Many taxpayers like to wait until the last minute before they start preparing their tax returns. For them, there's comfort in knowing that the April 15 tax deadline is still weeks away.
A select few taxpayers, however, don't have that luxury. Special rules require them to file a whole lot earlier -- or else face potentially large penalties. For them, tax day will be March 2 -- just five days from when this article is published. Below, we'll look at who's required to get their taxes done early, and whether there's anything you can do to buy yourself some more time if you need it.
An early tax day for some
When it comes to deciding whether the regular April 15 deadline for filing taxes applies, the tax laws set out special rules for one particular group of taxpayers. Those who work in the farming or fishing business are sometimes eligible for special tax benefits, but to claim them, they have to file early. Typically, the deadline for them would be March 1, but because that day falls on a Sunday this year, the 2020 deadline is March 2.
The early filing deadline applies to those who want to take advantage of an exception to having to make quarterly estimated tax payments. Most business owners have to pay quarterly estimates throughout the year based on their income, or else they'll owe penalties on the amount they should have paid.
The exception applies to those in the fishing or farming business who get at least two-thirds of their total income from their work there. Eligible taxpayers can choose to file by the first business day of March and pay any tax due at that time. By doing so, they won't owe any penalties for failing to pay estimated taxes -- even if the ordinary rules would have usually required them to make estimated tax payments along the way.
Another way to avoid penalties
Obviously, most people don't qualify for this benefit, so the March 2 deadline this year won't apply to them. Even if you get income from a farming or fishing business, you might still prefer not to file this early.
If you'd rather file in mid-April like everyone else, then the solution is simple: Pay estimated taxes on a quarterly basis. There are generally two different ways you can meet the requirements and not owe penalties at the end of the year:
- Make sure the four equal amounts you pay each quarter will cover all or almost all of the tax that will be due at the end of the year.
- If your income comes in unequal chunks at various times of year, then use the special calculation method to determine the appropriate estimated tax payments to make.
That second element can be extremely helpful. For instance, say you're a farmer and get most of your income from your harvest during the fourth quarter of the year. Making equal estimated tax payments during the first three quarters can be tough, since you don't have any real income during those times. The special calculation method for estimated taxes lets you pay most of your tax after the end of the fourth quarter with your Jan. 15 payment.
If you're only now learning about this and won't be able to make the deadline, don't panic. With interest rates as low as they've been lately, the penalty rate is just 6% per year. That's likely cheaper than the financing for many farming and fishing businesses.
There's also a chance the deadline will get extended. Farming and fishing business owners got until April 15 last year in light of the new tax laws.
Regardless, the simpler solution for all taxpayers is to be careful with your tax planning and make appropriate estimated tax payments. That way, you can file when you're ready -- even if it's at the last possible minute.