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2020 Tax Filing Extensions and Limitations UPDATED by Edward N. Cooper, CPA

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Posted on March 18, 2021 by Edward Cooper

In response to the ongoing pandemic, the U.S. government continues to postpone several critical deadlines, including recent extensions of the due date for individual federal income tax filings and the application period for paycheck protection program (PPP) loans. However, taxpayers must take special care to understand the unique applications and limitation of each announcement and determine whether it is in their best interest to take advantage of the additional time extended to them.

Individual Tax Returns

The IRS’s most recent postponement of the 2020 federal income tax filing deadline for individuals from April 15 to May 17, 2021, also applies to individual taxpayers’ payments of federal tax liabilities for 2020. It currently does not apply to other taxpayers, such as C corporations or trusts and estates, nor does it apply to individuals’ quarterly estimated federal tax payments, which are still due on April 15, 2021. This may change, should the IRS expand the filing extension as it did last year to apply to other taxpayers and their filing and payment responsibilities. In addition, taxpayers should note that the extension of the individual federal income tax filing deadline does not apply automatically to their state tax responsibilities, which are determined on the local level and do not always comply with federal law.

Even with the current deadline extension, the IRS reminds taxpayers that the earlier they file their federal tax returns, the earlier they will receive refunds to which they may be entitled. As always, taxpayers needing additional time to file their 2020 returns may request an extension to October 15, but the IRS will not allow any further deferral of federal tax payments beyond May 17, 2021. Interest and penalties on deferred amounts will begin to accrue on May 18, 2021.

PPP Loans

Congress voted on March 25 to extend the deadline for eligible small businesses and nonprofits to apply for first and second rounds of PPP loans from March 31 to May 31, 2021. This relief provides eligible taxpayers, including independent contractors and the self-employed, with additional time to fix errors on existing applications and file new ones to apply for government backed loans that can be fully forgiven when borrowers retain workers and use loan proceeds to cover payroll costs and specific operational expenses, including rent, utilities and mortgage interest.

Qualified Opportunity Zone Investments

Under the Qualified Opportunity Zone (QOZ) program, introduced in tax year 2018, investors may defer and reduce taxes on capital gains when they timely reinvest those amounts within 180 days into any one of more than 8,700 economically distressed communities in the U.S. Investments in qualified opportunity funds (QOFs) held for a minimum of 10 years may qualify for complete capital gains tax exemption on the future disposition of the QOF investment.

In January 2021, the IRS extended for the second time the 180-day reinvestment period to March 31, 2021. This effectively gives taxpayers until March 31, 2021, to reinvest capital gains resulting from an asset sale that occurred after Oct. 4, 2019, into a QOF and qualify for tax deferral until the earlier of Dec. 31, 2026, or the date they sell their QOF investment. At the same time, the IRS waived penalties for QOFs that failed to meet the 90 percent asset test between April 1, 2020, and June 30, 2021, while also providing QOFs with an additional 12 months to meet the program’s 30-month post-acquisition substantial improvement to real property requirements.

The advisors and CPAs with Berkowitz Pollack Brant are committed to staying abreast of IRS announcements and technical guidance, and we will continue to share that information and applicable tax planning strategies with our clients.

About the Author: Edward N. Cooper, CPA, is director-in-charge of Tax Services with Berkowitz Pollack Brant, where he provides business- and tax-consulting services to real estate entities, multi-national companies, investment funds and high-net-worth individuals. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at info@bpbcpa.com.