With Tax Day Delay, Here’s How To Put Your Cash To Work In The Meantime

Taxes are usually due April 15. But these aren’t normal times. With the government’s shake-up of tax rules to help the country cope with the coronavirus pandemic, you’ve got three extra months to meet tax deadlines in 2020.

Congress gave you three extra months to file and pay tax returns. That means July 15 is the new April 15 tax day, at least this year — giving a whole new meaning to the concept of tax deadlines in 2020.

Now the real question is: What should you do with that extra time? The answer: plenty.

Tax Deadlines 2020: Tax Strategy Opportunities

Tax strategy opportunities stem from the Coronavirus Aid, Relief and Economic Security Act. Known as the Cares Act, the new law lets you postpone filing your tax return until at least July 15.

But if July 15 is the deadline for paying taxes, the rest of the idea of tax deadlines in 2020 has taken on new meaning. The IRS said, “The Federal income tax filing due date is automatically extended from April 15 to July 15. Taxpayers can also defer federal income tax payments due on April 15 to July 15 without penalties and interest, regardless of the amount owed” in a tax bulletin.

Congress also embedded several personal finance planning gifts in the new law. To make it easier for taxpayers to hold on to their money and investments, and especially to nurture their retirement savings accounts, Congress has loosened lots of restrictions on tax-sheltered accounts, too.

More Ways To Take Advantage Of The Extra Three Months

Here are some of the new tax-strategy opportunities so you can take advantage of more lax tax deadlines in 2020. First of all, if the IRS owes you money, file immediately. Don’t wait until July 15 to get your refund. “Otherwise, you are simply giving the government an interest-free loan of money that you are owed,” said Colleen Carcone, director of wealth planning strategies at the giant retirement savings focused financial firm TIAA.

But if you owe money or if you’re looking for other ways to score from this unusual delay, consider:

• • Waiting to pay. If you owe the IRS money, don’t pay until July 15. The IRS is giving you a three-month loan. You don’t know if you’ll need the extra cash with the economy shut down. And a free loan from the IRS beats selling your investments at depressed prices to raise cash.

• • Banking the money. Put money you owe in taxes in a high-yield savings account for three months. The national interest rate on savings is just 0.61% annually, says Bankrate.com. But online banks like Ally are paying 1.5% or higher. Depending on how much you owe, banking money for three months can add up. If you owe the IRS $5,000, banking it for three months at 1.5% is worth nearly $20. That’s a few months of Disney+. If you run a business, your tax bill might be dramatically higher and more worth your while.

• Delaying even longer. If your finances are in such turmoil that you cannot file even by July 15 — and whose finances aren’t at least murky now? — you can request a six-month filing extension. That would give you until Oct. 15 to file. It does not delay when your payment is due.

Ways That The New Tax Deadlines In 2020 Help You Boost Retirement Savings

• • Taking a second chance to boost your retirement. You now have until July 15 to make a 2019 contribution to a traditional IRA or Roth IRA. This is a gift if you meant to fund your retirement but had put it off amid the coronavirus stock market crash. Stocks are cheaper now so you’ll get more shares for your retirement savings dollars. If you have a SEP IRA or a Keogh plan and you get an extension for filing your return until Oct. 15, you also have until that date to make 2019 contributions to those accounts.

• • Doing a Roth IRA conversion. This is another opportunity made more attractive by the fact that the values of stocks and mutual funds have plummeted. That means the income tax you pay on the amount converted from a traditional IRA is much less than it was just weeks ago. But those investments will surge in value once a rally begins. And once you’ve held the account five years and turn age 59-1/2, all of your Roth IRA withdrawals are tax-free, says Steven Williamson, chairman of the National Association of Active Investment Managers (NAAIM) and owner of Blackstone Wealth Management.

• • Funding your health savings account. Seriously, do it as you have more time now thanks to the change in tax deadlines in 2020. You now have until July 15 to make a 2019 contribution to a health savings account (HSA). HSAs are powerful accounts that offer a potential for a triple-tax bonus.

• Kicking your estimated tax payments down the road, too. If you’re self-employed or have freelance or dividend income, you got an additional break, says Ed Slott, tax expert at IRAHelp.com. July 15 is also the delayed deadline for your first two installments of 2020 estimated tax payments. These are taxes due on income not subject to income-tax withholding rules.

Tax Deadlines 2020: More Legal Loopholes

And it gets even better. With the July 15 tax deadlines in 2020 delayed, there are other tax planning opportunities.

• • Don’t take an RMD if you don’t need cash. If you were going to be obliged by law to take a Required Minimum Distribution (RMD) from an IRA or 401(k) account this year, you’re off the hook. The Cares Act waives all RMDs for 2020. This will let you avoid the tax bill on that RMD, says Paul Schatz, president of Heritage Capital. And it lets investments continue to grow tax-deferred inside your retirement account.

• Take a penalty-free withdrawal if you do need cash. You can withdraw up to $100,000 from qualified IRAs and 401(k)s without paying the additional 10% penalty that normally hits people under age 59-½, if you’ve been impacted by the coronavirus, such as being diagnosed with Covid-19 or laid off due to the pandemic. You can spread the taxes out over three years.