Tax Day 2023 has arrived for most of the Country, April 18. This is the deadline to officially file your individual tax returns or face potential penalties and interest. There is some good news for some of the hard-hit areas stemming from this past winter’s storms and resultant flooding. On February 24, 2023, the IRS announced an automatic extension for taxpayers residing within disaster-areas in California, allowing them to file and pay their 2022 federal and state taxes by October 16, 2023. This extension applies to both individual and business tax returns, which are normally due by 04/15 and 03/15, respectively.
While most Californians are eligible for the extension, there are a few counties that don’t qualify, such as: Imperial, Kern, Lassen and Shasta. Examples of counties that do qualify include: San Diego, Orange, Los Angeles, Ventura, and Riverside.
In addition to the extension of filing deadlines, eligible taxpayers in California now have until 10/16/2023 to pay their IRS and state tax bills. This allows taxpayers to earn interest on their cash which would be earmarked for their tax bill, rather than paying the IRS and/or CA Franchise Tax Board in April.
For example:
- Someone has a tax bill of $50,000 for Federal and $20,000 for CA
- His/her savings account is paying 4% in annual interest
- Waiting until October 15 to pay the bill would earn him/her another 6 months of interest on the $70,000 of tax debt owed
- This comes to $1,400 of interest earned without any late payment penalties.
However, this strategy does come with considerations. Taxpayers must remember to pay the bill before 10/16/2023, which may be a challenge for some. Missing the deadline would come with additional interest charges and penalties, so this may not be an effective technique for those not confident in their ability to remember to pay the bill later.
Moreover, some individuals may prefer to pay their bills right away to get it over with and avoid worrying about it later. For those individuals, waiting to pay the bill for some additional interest income may not be worth it.
For those interested in maximizing the interest on their savings, there are a few high-yield online savings institutions to consider, such as
Ally Bank,
Synchrony Bank, or
PNC Bank. They are currently paying 3.75%, 4.15%, and 4% respectively with no minimum deposits or monthly maintenance fees.
The extension of the tax deadlines also applies to retirement and health savings account contributions. Eligible taxpayers will have until 10/16/2023 to make a 2022 Traditional IRA, Roth, SEP IRA, Solo 401(k) (employer portion), and HSA contribution, providing more time to gather the money for the contribution. For example, someone who desires to contribute to one of those accounts but doesn’t have the money right away, such as in the case of waiting on an employer bonus, can now take advantage of the extended deadline.
The 2023 estimated tax payment deadlines have also been extended to October 16. Estimates are typically due on April 15, June 15, and September 15 for the first three quarters, but now making those payments before 10/16/2023 will suffice.
The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area, so there is no need for taxpayers to take any action to claim the benefit of this extension.
Finally, for those who find it difficult to keep up with the ever-changing tax rules and deadlines, it is best to seek the help of professionals who can stay on top of it for you. This extension of the deadlines has provided a significant relief for most California taxpayers, and with October 16 as the new April 18 for the 2022 season, there is more time for taxpayers to file and pay their taxes.
