Given that the deadline to file your federal income tax return for 2019 was extended until July 15, 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 plan into the future for your taxes and what impact these changes may have on your case from a financial perspective.
Our nation Has suffered a great deal due to the coronavirus. Removing for a moment the real 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 and 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, you should pay attention to the material 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 15 until July 15. 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 incredibly unpleasant during a pandemic where you are your primary source of income and do not have an employer to rely upon for a job. Self-employment can be an enriching experience, but it can also be highly stressful during difficult times.
What to expect with your tax refunds?
I understand that tax returns will be processed, and refunds will be sent out as usual 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, you could use any money right now 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 that would go a long way towards helping you ensure a faster refund payment.
A question that would be relevant to ask at this time would be what happens if you can file your taxes on time but do not have the money to pay your taxes if you do need to pay at all. The IRS announced in the spring that deferred federal tax payments could be made by July 15 without incurring costs 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 15.
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 complete tax return after each quarter, but you need to send in payment. In typical years, first-quarter payments are due April 15, second-quarter payments are due on June 15, third-quarter payments are due September 15, while fourth-quarter payments are due in January of the following year.
At least with the first and second quarters of 2020, those payments are now due on July 15. Wait a minute; you may be asking yourself: why would you spend time concerning yourself with prices 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 begin to close out the month of August. If you find yourself in a position where you cannot file or pay your quarterly taxes, you should consult a tax professional to obtain advice. Someone who works in this field and is qualified to do so may help you in this regard.
Where we sit right now, the third quarter of 2020 and the fourth quarter of 2020 estimated tax deadlines are unchanged. You should expect 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 so many people being unable or unwilling to participate in our market economy, you may have run into issues regarding paying 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, 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 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 your employment income averaged out daily. Likewise, if you are self-employed, you may be able to receive a refundable tax credit equal to 100% of any amount of self-employed family leave that you would be able to obtain in regular 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 available under the CARES act is related to self-employed and small business owners. Typically speaking, unemployment insurance is not available to self-employed persons, so this was a welcome relief for those 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 and an additional $600 in gifts for any weeks that you were unemployed through July 31, 2020. Overall, this program covered approximately 40 weeks of help to those eligible for coverage as long as your inability to work was brought about by the coronavirus. Retroactive benefits began to be payable on January 27, 2020.
It would occur that the time to begin looking for employment would have been sometime in July as the economy started to open up and the additional $600 benefits for unemployment insurance began to drop by the wayside. I would imagine many people became comfortable 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 can live on a 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 real 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 impact you in your daily life, then all this information would have been pointless to 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 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. In my opinion, you should always budget, 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 consider your income and what your expenses will be the following month. From there, you can figure out your bills 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 the 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 because family law attorneys bill by the hour.
On the other hand, you can also look at many more periods when there is less work to be done, and your bills from the attorney will be much less. That is because there can only be so many periods where the action is taking place within your case. Much of your lawsuit will be spent 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 means less has to be billed to your case. Costs will likely pick up again once it is time to meditate for final orders and final charges 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 qualified person to provide clear guidance for your circumstances. Our attorneys can 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 get in touch with us for free of charge consultation. These consultations can be had in person, over the phone, or via video.