If you expect to receive a tax refund, make a plan for what you’ll do with that money so that you make the most of it. Will you put some away in savings, pay off credit card debt or give to charity? What you do with your refund is up to you, but it’s best to have a plan before your tax refund arrives in your bank account.

File Your Taxes

Of course, all of your diligent tax season preparations should culminate with the filing of your taxes on time, so mark your calendar!

Read more: Is HELOC Interest Tax Deductible?

11 Financial New Year’s Resolutions for 2021

As you make your annual commitment to start eating better and working out more, consider tackling your financial wellness, too, with these 11 financial New Year’s resolutions. From spending and budgeting to saving and learning, each of the new year money resolutions below could go a long way in improving your financial wellbeing in 2021 and for years to come.

1. Start Saving/Increase Retirement Savings

If you aren’t currently saving for retirement, the new year is the perfect time to start. Your employer may offer a 401(k) or 403(b)(7) retirement savings plan. They may even match your savings up to a certain percentage. If so, make a plan to contribute at least that percentage to maximize your company’s matching benefit and supercharge your savings. 

If you already contribute to your employer’s retirement plan or an IRA, consider bumping up the percentage you save to accelerate your retirement savings potential in the new year. Times may be tough right now, but there are ways to plan for your retirement even during an uncertain economy.

2. Make a Monthly Budget

Of all the top New Year’s resolutions, few have the potential to make as immediate an impact on your financial life as making a monthly budget. Actually seeing how much money you have coming and going, and what’s left to save for your short and long-term future, can be transformational. 

3. Build a Post-COVID Emergency Fund

If there’s one thing we’ve learned from the past year’s pandemic, it’s to expect the unexpected. That’s why one of our top New Year’s resolutions for 2021 is to rebuild our emergency fund for life’s “what ifs”. If you’re in a position to do so, start building your fund now by putting money aside every paycheck. Even a small emergency fund could help cover costs like grocery or electricity bills if you hit a bump down the road.

4. Consolidate Debt

Having a lot of debt to manage can drain your energy and negatively impact your mental health. As you think about which money resolutions may be right for you in the new year, consider debt consolidation to organize your outstanding debt. Debt consolidation could help bundle credit cards, medical bills, and student loans into a single monthly payment.

5. Refinance Your Mortgage

Mortgage interest rates are still holding at or near all-time lows. A refinance could be one financial New Year’s resolution that’ll leave more money in your bank account. That means more money to build your emergency or retirement funds. FYI: You may also be able to refinance your auto loan to reduce your car payment.

6. Improve Your Home

You may not need to go as far as replacing your siding or building a new patio to feel better about your home. There are plenty of smaller home repairs and upgrades that can freshen up your space. Consider replacing light fixtures inside or planting a new garden bed outside to make a notable difference. Whether looking to increase the value of your home, make money-saving home repairs in the winter or simply enjoy your home, the benefits of home improvements are boundless.

7. Improve Your Credit

Make 2021 the year you improve your credit with these six tips to improve your credit score. You can start by paying down credit card balances while requesting credit limit increases. This is not so you can spend more, but rather reduce the usage rate of your credit cards, which may help boost your score.

8. Become a Couponer

Make a New Year money resolution to stop spending unnecessary cash and get rewarded for your everyday buying habits. Traditional coupon clipping and online cashback and discount services like Rakuten are a great place to start.

9. Analyze Your Media Consumption Spending

For years, people wished they could choose their television channels a la carte versus spending on a bloated monthly cable package. That day did eventually arrive, but are we actually saving money? This new year, spend some time analyzing your watching habits and streaming subscriptions. Cancel any subscriptions you rarely use or ask friends or family to share an account.

10. Analyze Your Investments

If you have stocks, bonds, and mutual fund investments, take time early in the new year to analyze your portfolio’s allocation. Generally speaking, you should want less risk in your portfolio as you get closer to retirement. If you’re nearing retirement or plan to withdraw your savings soon, you might need to tweak your allocation to minimize risk. 

11. Become Smarter About Money and Finance

We love talking about money and personal finance, but we understand that not everyone feels the same. Thankfully, there are other ways to learn about money. Podcasts are a great way to boost your knowledge about the economy, personal finance, and other money-related topics. Check out Planet Money, The Indicator and So Money for fresh, topical, and conversational money chats without the confusing industry jargon.

Read more: 5 Tips to Pay off Debt in the New Year

What Are the Tax Benefits of Donating to Charity?

‘Tis the season of giving, and with that, you might be wondering about the tax benefits of donating to charity. As American historian, author, and social justice advocate Mary Ritter Beard said, “The results of philanthropy are always beyond calculation.”

Philanthropy is key to living a fulfilling life, not only because of the possible tax benefits of donating to charity. Sure, tax deductions could lower your tax bill, but being charitable does so much more than just help you. It serves your entire community.

There are countless ways to give back to others. You can donate money or goods to a non-profit organization in your town, helping to improve it. You might make a financial contribution to an organization researching disease treatments. You could also support civil rights non-profits fighting to make the world safer. Whether it’s kids, vets, seniors, animals, institutions or the environment, there’s no wrong way to give back.

Of course, during financially tough times, it’s hard to justify giving money away. Yet, there’s a strong case to be made for making charitable giving a routine part of your life. Let’s explore how you might benefit financially and emotionally from giving back.

What Are the Tax Benefits of Donating to Charity?

You should consult a tax accountant to fully understand the tax benefits of donating to charity. Generally speaking, though, you could expect to deduct donations against your income tax. Keep in mind, you have to itemize to take a charitable deduction. If you do itemize your deductions, make sure your total individual deductions are greater than the standard deduction.

Four Ways to Receive the Tax Benefits of Donating to Charity

Not everyone has the means to donate large amounts of cash. But, there are countless other ways you can give back and reap the tax benefits of donating to charity.

1. Make a Small Recurring Donation

No amount is too small to make a difference. Consider setting up an automatic, recurring donation to a cause that’s close to your heart.  You won’t miss that $5 or $10 each week, and you’ll feel good knowing that you’re doing good.

2. Donate Unwanted Clothes and Goods

Goodwill and the Salvation Army accept donations of clothes, toys, furniture and more. Non-profits like these sell your old items in their stores to fund community programs. For example, Goodwill funds job training and placement services for people who struggle to find traditional employment.  Simply make a fair estimate of your donated goods’ value, ask for a receipt, and keep it handy for tax time. Find a Goodwill location near you.

3. Donate an Old Car

Did you know that you may be able to donate your old car and receive the tax benefits of donating to charity? It could even be more beneficial financially than selling your car for cash or trading it in. Organizations like Kars4Kids, Cars Helping Veterans and the Make-A-Wish Foundation all accept cars as a 100% tax deductible donation.

4. Donate In-Kind Capital Gains

According to the mutual fund powerhouse and investing thought leader Vanguard, “When you donate appreciated assets to a 501(c)(3) public charity, you don’t incur the capital gains tax. Just make sure you donate those assets in kind rather than selling them first.” If you expect capital gains from your investments, consult a tax accountant before making any donation decisions. 

Three Other Benefits of Donating to Charity

1. Boost Your Mood

Knowing that you’re responsible for helping others can be like serotonin for the soul. This is especially true when giving to smaller local organizations and people in your own community. This way, you can see and feel how your contributions have helped those around you.

2. Be the Change

Gandhi said, “Be the change you wish to see in the world.” It may sound cliche, but by making even small donations, you have the opportunity to do just that. You might even inspire your kids, friends, and family to do the same. Being the philanthropic ripple that creates waves is a worthy life goal.

3. Improve Your Community

You might start giving back because of the tax benefits of donating to charity, but soon you’ll find that philanthropy is a win-win.

Your charitable donations could give your community the support it needs to thrive. You might help restore an historic building, allow disadvantaged kids to take part in life-changing arts programs, or revitalize a local park.

Melinda Gates, who donates millions every year, says, “Philanthropy is not about the money. It’s about using whatever resources you have at your fingertips and applying them to improving the world.” You don’t need millions to make a real difference. You, too, can help your community and people across the globe with your cash, cars, investments and household items. The best part is the immense joy that comes with giving, even more so than the tax benefits of donating to charity.

Read more: Jumpstart Your Financial Well-Being

COVID-19 Assistance: From Mortgage Grace Periods to Student Loan Relief

While COVID-19 has put most of the world on hold, it hasn’t stopped your bills from needing to be paid. From mortgages to credit cards to car loans, even if you’re facing furloughs and unemployment, your financial responsibilities continue–pandemic or not.

While no one can make your debt or loans disappear, we can provide you with information about where and how to put some of your payments on hold. From a mortgage grace period to student loan relief, we put everything you need to know about keeping your financial wellness in check right here, in one place.

Loan Grace Periods & Relief Options

Despite the economic downturn, you’re still responsible for paying your bills. While you probably can’t delay all of your payments, you may have more options than you realize. And in many instances, you just won’t know until you ask. But before you make those inquiries, let’s consider an overview of the kinds of loans and debts that are eligible for relief programs. In particular, you may discover your eligibility for a mortgage grace period, student loan relief, credit card relief, and more.

Mortgage Grace Period Options

If you’re not able to make your mortgage payments due to COVID-19, you may have options to delay payments. Your options depend on who owns or backs your mortgage

Under the CARES act, if you have a federally backed mortgage loan, which includes FHA, VA, USDA, Fannie Mae and Freddie Mac, you can request a forbearance period for up to 180 days. During the forbearance time:

  • You won’t have to pay penalties or fees.
  • Interest will still accrue. (Meaning it may be smart to make interest-only payments)
  • You’ll need to contact your mortgage provider to begin the process.

If you do not have a federally backed mortgage, then you aren’t covered by the CARES Act. You’ll need to contact your lender directly. Ask if they have a payment deferral program to offer. Not sure who services your loan? Your servicer’s name should be on your mortgage statement or you can search the Mortgage Electronic Registration Systems (MERS) website.

Each state also offers additional mortgage relief options. You can find out what programs your state has here.

Car Payment Relief Options

Even though car loans are not included in the CARES Act, many auto loan lenders are stepping up to support customers during the Coronavirus pandemic. The first step to getting help is contacting your lender. They may have a program available to assist you, or they may have other options to get you through this time.

You can see what payment options each automaker is offering to customers here.

Student Loan Relief Options

Like mortgage loans, relief may depend on whether your student loan is a federal loan or private loan.

If you have a federal student loan, the CARES Act offers you the following relief through September, 20, 2020:

  • Suspended payments  
  • No interest on student loans
  • No debt collection on defaulted loans

For private student loan relief, contact your lender to find out what options are available to you. Like auto lenders and mortgage providers, many student loan servicers are offering payment relief options to help, including disaster forbearance.

Find out what student loan relief each lender and servicer is offering here.

Credit Card Relief Options

Credit card debt was already a struggle for many before COVID-19 hit. It’s important to avoid skipping payments during this time. Instead, contact your credit card company. hey may be one of the many issuers who can help you out during the pandemic. To discuss relief options, credit card issuers urge you to contact them either by phone or online if wait times are too long. From skipping payments with no interest to other relief programs, you may have options worth exploring. 

You can find relief programs from major credit card issuers here.

Your Next Step

It’s important to know that between the federal CARES Act and the initiatives of private lenders, you may have access to relief options. Whether you need a mortgage grace period extension, student loan relief or credit card relief, the next step is getting in touch with your service or loan provider. Plan to explain how COVID-19 has affected your finances and get ready to talk through your options.Many providers will be expecting your call, and they’ll have relief programs already in place. 

For more relief resources during this time, the Department of Treasury has additional information and links to help.

Read more: Emergency Funds that Offer You Financial Assistance During COVID-19.