For most Californians, this year’s tax season is a procrastinator’s dream come true.
While most of the nation toils to meet next week’s April 18 filing deadline, just about all income tax payers in California don’t have to file their federal or state tax returns until Oct. 16 – thanks to disaster declarations stemming from the recent heavy rains and flooding. Only those living in the sparsely populated Modoc, Shasta and Lassen counties in northeast corner of the state have to get their returns in the mail by next Tuesday.
Here’s some insights and advice from Eric Allen, an assistant professor of accounting at UC Riverside’s School of Business.
Question: Millions of Californians who were not or only minimally affected by the rainstorms will still qualify for tax filing extensions. So, why would the Biden and Newsom administrations offer such broad extensions to most Californians?
Allen: I suspect that part of it is attributable to administrative convenience. It’s much easier, and less costly, to administer a program like this when you have essentially everyone automatically qualify, rather than have taxpayers individually apply and the tax agency verify that they qualify or suffered an economic loss. It also reduces the compliance costs for taxpayers since they only have to do minimal research to see if they qualify and don’t have to file anything with the tax authorities and wait for the approval.
For those facing significant tax payments, would be best to wait until the Oct. 16 deadline?
Allen: From a time-value of money perspective, it’s always better to pay later as you can use the funds to earn interest or some other return in the meantime. However, make sure to either set those funds aside now or have a specific plan as to how you will have them available in October. The worst-case scenario is not being able to pay with the actual return. So if you don’t think you’ll have to self-control to save for the next six months, I would file sooner rather than later.
Also, if you’re someone who will worry about the return until it’s filed, then I would recommend just getting it out of the way now and reducing that cognitive load.
Similarly, for those expecting a tax refund, would be it best to ignore the extension and file accurate returns as soon as you can?
Generally yes, but I would stress the word ‘accurate.’ Don’t rush the return just to get a refund. Taking a little extra time to make sure you’ve fully included all necessary information and can support all of your tax positions will save you a significant amount of time and hassle in the future.
