Given that the deadline to file your federal income tax return for 2019 was extended until July 15th, I wanted to spend some time today discussing those changes, what they mean now and what they may mean to you in the future. As a person who may be going through a divorce right now you should be able to plan into the future for your taxes and what impact these changes may have on your case from a financial perspective.
It goes without saying that our nation Has suffered a great deal due to the coronavirus. Removing for a moment the actual health concerns and impacts of the virus on our citizens, the virus and our government's response to it has also severely damaged our economy. The damage is felt on a macroeconomic level taking into account job sectors on a national level, as well as on a microeconomic level where individual families are hurting for income in the wake of rising unemployment rates.
One of the responses from our government was to pass legislation intended to aid taxpayers who were struggling to make ends meet due to the financial difficulties presented by the virus. Included in this equation are self-employed persons and small businesses. If you are a self-employed person or a contractor, then you should pay attention to the material that we talk about in our blog post today. Issues regarding the CARES Act and other federal legislation May be relevant to you.
Text filing deadline changes in the wake of the coronavirus pandemic
From a tax perspective, you are undoubtedly aware that the deadline to file your federal taxes was moved this year from April 15th until July 15th. Hopefully you filed your taxes as early as you could, however, in order so that you could get your refund sooner rather than later. Taxes are an unpleasant subject to begin with, but they can be especially unpleasant during a pandemic where you are your main source of income and do not have an employer to rely upon for a job. Self-employment can be an extremely rewarding experience, but it can also be extremely stressful during difficult times.
What to expect in regard to your tax refunds?
from what I understand tax returns will be processed and refunds will be sent out as normal despite the later date on which taxes were due. It may be the case that if you are a small business owner or are self-employed that you could use any money right now in order to help you meet payroll and other obligations of your business during these trying times. For my review of IRS material, most tax refunds are issued within three weeks of your return being accepted. As I'm sure most of you know, there are online methods to pay taxes as well that would go a long way towards helping you ensure a faster refund payment.
A question that would be a relevant one to ask at this time would be what happens if you are able to file your taxes on time but do not have the money to actually pay your taxes if indeed you do need to pay at all. The IRS announced in the spring that deferred federal tax payments could be made by July 15th without having to incur cost associated with interest or penalties. Relevance for self-employed people, your estimated first and second quarter taxes for 2020 could also be paid interest free by July 15th.
How did these extensions impact quarterly taxpayers?
As a small business owner or self-employed person, you should be aware that after your first year of self-employment, it is expected that you will pay quarterly income taxes based on your estimated earnings. You do not need to send in a full tax return at the conclusion of each quarter, but you do need to send in payment. In typical years, first quarter payments are due April 15th, second quarter payments are due on June 15th, third quarter payments are due September 15th while fourth quarter payments are due in January of the following year.
At least in regard to the first and second quarters of 2020 those payments are now due on July 15th. Wait a minute, you may be asking yourself: why would you spend time concerning yourself with payments that were due over a month ago? Well, you may still be able to request an extension for payment of these quarterly taxes even now as we began to close out the month of August. If you find yourself in a position where you are unable to file or pay your quarterly taxes and you should consult a tax professional to obtain advice. Someone who works in this field and is qualified to do so may be able to help you in this regard.
Where we sit right now, the third quarter of 2020 and fourth quarter of 2020 estimated tax deadlines are unchanged. You should expect to have to file and pay your quarterly taxes in September of this year and January of next year. With so much up in the air this year and with so many people being unable or unwilling to participate in our market economy you may have run into issues regarding the paying of yourself employment or small business taxes. Fortunately, tax credits have been extended towards persons who have been negatively impacted in this way. Let's discuss those briefly in the section below.
Small Business and Self-Employed tax relief in the wake of the coronavirus pandemic
While most of us are familiar with the cares act at this point there is a lesser known piece of legislation known as the families first coronavirus response first act which was passed in March that provided relief in the form of tax credits for sick and family leave. Small business owners and self-employed persons were eligible for these payments. Let's go over each of the tax credits now.
As far as self-employed tax credits, if you are self-employed you may be able to receive a refundable tax credit equal to a specific amount of sick leave. The amount of sickly that you would be entitled to would be based on yourself employment income averaged out on a daily basis. Likewise, in the event that you are self-employed you may be able to receive a refundable tax credit and is equal to 100% of any amount of self-employed family leave that you would be able to obtain in normal times. The same applies to small business owners.
What about unemployment assistance for Self-employed persons and small businesses?
Unemployment assistance was a part of federal legislation that was passed in March in April this year. The specific type of unemployment assistance benefits that were available under the CARES act are related to self-employed and small business owners. Typically speaking unemployment insurance is not available too self-employed persons so this was a welcome relief for those who were in need after the start of this pandemic. small business owners, the self-employed and those of you who work on a job by job basis (musicians, for example) would potentially qualify.
Here are the details, under the unemployment program if you are eligible you would have been able to receive regular unemployment benefits as well as an additional $600 in benefits for any weeks that you were unemployed through July 31, 2020. Overall, this program covered approximately 40 weeks of benefits to those who are eligible for coverage as long as your inability to work was brought about by the coronavirus. Retroactive benefits began to be payable on January 27th, 2020.
it would occur to me that the time to begin looking for employment would have been sometime in July as the economy began to open up and the additional $600 benefits for unemployment insurance began to drop by the wayside. I would imagine many people became comfortable in receiving these extended unemployment benefits only to look up and realize it was mid-July and they had no job prospects lined up. Hopefully you are able to live on the lesser amount of unemployment until you can find a new job, or you were able to line up a new job and make the issue moot.
How do tax issues and financial issues as a whole impact you during a divorce?
This is the ultimate where the rubber hits the road type question as far as your taxes are concerned. We can talk all day and all night about federal legislation and benefits but if we can't translate them to how they actually impact you in your daily life then all this information would have been pointless provide you with. I have some thoughts on how these subjects may relate to your divorce and how you proceed with your case as we enter the final months of 2020.
As a self-employed person, your income may be a regular and dependent upon many different factors. If this is the case, you need to be sure that you are sticking to a budget and prioritizing your spending during this time. You should always budget, in my opinion but maintaining a budget is especially important when you have added costs regarding a once in a lifetime expense like a divorce. At the end of each month you should begin to take into account your income and what your expenses will be the following month. From there, you can figure out what's your bills are and what income you have available to meet those obligations.
The expenses of a family law case can be somewhat unpredictable. There are certain costs that you can predict, however. At the beginning of a divorce case you will need to pay a retainer to your attorney. You can think of this as a down payment that retains that attorney's services for you and you are case. At least at this juncture you should plan to have some money set aside to pay your attorney that retainer. After that, the nature of a family law case takes over and it is more likely that the monthly call severe case will be harder to predict.
The reason for this is that divorce cases how busy times and slower times in terms of work that needs to be done by your attorney. For example, the very beginning of a divorce case typically sees documents being filed with the court and time spent with you strategizing over what steps to take from the outset of your case. With all this work being done you can bet that the costs of your case will increase for a time due to the fact that family law attorneys bill by the hour.
On the other hand, you can also look at there being many more periods of time where there is less work to be done and your bills from the attorney will be much less. The reason for that is that there can only be so many periods of time where action is taking place within your case. Much of your case will be spent in downtime with you and your family acclimating to separated family life and with settlement proposals being negotiated back and forth. These back and forth periods are usually quiet then that means less has to be billed to your case. Costs will likely pick up again once it is time to mediate for final orders and for final orders to be drafted and submitted to the court.
Questions about the material contained in today's blog post? Contact the Law Office of Bryan Fagan
If you have any questions about the material contained in today's blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Specific advice regarding tax information Should be directed to a person who is qualified to provide specific advice as to your circumstances. Our attorneys are able to provide you with legal advice and general information as a client of ours. If you are interested in learning more about our firm and the possibility of becoming a client of ours, please contact us for free of charge consultation. These consultations can be had in person, over the phone or via video.