The IRS is extending the Tax filing deadline. Returns and payments will be due May 17, 2021 for 2020 individual returns. There is no extension for Corporation, S. Corporation or Partnership returns got similar delays. There is no indication that Fiduciary returns got extended either.
“In a statement, the IRS said the extension would be automatic, with no need to file any forms and no penalties or interest on taxes due that are paid between April 15 and May 17.”
1st Quarter Estimated Taxes however are still due on April 15.
Maryland is extending their deadline to July 15. The extension applies to individual, pass-through, fiduciary and corporate income tax returns, including first and second quarter estimated payments. It’s brought on by the recent and pending legislation at the state and federal levels impacting 2020 tax filings during the pandemic.
Virginia has not weighed in with an extension, yet.
Category Archives: income tax
Short Sales, Stock Manipulation, and other stuff
Under the 2017 Tax Act Theft losses are no longer deductible. In Adkins v. United States the Court implicitly agreed that a loss from a pump and dump scheme was a theft loss. This means that as a Taxpayer you are stuck with a capital loss either short or long term if you are the victim of stock manipulation.
Lately, there has been some game playing (interestingly with GameStop). The Company appeared to be on the ropes due to COVID and having stores in brick and mortar malls. Some investors sold the stock short. There is a little known fact on Wall Street, stocks go down faster than they go up most of the time. So, you can make a lot of money if you bet correctly. Gamers and others decided it would be fun to play a trick on short sellers in GameStop. So, they started buying either the stock or call options on the stock. This had the effect of making the demand higher and the stock started going up. People who sold short (meaning they borrowed the shares), had to buy the stock to stop the bloodbath. People who wrote naked call options (meaning the wrote options thinking the stock would go down) had to buy options themselves to cover or buy the stock. This cause the stock to go up further.
A few handy lessons in this. (1) If you are going to sell short, protect yourself at the beginning by purchasing a call option. A call option gives you the right to buy the stock a specified price. That way, if the stock goes up, you have upper level protection against the loss. (2). Stock manipulation occurs all the time. We don’t see it as clearly as in this case. Sometimes its for fun or an academic exercise where people don’t actually buy the stock, just take some actions which have the effect of propping it up, or knocking it down. For example, remember the urine in the beer hoax about Corona Beer, that caused a market shift downward temporarily. Another example a college class had 10 people call five different brokers to ask what’s going on with a certain penny stock (but not to buy). Brokers being salesmen figured the calls were a flurry of interest. And started touting the stock to their customers. And the stock went up slightly. (3) Beware of high pressure salesmen who attempt to get you to buy a stock. Its possible that they or their bosses own a chunk of that stock and once it goes up, they will dump it (pump and dump) leaving you to hold the bag.
So, while stocks are a great investment tool, there is some fraud out there. So, be wise in your investment strategy and use reputable brokers that you know personally.
More Tax Planning Pre-Biden
If you make more than $400,000 (apparently in compensation) then there will be a 12.4% social security tax on top of your income tax which will go up to 39.5% Federal and who knows what will happen in high tax states who are losing payers by the day. So, if in fact the trigger is compensation, it might be time to look at those LLC’s and turn them into S Corporations starting 1/1/2021. That way you can limit compensation to reasonable compensation and the rest would be S Corp dividends. Given this was the method used by none other than Joe Biden to save medicare taxes on his $15 Million of book royalties, I don’t feel as bad about mentioning it. We’ll keep looking at this subject in days going forward.
Tax planning Pre-Biden
If as has been alleged, Biden wins this election and the Democrats somehow get control of both houses of congress, Estate and Gift taxes will go up. Two areas where they have mentioned increases (1) lowering the Unified Credit Exemption from $11 Million to $5 Million. This would mean that individuals worth more than $5 Million or couples worth more the $10 Million will lose some benefits they currently have under the tax code. (2) Raising the Estate and Gift Tax rates to higher levels. What are some strategies to consider before the end of the year?
A. Dynasty Trusts. Make gifts now before the exemption is reduced. If you create a trust for your children and your grandchildren now (not you), you can create you can give up to $11 Million ($22 Million for couples) tax free to be used by your children and grandchildren. If you wait, you can only give $5 Million ($10 Million per couple). So, if you’re really rich, now is the time to make generation skipping gifts.
Another target is preferred capital gains rates. I do believe that will be watered down to a degree, but assume the rate goes from 20% to 30%, then what do you do. (1) You can harvest capital gains now, wait 30 days and reinvest. (2) Utilize a charitable remainder trust over multiple generations. It gives you a small charitable deduction, but allows capital gains to not be taxed unless taken out. So, again, this allows you some ability to make gifts to your children now and keep benefits for yourself, and allows for deferral of capital gains until they are distributed.
So your business was vandalized during a peaceful protest
First, you should contact your insurance company and let them know that you have a loss. But lets say, your insurance lapsed and you wish to deduct the loss suffered on your taxes. Let’s say you rent your space and several thousand dollars of electronics were stolen. You get to deduct, the lesser of the cost of those electronics or fair market value.
Let’s say you’re a landlord and a plate glass window was destroyed and it cost $1,000 to fix. Your deduction is the lesser of: calculated as follows: Fair market value of the building before the loss minus fair market value after the loss or cost of replacement. So, let’s say despite the broken plate glass window the value of your building stayed the same, no deduction. So, around next April, you will start to hear squeals of pain, when business people discover they don’t even have much of a tax deduction.