Shortly after all the storms in February, the IRS and the State of Kentucky delayed the tax return dates. While most people still tried to get all their taxes done before Tax Day, the truth is they technically did not need to rush. Understanding what happened, whether you are going to owe more taxes, and what you can do about these changes is key to building a strong tax plan for 2025.
Due Dates Have Changed
In typical years, April 15th is when individual tax returns are due and payment is required. Due to the storms back in February, every Kentucky resident and business has a new Tax Day this year: November 3rd. This new tax date applies to both your Federal Tax Return as well as your State Tax Return. On February 24th, the IRS announced the delay. A few days later, the Kentucky announcement followed to match the Federal delays.
The IRS cited that all individual and corporate tax returns, as well as payments due on April 15th, will be delayed to November 3rd. Additionally, since the delay technically went into effect at the end of February, Partnership and S-corporation returns due on March 17th were also extended. Quarterly payroll and excise tax returns are lumped in as well, namely the three due dates before November (April 30th, July 31st, & Oct 31st).
The delay also includes all estimated quarterly payments remaining for the year, including the payment you normally would make on Tax Day. The April 15th, June 15th, and September 15th quarterly payments have all been delayed until November. The November deadline also applies to contributions to IRAs and HSAs as well. Usually, those are also due on Tax Day, but the filing delays allow extra time for those retirement contributions if needed.
What About Interest?
Due dates and penalties have been delayed; however, “late payment” interest could become a problem for Kentuckians this year. Since the entire state was considered a federally declared disaster, the IRS “waives interest and penalties on taxes owed.” Essentially, there is no extra interest if you delay a federal tax payment from April to November. This is where communication with your accountant is critical, as they have insight into your specific situation and can give tax advice tailored to your unique situation.
Unfortunately, Kentucky does not have the authority to waive its interest. The Kentucky Department of Revenue explained that the State can delay filing dates and payments due, but interest will still accrue on payments that otherwise would have been paid. Fortunately for most high-income Kentucky owners and residents, most of our taxes are on the federal level. With Kentucky’s state income tax of only 4% in 2024, at least any accrued interest would only be charged on your state taxes.
The department provided a nice example for someone making $50,000. Ignoring many other variables, the tax liability of 4% would be $2,000 if paid on time. If delayed a few months, $111.23 of interest is applied to the same tax, resulting in $2,111.23 in taxes for the year. Your actual numbers will vary based on income, deductions, and other tax factors, but the fact is the same: up to a 10% interest rate could be charged against your taxes due. If you had $500,000 in taxable income, that would likely be a $20,000 tax liability to Kentucky (ignoring all deductions, credits, etc.). Of that liability, a 10% interest charge would be $2,000 owed simply for not paying taxes earlier.
What Should You Do About It?
If you extended your returns or have not finished filing them yet, you have 7 months to get them done. However, just because you can delay your filing doesn’t always mean you should. Work with your accountant to understand the risks of each option, especially if delays will create extra interest due on your Kentucky taxes. Some accountants recommend filing on time despite these delays to avoid these confusing rule changes.
No Kentucky resident or business owner should receive a late filing or late penalty notice for their 2024 taxes until after November. So, if you receive one, notify your accountant to address this. Both the IRS and the State of Kentucky explained that the entire state is entitled to this delay, so you should qualify.
The more proactive you are in tax planning, the better. It may be possible to take advantage of some of these delays. The delayed quarterly payments are a good example. In typical years, estimated tax payments are due in January, April, June, and September. Now that the April, June, and September payments are all due in November, there is some extra flexibility in the cash flow this year. It’s important to plan for taxes but pushing back the quarterly payments to the end of the year could give you more time throughout the year to reinvest in the business or improve your situation.
Get Your Financial Team Together
At the end of the day, tax changes and tax planning are all about being proactive. There is always misinformation floating around, and sometimes it can be hard to understand what you should do. When we are hit with a federally declared disaster, for example, you will want to have a quality accountant and advisor in your corner. Work with them to understand your risks and to build a financial and tax plan that fits your personal and business life.
TC Falkner 