Tax Warning for Freelancers!
Have you ever filed a 2019 or 2020 tax return in the course of the pandemic? If that is so, it’s attainable that when you submitted within the deferred intervals between April 16, 2020 and July 15, 2020 or April 16, 2021 and Might 17, 2021, the credit you claimed and refunds might now be outdoors of the three-year tax refund look-back interval that the IRS usually permits. To appropriate this, the IRS lately took motion by resolving the discrepancy between the deadline for submitting a request for a credit score or refund and the three-year look-back interval attributable to the postponement of sure submitting deadlines for tax years 2020 and 2021.
The meant end result is to keep away from the denial of well timed claims for credit or refunds that have been included in tax returns filed as a result of postponed deadlines as a result of pandemic interval for taxpayers who had withheld or estimated funds. You might recall that the IRS has tried to supply some reduction and help to taxpayers in the course of the COVID-19 pandemic by pushing again submitting deadlines. In the event you’re a taxpayer who took benefit of the postponed submitting deadlines and is planning to file a request for a credit score or refund, you would not have the opportunity to take action with out this latest IRS change as a result of misaligned dates.
It is because when you imagine you could have overpaid tax, you should file a request for a credit score or refund with the IRS till a later date:
- Three years from the date of submission of the declaration, or
- Two years from the date of fee of the tax.
Needless to say the IRS additionally limits the quantity of credit score or refund you possibly can declare, even when you filed a well timed request. That is the so-called look-back interval, which is mostly two or three years. This explicit change in look-back interval solely impacts the three-year look-back interval and isn’t an extension of the submitting deadline.
Taxpayers who file requests for credit or refunds inside three years from the date of their authentic declaration could have their credit or refunds restricted to the quantities paid inside the three years previous to submitting the request plus the interval of any extension of the deadline for submitting the unique declaration. The issue the IRS is now fixing is that when the IRS moved the 2019 and 2020 deadlines, the interval of the transfer was not included within the three-year look-back interval, leading to knowledge misalignment. The IRS’ new steerage disregards the deferral interval for submitting returns for 2019 and 2020 TYs to find out the beginning of the lookback interval, which permits for a realignment of the three-year lookback interval.
One other vital level to notice is that the lookback interval reduction supplied right here is computerized and you don’t want to name the IRS, file a type, or ship letters or every other paperwork to acquire the exemption.
Jonathan Medows is a New York Metropolis-based CPA specializing in tax and enterprise affairs for freelancers and self-employed individuals throughout the nation. He gives free recommendation to members of the Freelancer’s Union and has many guides and assets on tax, accounting and enterprise points related to freelancers on his website www.cpaforfreelancers.com.
Jonathan is offered to freelancers for an preliminary session. To qualify for a free session, you should be a member of the Freelancers Union and point out this text when contacting them. Please word that this supply is just not obtainable from March 1st to April 18th and features a basic dialogue of a freelancer’s tax obligations and attainable deductions. These conferences don’t embrace reviewing paperwork you could have ready your self, reviewing tax returns you could have ready your self, or reviewing the work of different preparers. The free assembly doesn’t contain the creation or verification of any quantitative calculations. He’s glad to supply such companies however would want to cost an hourly price for his time.