It’s happened. It’s March. The tax deadline is looming, and you still haven’t hired someone to do your taxes. Is it too late to hire a CPA and take that headache away?
Of course not. It’s never too late to engage a Certified Public Accountant. However, depending on what day you are reading this post, it might just be too late to file without an extension.
There are some key things to think about as time ticks away towards March & April 15th. Specifically, why to hire a CPA, when to decide to extend, and what to do if you’re putting off filing because you think you’ll owe a big chunk of change.
Why Hire A CPA?
So what is prompting you to consider hiring a CPA? There are plenty of DIY tax programs that range from free to $200, depending on your tax return complexity. However, whether you are a business or an individual, the pandemic has made even “straightforward” returns a little tricky for the tax year 2020.
For businesses, the CARES Act and the subsequent Programs, Acts, and Plans enacted by both the Federal and State governments have created continually changing grant and loan programs. In case that sentence didn’t spin you around in circles, the terms of repayment and taxability have changed throughout the life of these programs as well, making accounting and tax reporting an exercise in finesse and professional expertise.
For individuals, many people are encountering tax situations that are new and out of the ordinary to them, such as multiple jobs, unemployment benefits, and starting new businesses or freelancing as contractors. While non of these situations are necessarily complex, they do create additional forms and paperwork to keep tabs on.
To keep things interesting, it appears the latest relief bill, the American Rescue Plan Act of 2021, will be passing Congress. According to multiple news sources and Wikipedia, if passed, the bill provides the first $10,200 in unemployment benefits from 2020 would not taxable for households with incomes below $150,000.
There are a lot of moving parts to keep track of, even if there without new tax relief programs. While many DIY tax programs provide “Audit Assurance,” it typically only applies to the information you’ve entered.
A CPA will help you resolve any notices received or assist you in amending your return. Especially if:
- You receive a late Form 1099,
- The rules change mid tax season, and your return needs to be adjusted for unemployment, or
- After you file, you receive a notice requesting tax on income from a W-2 from your pre-pandemic job that you forgot existed.
When to Extend
This is always a great question: Is it time to extend? As the deadlines loom, March 15 for partnerships and S-Corps, April 15 for Corporations and Individuals, the decision is one of preference and capacity.
As to preference, you need to ask yourself a few questions.
- Do you have ALL of your tax documents?
- Are you prepared to timely answer any questions about your tax documents?
- Do you feel a pressing need to file “on time?” aka on the regular due date.
If any of the answers above are no, you can extend. The important thing is to communicate your readiness to extend to your CPA.
As to capacity, that is up to the firm. The firm has a good handle on its capability and timelines. Clients are informed if there is a need to extend due to capacity or if extra time is needed to gather additional information.
Keep in mind that an extension doesn’t mean your tax return won’t be filed for six months! When your return(s) are completed is reliant on when the firm receives all needed documentation.
I Owe HOW MUCH? What if I Can’t Pay?
If you receive your return and there is a balance due, you have options. The most important thing is to extend or to file on time. It’s tempting when a big number pops up to hide the offending tax bill under the bed or let Fido rip it to shreds. However, the penalty for “Failure to File” is one of the IRS’s heftiest at 5% – 25% on top of daily interest.
Individual Payment Plan
A less frequently talked about option for taxpayers is the IRS Individual Payment Plan. For taxpayers without other funding options, a Payment Plan might be beneficial. If your balance is less than $50,000 and you have filed all required returns, you may qualify to apply. The IRS website notes the setup fees are lower when the application is filed online.
Rarely Too Late
So is it too late to hire a CPA? Rarely. Is it too late to file on our traditional tax day(s)? Maybe. Either way, we’d still love to hear from you and see if we’re able to help you make sense of the twists and turns this last tax year has taken.