California Disaster Relief and What It Means for Tax Deadlines

Recently the IRS and California finalized new rules for tax deadlines for much of the state of California. Deadlines for filing and payment have been extended for the following counties:

From the IRS tax website:

“Following the disaster declaration issued by the Federal Emergency Management Agency, individuals and households affected by severe winter storms, flooding, and mudslides that reside or have a business in Alameda, Colusa, Contra Costa, El Dorado, Fresno, Glenn, Humboldt, Kings, Lake, Los Angeles, Madera, Marin, Mariposa, Mendocino, Merced, Mono, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Benito, San Bernardino, San Diego, San Francisco, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Tulare, Ventura, Yolo, and Yuba counties qualify for tax relief.”

For individual tax returns, this means most filing and payment deadlines for any date between January 8, 2023 and October 16, 2023, are now due on October 16th. Any late filing or late payment penalty that would normally apply during this time period should be automatically disregarded. If not, taxpayers should protest these penalties by contacting the IRS.

A Word About Extensions

As a reminder, we extend 100% of our client returns. So there is no need to take any additional action at this time for our clients. We don’t rely on the IRS for the additional extension in this case. One of the reasons – the IRS has previously shown that their systems do not always accommodate these types of disaster extensions well. The IRS is using a 50 year old mainframe, and it’s not always the most flexible… Rather than rely on the exception, we’d rather take our chances using the “normal” extension process.

Business Returns

The IRS has also extended most other return filings through this period like corporate, trust, estate, gift, etc. It is important to note that payroll deposits are NOT extended for the same period of time. There was a limited extension for payroll payments through Jan 23rd, which has already passed. The IRS takes payroll responsibilities more seriously than others.

California

On March 2nd, Governor Newsom announced an additional extension of time for state tax return filing and payment to align with the previous IRS ruling.

In addition to individual income tax payments and returns being extended through October 16th, the extension covers business return filings and the Pass Through Entity Tax (“PTET”) tax payment that would normally be due on June 15th.

Disaster Losses

If you suffered a property loss due to the flooding and severe weather, please note that there are special casualty loss provisions for both the IRS and California that might apply and provide tax relief for those directly impacted. 

Cash Flow Planning

For clients with specific cash flow planning considerations, the payment extension might be a good opportunity to consider delaying payment to meet other cash needs. It’s important to continue to set aside your tax liability for payment in October. However, taxpayers could potentially earn interest on significant cash balances and wait to pay the balance until it is statutorily due.