This last winter in California was one for the books. Because of the severe winter storms, flooding and mudslides experienced across the state, most of the state was federally declared a disaster zone and therefore qualified for “tax relief”. The tax relief came in form of an automatic extension of filing deadlines and payment of taxes due without penalties or interest. California FTB has followed the IRS’ lead and has provided the same relief. The following will briefly cover the filing extensions and payment deferrals. Before jumping on the procrastination band wagon, consider some of the tips below to avoid another disaster in October.

Covered Disaster Area:

As of the time of this article (5/23/23) all counties in California qualify for the deadline and payment postponements EXCEPT Lassen Counties (IRS added Shasta County to the list 5/26/23). The covered counties were approved on different dates between January 2023 and May 2023, so there may be slight variations on the applicable filings and deadlines. Be sure to look for guidance specific to your county when taking advantage of the deadline postponements. This article will focus on San Diego County (where our offices are located), which was included in the initial declaration covering most counties in the state.

The relief also applies to taxpayers who are located outside the listed counties, but whose tax preparers are in any of the listed counties. We recommend that you write “Disaster” and the applicable IRS announcement on the return to help indicate to the IRS the qualification.

Applicable Filing Deadlines:

The automatic extension applies to the filing due dates for any of the following types of returns that have a due date (original or extended due date) on or after January 8, 2023, through October 16, 2023:•

    • Individual income tax returns;
    • Corporate income tax returns;
    • Partnership income tax returns;
    • Estate and trust income tax returns;
    • Estate tax returns;
    • Gift and generation-skipping transfer tax returns;
    • Annual information returns of tax-exempt organizations;
    • Payroll tax returns;
    • Excise tax returns; and
    • Employee benefit plan returns (Form 5500 series).

Postponed Tax Payments:

EXCEPT payroll taxes, tax payments due for the listed returns above also qualify for postponement until October 16th.  Additionally, the California passthrough entity elective tax payments that were due March 15th, as well as the prepayments that would be due June 15th, are extended (see more information below). Retirement plan contributions, including employer contributions, are also extended to October 16th.

Taxpayers can file their returns now and pay the tax later.  It’s very likely that notices will be sent out for balances due since it’s all computer automated. Don’t worry, penalties and interest will not be assessed as long as the payments are made by October 16, 2023.

Additionally, any estimated taxes due (both individual and business) for 2023 are postponed until October 16, 2023.  Typically, these payments are due 4/15, 6/15 and 9/15.

Passthrough Entity Elective Tax (PTE):

If an eligible company participates in the Passthrough entity elective tax in California, there are two due dates that are normally not negotiable.  Assuming a 12/31 year end, the first payment to elect into the program for the current year is due June 15th and is the greater of $1,000 or 50% of the prior year PTE tax.  For some, this requires the company to know what the prior year PTE total tax was which may be problematic if the return is on extension.  The final payment is due by March 15th of the following year (the original filing due date of the return) in full.  Failure to make these payments in full and on time results in a complete forfeiture of the PTE election for the year.  Both the March 15, 2023 (balance due) and the June 15, 2023 (1st payment for 2023) are included in the postponement and are due by October 16, 2023.

Caution and Considerations:

      1. Don’t wait until September/October to file your returns if you are able to get it done now.  It will be impossible for small firms, like ours, to handle the volume of work if everyone procrastinates. As previously noted, even if you file your returns now, you can still wait until October to pay any tax liabilities if you choose to wait.
      2. As you can see, there could very easily be a snowball effect with the payment deferrals.  If you wait until October 16th to pay everything, it may end up being a significant cash hit if you don’t properly plan.
        • Consider this scenario for an S-corporation. All payments are deferred to 10/16 making the following payments all due by that date:
          • 2022 S-corporation tax due (originally due 3/15/23)
          • 2022 Passthrough entity elective tax balance due (originally due 3/15/23)
          • 401k employer contribution for 2022 profit sharing (originally due before tax return filed)
          • 2023 S-corporation 1st CA estimate due (originally due 4/15/23)
          • 2023 S-corporation 2nd CA estimate due (originally due 6/15/23)
          • 2023 Passthrough entity elective tax 1st payment (originally due 6/15/23)
        • Now consider the shareholders did the same (and assume taxes are usually paid by company distributions)
          • 2022 individual tax balance due (fed & CA) (originally due 3/15/23)
          • 2023 individual 1st CA estimate due (originally due 4/15/23)
          • 2023 individual 1st federal estimate due (originally due 4/15/23)
          • 2023 individual 2nd CA estimate due (originally due 6/15/23)
          • 2023 individual 2nd federal estimate due (originally due 6/15/23)
          • 2023 individual 3rd federal estimate due (originally due 9/15/23)
          • IRA contributions (originally due 4/15/23)
      3. Prepare a cash needs analysis of the tax due, which would require the 2022 returns to be completed.  Then you’ll want to consider the following factors when deciding whether to postpone payment or start making payments now.
        • How effective are you at saving?
        • Are you able to invest the cash now (some savings accounts are actually paying out decent interest right now) and then pay the taxes in October while keeping your earnings?
        • What does my future cash flow look like? Is your business seasonal and generally has more cash in the late summer or fall, or is it often really low during that time of year? Do you expect a bonus or some kind of payout that could help fund the cash need?
        • Do you have to use your line of credit to pay the taxes?
        • Will this put a strain on my business or family?
      4. If you don’t already have a mandatory e-pay requirement with the California FTB, be careful not to send in a combined estimated payment of $20,000 or more as this will trigger the requirement for all payments going forward. Instead, write separate checks for each of the postponed payments. Failure to comply with this requirement will result in a 10% penalty based on the payment made.

    Bottom line – don’t take these automatic postponements as an excuse to put your feet up and kick the can until September, or even worse, October.  Take the opportunity to plan and maybe even make a little extra income by strategizing.  You can’t do that if you don’t know the tax liabilities.

    If you have filed your returns and paid your taxes, by all means, kick up your feet! Enjoy the fact that “taxes” is nowhere to be seen on your to-do checklist.

    Applicable IRS & FTB References:


    Maybe, just maybe, we’ll have a “normal” tax season next year… but I’m inclined to not hold my breath. For now, let’s get through the never-ending 2023 tax season together.  Contact your tax preparer if you have any questions.

    As always, this very summarized article is meant to help facilitate conversation and is in no way intended to be tax advice.  We strongly encourage you to discuss all tax matters with your tax professional.

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