With COVID-19 dominating the news, it's easy to let tax matters fall by the wayside -- especially if you're worried about losing your job or are struggling with the logistical ramifications of living in lockdown. But the tax moves you make in the coming weeks could put you in a more favorable financial position, so consider these three sooner rather than later.
1. File your tax return immediately if you think you're owed money
Back in March, the IRS pushed back the tax-filing deadline by three months to give Americans more time to deal with their returns in the midst of what was, at least back then, a relatively new normal. Usually, taxes are due by April 15, but now, you have until July 15 to submit your return to the IRS. But if you're due a refund, it pays to complete your taxes much sooner than that. The longer you wait, the longer it will take for the IRS to pay you your refund, and if you're struggling financially right now, that extra cash could serve as a lifeline.
Normally, the IRS issues refunds within three weeks of receiving returns that are filed electronically. Paper returns need to be manually processed and therefore take longer. Usually, the turnaround for a refund on a paper return is about six weeks, but because of the ongoing crisis, the IRS has seemingly put its manual processing on hold. As such, you may need to wait even longer than usual if you decide to go the paper filing route.
2. Do some tax-loss harvesting
The stock market hasn't managed to escape COVID-19's wrath. Right now, a lot of investment portfolios are down, and while that's a bad thing in theory, it does give you the chance to take advantage of a strategy known as tax-loss harvesting.
When the market declines as a whole, investors with available cash have an opportunity to buy quality stocks on the cheap. But if you then sell those stocks at a profit, you'll be hit with capital gains taxes. However, if you take underperforming stocks in your portfolio and sell them off at a loss, you can then use that loss to offset your gains. And if your loss exceeds your capital gains, you can use up to $3,000 of that loss to offset ordinary income, thereby lowering your taxes.
3. Increase your charitable contributions if you can afford to
Millions of Americans are struggling right now, and with so many people out of work, charities that do so much good may be having a hard time staying afloat. If you're in a comfortable enough position, financially speaking, ramping up on the donation front gives you a chance to help others while also lowering your tax burden, since you can deduct contributions to registered charities on your taxes, provided you itemize.
Even if you don't itemize on your taxes, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, filers who take the standard deduction for the 2020 tax year can still claim up to $300 in monetary donations to registered charities, so if you're able to support some good causes, you'll help yourself in the process.
Taxes are a part of life, even when there's a major public health crisis to contend with. The moves above could help your financial situation and result in useful tax savings, so consider making them as you weather the ongoing storm.