While federal filing and payment deadlines have been extended, state deadlines have largely not been.
On February 24, 2023, the Internal Revenue Service announced that disaster-area taxpayers in most of California and parts of Alabama and Georgia now have until October 16, 2023, to file various federal individual and business tax returns and remit tax payments. Previously, the deadline had been postponed to May 15 for these areas.
Although the initial reaction may be a sigh of relief immediately followed with an inclination to delay thinking about taxes for another month, two or even six, we caution against postponing tax preparation if records remain in your possession and readily available.
While federal filing and payment deadlines have been extended, state deadlines have largely not been. Particularly for taxpayers with multistate filing obligations, the key is to prepare as much of the tax returns as possible prior to April 18―not only to complete state returns which have not been extended, but also to estimate tax for the remainder of the year and budget appropriately. Of course, if you have suffered damage from the disasters, you should take advantage of the payment extensions and deploy cash toward getting yourself back on the right foot. Timely filed nonresident state returns may offer assistance in this area too―as often times, these returns have overpaid withholding and seek refunds for the nonresident taxpayer.
The Federal Tax Relief
The IRS is offering additional relief to any area designated as a disaster area by the Federal Emergency Management Agency (FEMA) in these three states. There are four different eligible FEMA declarations, which encompass many counties across the three states:
- Alabama severe storms, straight-line winds and tornadoes: January 12, 2023
- California severe winter storms, flooding, landslides and mudslides: December 27, 2022, to January 31, 2023
- California severe winter storms, flooding, landslides and mudslides: January 8, 2023, to January 31, 2023
- Georgia severe storms, straight-line winds and tornadoes: January 12, 2023
The additional relief grants automatic federal extensions of various tax filing and tax payment deadlines until October 16, 2023, including those for most calendar year 2022 individual and business returns. This includes individual income tax returns, originally due on April 18; various business returns, normally due on March 15 and April 18; and returns of tax-exempt organizations, normally due on May 15.
Among other things, this means that eligible taxpayers will also have until October 16 to make 2022 contributions to their traditional, Simplified Employee Pension and Roth IRAs as well as health savings accounts.
The October 16 deadline also applies to the federal estimated tax payment for the fourth quarter of 2022, originally due on January 17, 2023. This means that taxpayers were allowed to skip making this payment and instead may include the fourth quarter 2022 payment with the filing of the 2022 income tax return now due October 16.
The October 16 deadline also applies to 2023 estimated tax payments, normally due on April 18, June 15 and September 15, 2023. It also applies to the quarterly payroll and excise tax returns, normally due on January 31, April 30 and July 31, 2023.
The IRS will also provide penalty relief for all taxpayers living in the disaster areas, as well as for taxpayers living outside the disaster areas whose tax records were located in the disaster areas but were either inaccessible or destroyed. If affected taxpayers receive a late payment or penalty notice regarding these extended payments, contact a qualified tax professional to assist you in obtaining penalty relief.
On February 28, Alabama became the first of the three states to conform to the IRS’s announcement, and extended payment and filing deadlines occurring on or after January 12 until October 16.
On March 2, California followed suit and pushed the filing and payment deadline back to October 16, 2023, for affected taxpayers, mirroring the corresponding federal disaster declaration.
Just last week, Georgia extended their filing and payment deadline until May 15, 2023. The state has not yet adopted the new October 16 filing and payment deadline adopted by the IRS, Alabama and California.
While other states may allow automatic extensions based on how much tax is paid in by the initial filing deadline (April 18, 2023, in most cases), interest and penalties will still accrue on any unpaid tax. Importantly, while many states mirror the federal filing deadline, some states have different filing and payment deadlines from the IRS. Consult your tax adviser for information on your particular situation, particularly with multistate filings.
Generally, for federal purposes, taxpayers are entitled to deduct the loss in value to their personal assets (including primary or secondary residences) or business assets as a result of these presidentially declared disasters, after reducing the loss by any insurance proceeds. For tax purposes, any losses (to the extent not covered by insurance) attributed to a federally declared emergency in 2023 can also be pushed back into 2022, offering quick relief by not having to wait until next year to claim such losses―and any tax refunds. While of course these losses include damage to real and personal property, they can also include the closure of stores and permanent retirement of fixed assets. However, lost revenues and the decline in fair market value of property as a direct result of economic hardships would not constitute a loss under disaster rules.
For victims of these 2023 disasters that have not yet filed their 2022 tax returns, these losses can be included with their 2022 returns. The subject of disaster losses remains a very complicated matter, and there are many rules and stipulations that would prevent taxpayers from taking advantage of the election. There are also certain reasons why taxpayers would not want to make the election, and for these reasons, we recommend a tax consultation before delving into the amendment process if you have already filed your 2022 tax returns.
While the IRS and a few states have extended payment and filing deadlines, which can certainly be a welcome relief for affected taxpayers, many other states have not. For many taxpayers with multistate tax filings, it is nearly impossible to efficiently prepare these nonconforming state returns without first preparing the federal tax return. Therefore, we suggest, where possible, (unless devastated and all records unavailable and without electronic access otherwise) to move ahead with urgency in preparing and filing all state returns for 2022. Then, to manage cash flow with greater certainty, you may choose to extend federal filing, 2022 tax balance due payments and 2023 estimated tax installments as permitted and desired.
For More Information
If you would like more information about this topic or your own unique situation, please contact John I. Frederick, Steven M. Packer, any of the practitioners in the Tax Accounting Group or the practitioner with whom you are regularly in contact. For information about other pertinent tax topics, please visit our publications page.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.