How to Handle Your Taxes During an Economic Crisis
The economy is always fluctuating for various reasons. From stock market crashes to housing crises or even a global pandemic, it is never easy to navigate through uncertain economic periods. That’s why we have come up with this easy guideline on how to handle your taxes during COVID-19!
Taxes are already difficult enough to understand– handling taxes during an economic crisis is even more confusing! Pandemics can affect how big your paychecks will be, thus making it hard to gauge how much you would owe the IRS. Gig workers and self-employed individuals are twice as likely to struggle with their taxes during periods of economic uncertainty.
Although being forced into financial uncertainty can be debilitating, there is a silver lining to the situation. If you manage your finances and habits carefully during a crisis, you will be pleasantly surprised when you find yourself with an improved set of financial skills!
In the chance of the economy taking (an even worse) downturn, your best bet is to properly prepare yourself by studying and researching all pertinent information.
Stay Up To Date With New Deadlines & Learn About Filing Extensions
Pandemics and periods of financial unrest can often trigger tax filing deadlines. It is imperative that you do your research in order to be sure of your timeline and as an added bonus, you will be able to have some breathing room if you had been struggling to make your tax payments.
For example, the COVID-19 pandemic led to the IRS extending the usual tax filing deadline from April 15 to July 15, causing local and state governments to follow accordingly. Future crises may cause government agencies to take similar actions so remember to check!
File Promptly if You Are Expecting a Refund
While having the extra time to file your taxes can be calming, if the IRS owes you a refund then it is in your best interest to file your taxes ASAP!
During a crisis, tax agencies often find themselves understaffed as well as being expected to adapt to the situation by implementing new procedures. All these discrepancies will lead to longer processing times and if you are low on funds, the extra cash can make all the difference.
Not only is obtaining your tax refund important, you should also keep in mind how you will allocate the funds properly while waiting for them. If you have the funds necessary, consider contributing to an IRA in order to establish your retirement plans!
File Promptly if You Are NOT Expecting a Refund or Might Owe Back Taxes
Despite the progress made, we are still in the midst of a pandemic and the IRS is well aware that in order to stimulate the economy they must encourage Americans to spend!
Although the IRS has resumed collection actions once again, they have not turned a blind eye to the national financial crisis. Nearly 40 million Americans are currently unemployed which is the highest unemployment rate we have had since the Great Depression!
The IRS is currently more likely to consider settlements that will benefit taxpayers due to COVID-19. If you haven’t already, take advantage of this opportunity and explore some tax relief options!
Are Your Investments Down? Use It To Reduce The Amount You Owe
Utilizing investments is another innovative strategy for how to handle your taxes during pandemics such as COVID-19! You can decrease your tax bill when tax season comes around by utilizing strategic tax loss harvesting! Tax-loss harvesting is when you sell investments at a loss in order to reduce your tax liability.
If you have investments that have not worked out like you hoped, selling them now and locking in the loss can be a great way to offset capital gains and lower your taxable income. This strategy is not the right choice for everyone, but it can be effective in certain circumstances.
Whether the world is in the midst of a global pandemic, the stock market is in free fall or real estate is suddenly on sale, the economic crises that are triggered can make tax time even more difficult.
If you want to stay financially solvent and avoid penalties, interest and other serious consequences, the strategies listed above can help properly handle your taxes and finances during COVID-19.
Rajneet Kaur, EA, MBA, Certified Tax Resolution Specialist is the Company Director of LifeBack Tax. LifeBack Tax is a tax resolution firm based in Chatsworth, CA that specializes in determining structured solutions for clients who owe back taxes to the state or IRS. With over 16 years of experience in the industry, Rajneet and her team have been able to resolve state and IRS debts for countless clients across the nation! To get in contact with Rajneet and the LifeBack team, call (855) 605-1500 or send an e-mail to [email protected]