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Federal Income Taxes

There are only two certainties in life – death and taxes.

4/21/2021 | Harvey Mackler, Banking on Harvey

There are only two certainties in life – death and taxes.  I am only covering personal income taxes in this column.

Consult with your professional advisor.  Although the automated income tax services might suffice for simple returns, it is advisable to speak with a professional.

As I write this column, your individual tax returns are due soon.  The date has been extended to May 17.  (Last year, you may recall it was extended to July.)

Fortunately, if you owe 1040 taxes, you have also been given an extension to May 17 without penalty for the 2020 year.  If you need to file estimated taxes for 2021 (see below), those are due starting April 17 (written as I write my first quarterly tax payment for 2021).  And if you reside in a state that has income taxes, similar estimated requirements may apply.

However, let’s look at the requirement for estimated taxes.

In order to avoid any financial penalties (including interest), you must be certain that your taxes paid for the year ending 12/31/20 covered either of the following

  1. 100% of what your return will show that you owe OR

  2. 110% of your prior year (2019) taxes (with some exceptions)

If not sufficient for the 2020 year, be prepared to pay interest and penalties.  The IRS will advise you if your tax preparer does not.

If your primary income is reported on a W-2 and you are diligent with the withholding, most likely you are safe regarding estimated taxes.  But think about the following:

  1. Capital gains; it was a good year for investors

  2. 401k or other tax deferred distributions for which you did not have sufficient withholding

  3. Any other extraordinary income, such as Sub S or partnerships

If you need to pay estimated taxes for 2021, you are supposed to file that short form and pay it quarterly, due May 17, June 15, September 15 and January 15.  You will incur penalties if you are not timely.

The one main exception is if you had large income late in the year (say a distribution mentioned above), then you need to cover that estimate in the next quarterly payment.

Did I say you should always consult with your professional advisor?  There are ways to defer income taxes.  For example, if you can defer receipt of some income until the following year (January instead of December), you get that deferral.  Remember, you are most likely taxed on a cash basis, not an accrual basis.  The date that the check was deposited might be the recognition of the income.

There are a myriad of other rules covering things like deductions, passive vs. active losses, and alternative minimum tax to mention a few.

Make sure that you have proper records and keep them for at least three years after the tax filing.

You may find some online “free” advice, but remember you get what you pay for.  One, it may not be worth it, and two, it may be bait for paid services.

Good luck.


A 1975 graduate of the Wharton School at the University of Pennsylvania, Harvey enjoyed a 20+ year career in commercial banking, exercising his “golden parachute” in 1996.  In his volunteer life, he is a past chair of the Small Business Banking Unit of the American Bankers Association, Easter Seal Society of New Jersey, the SAAGNY Foundation, PPAF EXPO, and Supplier Committee of PPAI.  He is also a past President of PPAF.  PPAI awarded him the H. Ted Olson Humanitarian Award in 2013.
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