The IRS recently announced that it is extending the deadline for taxpayers to contribute to their eligible retirement accounts and health savings accounts for the 2020 tax year until May 17, 2021 (the same day that individual tax filings are now due). This means that freelancers have more time to make contributions to their individual retirement accounts such as IRAs and Roth IRAs and Health Savings Accounts (HSAs).
Some other IRS extensions and updates to be aware of that may impact your freelance tax situation include:
· Unclaimed refunds from the 2017 tax year can now be claimed up until May 17, 2021. Previously, the three-year window to claim refunds from tax year 2017 would have ended on April 15, 2021. If you had a refund owed to you from 2017, now is the time to file a return to claim it (you must file using a paper form and mail it by May 17, 2021), otherwise the U.S. Treasury will keep it.
· The agency is automatically refunding up to $10,200 to individuals (and up to $20,400 for those married filing jointly) who filed their 2020 tax return including income from unemployment benefits before the American Rescue Plan Act was passed. This applies as long as your annual income is below $150,000. In most cases, you do not need to file an amended return due to these changes, unless the adjustment will impact your eligibility for other tax credits and deductions.
· The application deadline for the Paycheck Protection Program’s second round of funding has been extended to May 31, 2021. If you want to take advantage of these funds for qualified expenses related to your freelance business, you have a little extra time to get your application in and potentially benefit in the current tax year.
· Freelancers should also keep tabs on any extensions or changes to the local and state taxes which apply to them, as they may be different than the federal guidance.
Please remember there has not been an extension for estimated taxes this year. Freelancers need to file their first quarter estimated taxes by the normal April 15 deadline to avoid fines and penalties. In addition, don’t wait until the last minute before the new income tax filing deadline — especially if you have a complex tax situation and need professional assistance. By filing now, you can ensure you won’t have to file a further extension and you’ll also be able to get any refund you are owed faster.
Jonathan Medows is a New York City-based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. He provides tax, accounting and business articles for freelancers on his website, http://www.cpaforfreelancers.com, which also features a blog and a comprehensive freelance tax guide. Please note, due to the high volume of inquiries in regard to COVID-19, Jonathan is not able to respond to individual requests for information at this time.