Extended Tax Deadline and Deductions

The IRS has extended the federal income tax filing deadline for tax year 2020 from April 15 to May 17, 2021. As taxpayers think about tax-avoidance strategies for last year and the current year, a worthwhile endeavor is to assess whether avoiding taxes is worth the cost. For instance, investing in a municipal bond can be a way to avoid taxes on income from bond interest payments, but if municipal bond interest rates are too low compared to the taxable alternatives, it may be relatively advantageous to invest in the taxable bonds and accept the accompanying taxes. In a similar vein, carrying debt with deductible interest may or may not be financially optimal depending on the applicable interest rate, the opportunity cost of funds that could be used to pay off the debt, and the marginal tax rate avoided by the deduction of the interest expense. Each potential strategy to minimize taxes warrants a contextually appropriate assessment.

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- Anthony Winkels is Managing Partner and Wealth Advisor at Fortis Wealth Management