IRS Taxes and student loans for NRIs in the US (PSLF).

by Mounica Kota | Nov 9, 2020 | IRS, IRS credits, IRS e file Return

IRS Taxes and student loans for NRIs in the US (PSLF).

With the coronavirus spreading its adversities throughout the world, the entire economy across the world has been impacted. Millions of people in the US have lost their jobs and their economic lives have been impacted very badly. Under these circumstances, the different types of loans taken by the common people can be the reason for increased financial instability.

Out of the different categories of loans, a student loan is the one that can create a lot of economic problems for the NRIs, especially during these COVID times.

Public Service Loan Forgiveness (PSLF).

The Public Service Loan Forgiveness (PSLF) is a federal program on which a lot of people rely to have their balances of Student loan to be forgiven. An NRI would be eligible to avail the PSLF if he can meet the below-mentioned criteria:-

If you have a direct loan
If you are employed full-time in the public sector
If you are making 120 qualifying payments in a month under an income-driven repayment plan

Which employment qualifies for PSLF?

You should be working for the below-mentioned employers to be qualified for the PSLF.

You must be working in Government organizations at any level i.e. US Federal, State, Local or Tribal
You must be employed in a non-profit organization which is exempted from tax under Section 501(c)(3)
You must be employed in AmeriCorps or Peace Corps as a full-time volunteer

You would not be able to qualify for availing the benefit of PSLF if you are employed in

Labor Unions
Partisan political Organizations
For-profit organizations which include for-profit Government contractors

Qualifying criteria of private loans for PSLF.

Student loans that have been taken from private lenders are not eligible to qualify for PSLF. The loans such as Federal Direct Consolidation Loans, Federal Direct PLUS Loans, and Federal Direct Stafford Loans qualify for the PSLF.

If you are choosing to consolidate your loan, only the qualifying payments that are made on the New Direct Consolidation Loan would be included in the 120 payments that are needed for the PSLF. If any payments are made before the consolidation of the loan then they would not be counted.

How to apply for PSLF?

There would be two scenarios when it is related to applying for the PSLF.

120 qualifying points –

In case you have already made the 120 qualifying points, then you must fill the Public Service Loan Forgiveness Application to apply. You can easily find out the application for PSLF and the additional information needed at the Federal Student Aid.

Working for making 120 points-

In case, you are working pro-actively towards making your 120 points then you should submit the PSLF Employment Certification yearly or if you are switching your employers.

Taxability of the Forgiven loans.

Any loan money which is considered forgiven under the PSLF would not be considered eligible for taxation. You would not have to pay any federal tax on the money that has been considered eligible under the PSLF.

The forgiveness of your Student loan would not affect your tax returns for the year 2020. You would not have to report anything different on your Federal tax return than the normal amount to report a return. However, the amount of interest on a student loan that would be deducted will look different from the normal interest paid.

CARES Act Relief under PSLF.

According to the provisions of the CARES Act, all payments which were to be made by the common people to the US Department of Education for Federal Student Loans and accrual of interest were suspended until 30^th September 2020. However, the US President extended this suspension date until 31^st December 2020 by signing an executive order. If you are having a federal student loan, then you will not have to do anything separately for the suspension of the payoff or interest accrual. But, if you are interested in making the normal payments for the payback of the loan then you can do so.

Moreover, even though the federal loan repayments have been put on hold but you can still qualify for the PSLF. In case, you are having a Direct Loan and you are employed under a full-time employer during the Suspension period, you would be receiving credit towards the PSLF as if you have made your monthly payments on time.

Conclusion.

So, these tax provisions and deductions with the student loans related to the NRIs in the US would help you to have a clear understanding of the tax structure.

How to claim your unclaimed refunds?

by Mounica Kota | Nov 7, 2020 | Income Tax Refund, Income Tax refunds, IRS Tax Refunds, Tax Refund

How to claim your unclaimed refunds?

To know that you have a refund due to being obtained from the IRS is one of the best things especially in these troubling pandemic times. If your refund amount is a big one, it can be utilized for different purposes such as paying off your debts, investing in an emergency fund, etc. However, you might have missed out on your refunds which were due to be obtained from the IRS. According to the IRS, $2,781 was the unclaimed refund amount available in the year 2020 which is expected to increase more in the year 2021.

The causes for the unclaimed refunds can be different for different taxpayers and so are the methods by which the refunds can be retrieved.

Unclaimed Tax Money and Refunds

According to the IRS, billions of refund checks are bounced back if your address has been changed or there has been a change in your bank account number. The IRS would be unaware of the information related to the new address /new bank account number. Your refund check would return and would lie unclaimed in such a scenario.

Another vital reason leading to unclaimed tax refunds is that you considered your income to be very low. As a result, you did not prepare your tax returns and did not e-file a tax return as well. For instance, you are a salaried professional, and taxes were being withheld from your paycheck every month. However, you considered your income too low and did not file the tax returns. But, you would be able to claim the money that has been deducted from your salary in the form of a tax refund. Also, there might be a probability that taxes were not being withheld from your paycheck but you can receive a refundable EITC (Earned Income Tax Credit).

How can you receive your unclaimed refunds?

Some of the methods by which you can easily receive your unclaimed refunds are:-

In case, it has been just less than a year when your tax refund was issued you can put forward a request to the IRS for reissue of the refund. This can be done by use of the IRS’s unclaimed refund database. In this case, for protection, you would have to provide your filing status, Social Security Number, and your refund amount as well. If there is a need to address updation, it can be done here. The advantageous part is that your information related to refund would remain available on this IRS website until the next tax return has been filed.
In another scenario, if it has been more than a year but less than three years since you filed your returns but have not received your refunds – you have two options available. You can request for your lost refund to be reissued. While filing the tax returns, you can use the “Married Filing Jointly” Status and complete Form 3911 which is the Taxpayer Statement Regarding Refund. Also, if you are not using this status you can give a call to the IRS at 1800-829-1954 to request for reissue of your refunds.
If after filing your return request, you found out that a particular credit or deduction would have led to a refund. Or you have made an error while filing your returns then you can make amendments to your tax return and get your unclaimed tax refund. This amendment can be done by filing Form 1040X and mailing it to the IRS. This can take some additional time i.e. up to 16 weeks but would get your unclaimed refunds.

Conclusion

So, if you have had tax refunds but have not obtained them due to some reasons you can still receive them. Filing a return within three years of the return due date and also filing a return for an earlier year will help you in avoiding penalties related to late returns.

Here’s all you need to know about SEP IRAs for the self-employed.

by Mounica Kota | Nov 4, 2020 | IRA, IRA Contribution, Roth IRA

Here’s all you need to know about SEP IRAs for the self-employed.

A SEP IRA can be one of your best choices if you are self-employed and are looking for good retirement plans. If you are a business owner who has one or more than one employee or you have freelance income, then you can open a SEP IRA. The SEP-IRA is formally known as the “Simplified Employee Pension” Plan IRA. This pension plan contains an IRA at its core; however, helps in larger tax deductions and contributions than that of the traditional IRA.

How can you start a SEP IRA?

The major advantage of a SEP IRA is that it is very simple to set up and manage as well. Complicated paperwork is also not included in the SEP-IRA.

You would have to start the process by selecting a trustee who would be able to manage your SEP-IRA plan.
This trustee could be a mutual fund family, a bank, or a brokerage firm,
You would have to create a written agreement which would explain the plan details and its benefits. Form 5305-SEP i.e. Simplified Employee Pension-Individual Retirement Accounts Contribution Agreement would be provided by the IRS to simplify the procedure.

Working process of the SEP IRA.

The working process of the SEP-IRA is almost similar to that of the traditional IRA. The contributions made into the SEP-IRA are tax-deductible and the money that is contributed can be easily invested into a self-directed account. The earnings accumulate in a tax-deferred manner and are withdrawn at the age of 59 and a half.

One of the major differences between the SEP-IRA and traditional IRA is their limit of contributions and the catch-up contributions. In a traditional IRA, the contributions you are making can be limited to not more than $6000 in a year or to $7000 if your age is 50 years or more. But, in a SEP IRA, there is no provision for additional catch-up contribution if you are above the age of 50 years.

How can contributions be made into a SEP IRA?

It is feasible to invest in a full-service brokerage firm and trade any type of investment selected. You have the liberty to choose if you wish to hold the plan in a managed option. Moreover, contributions can be made into your SEP IRA of the previous year even until the extended tax deadlines. In this case, you have filed a request for a tax deadline extension in the year 2019; you still have to file the tax returns by the deadline of 15^th October then you would still be able to make contributions into the SEP-IRA by the deadline.

Moreover, there are no provisions for catch-up contributions in the case of Roth SEP IRA. It is advisable that if you are earning within a considerable income limit, you must make contributions to the Roth IRA and can rather set up a separate Roth IRA. Your contributions into the Roth IRA plan are good as long as they are combined with the SEP contributions and do not exceed $56,000.

The pros and cons of SEP IRA

Pros of SEP IRA	Cons of SEP IRA
The high limit for contribution i.e. $57,000 in 2020 and $56,000 in the year 2019	There is no feature to provide catch-up contributions if you are 50 years old or above.
This is easy to set up and manage	No features available like the Roth version i.e. the advantage of opting for payment of taxes now and taking on distributions later on during your retirement.
SEP IRA can be combined with a traditional or a Roth IRA.	If you are contributing for yourself then required proportional contributions must be made for every eligible employee
No need for commitment to contributing to the SEP-IRA even in the next year.	SEP IRAs would need minimum distributions to begin at the age of 72.
The contributions made into the SEP-IRA are tax-deductible which includes those contributions that are made into the employee accounts.	In SEP IRA, the distributions which are made before the age of 59 and half years are taxed and there is a 10% penalty if the major reason for distribution does not satisfy the exception of early withdrawal.

Conclusion

So, a SEP IRA would help in providing a chance for contributing a good amount every year and will also let your savings grow in a tax-deferred manner. SEP IRA would be very much helpful if you do not have other employees and are not even planning to hire employees soon.

All you need to know about PTIN.

by Mounica Kota | Nov 1, 2020 | ITIN

All you need to know about PTIN.

If an individual is preparing or is assisting others in the preparation of their federal tax returns, then he should have a valid PTIN. PTIN stands for Preparer Tax Identification Number and is issued by the IRS to the professional tax preparers. These professional tax preparers are Certified Public Accountants (CPAs) and the Enrolled Agents (EAs). These tax preparers are paid and must include their PTIN in all those federal tax returns which they are filing for their clients.

The PTIN is an eight-digit number that is preceded by the alphabet ‘P’. The PTIN is placed in the place of the tax preparer’s SSN in case of all tax returns filed by them.

Does an individual taxpayer need PTIN?

Individual taxpayers don’t need to have a PTIN. If you are not being paid for the services you are providing for preparing tax returns and filing tax returns, then you would not need a PTIN. PTIN would not be required for an individual in case

If an individual is preparing and filing his tax returns
If an individual is preparing and filing a joint tax return for his spouse
If an individual is preparing and filing tax returns for his friends and relatives
If any tax returns are being filed by an individual while volunteering in an organization.

Does an employee need a PTIN?

There might be instances in which employees in an organization might be asked to collect and collate tax-related information. This information must be further used by the employee to file the tax returns for the organization. This can be considered as a part of the general duties of an employee within an organization. The organization or rather the employer would compensate the employees for the efforts put in towards the tax preparation and filing. However, the employees do not need to have a PTIN.

The employees do not need to have a PTIN as they would not be paid specifically for the services they are providing for tax preparation and filing tax returns.
The employees who would be preparing the tax returns would not sign the tax returns. Rather, the tax returns would be signed by the treasurer or any other authorized officer of the organization.

How to obtain a PTIN?

PTIN can be obtained by following the below-mentioned steps:-

PTIN can be obtained by visiting the online PTIN System. There a click on ‘Create an Online PTIN Account’ will help in getting started. There are no fees charged for creating the PTIN at this step.
The online application for PTIN must be completed. For this, the necessary information required are Social Security Number, Business information, personal information, tax returns for the previous year, information on personal certification, etc.
At this step, you will have to pay the fees for registration. It is $50 and can be paid either by debit card or credit card.
After the payment procedure is successful and the information has been provided, the PTIN would be provided online.
Moreover, if you do not want to apply for the PTIN online it can be done through the mail. The Form W-12 must be filled for this purpose and sent to the IRS. By the online method, the PTIN can be obtained in 15 minutes whereas by the paper mode it would take around 4-6 weeks.
The PTIN would expire on 31^st December of every year and should be renewed. The online PTIN Account must be visited and login can be done by using the username and password.

How to find out tax preparers who have a PTIN?

The IRS would have a directory which would include those PTIN holders who are available for public search. This directory can be used for finding out the PTIN holding tax preparers.

The directory can be visited on the IRS website i.e. Directory of Federal Tax Return Preparers with Credentials and Select Qualification.
Now the country, ZIP code, and area must be found out where the PTIN tax preparers are being searched.
The CPAs or EAs must be searched.

Conclusion

So, obtaining and renewal of the PTIN is quite easy and is a must if tax preparation and filing are done for others and money is made out of it.

Wondering how to get debt-free this year?

by Mounica Kota | Oct 31, 2020 | IRS, Tax Extension, tax filing, Tax Planning, Tax Preparation, Tax Refund, Taxtips

Wondering how to get debt-free this year?

This simple guide would help you!!

Repayment of debts can give you nightmares and this entire problem is a vicious circle. With one debt leading to another, the entire process can push you into financial troubles.

So, it is essential to get rid of your debts soon; however, it seems to be a difficult thing if done without prior planning.

Let us check out a simple guide which would help you to get debt-free this year.

The Essentials

It’s a consumer world today and it’s the current trend to purchase new and fancy items. You might be having the best of clothes, apparel, and gadgets but you are interested in upgrading them. Expansion of your wardrobe has become a hobby and a passion too.

Let’s think rationally and put an end to this. It is necessary that you prepare a list of the essential items and only purchase those which are needed. Avoiding unnecessary purchase is the best way to minimize your expenses thus, leading to less debt accumulation.

Budgeting and tracking your expenses

Budgeting is highly essential to keep your finances under control. When you make a budget, know your expenses, and spend accordingly you would be able to save. These savings can be your savior while you are struggling to get rid of your debts. There are various budgeting tools and apps available that can be utilized to keep a check on your income and spending. When you are aware of your spending habit, you can easily find out those areas where you can cut off the spending. The cut-off spending would be used in paying off debts.

Search for shopping options which are cheaper

When you are trying to have a debt-free life, it is essential to introduce some changes to your shopping options. You can resort to techniques like shopping in bulk. This would be less expensive. Moreover, for the general household shopping, you can plan to visit the stores once during the month. Your shopping list for essential items would help you in obtaining all the necessary items at once without the need for visiting the stores and also spending again and again.

If you fill up your cupboards with the groceries, stationeries and other items when they are on sale and then skip shopping each month for at least 1-2 months, you would be able to save quite a good amount. The savings made can be utilized in making your debt payment then you would get rid of your debts in a considerable period.

Handle your credit card wisely

You can consider your credit card as a source of cash that would be needed at times of emergency. But, if you are making improper use of your credit card you might be accumulating debts. You should ensure that your credit card is used only in times of emergency. Avoid making payments by using your credit card; rather plan the purchase of items only when you have cash with yourself.

You should keep on checking the records of your credit card continuously. This would help you in keeping a track of how much debt you have to pay off. Moreover, you must be aware of any fraud schemes which can occur with your credit card. Also, if you feel that the interest rates of your credit card are too high you can negotiate with your card issuer. If you have had a good history of paying your bills on time then you can expect getting a lower interest rate.

Make extra money

If you decided to get rid of your debts this year, then you must find out other methods to increase your income. You can take up an extra job or work in extra shifts, putting all extra money earned into the debt payment. Once your debts are paid off, you can stop doing this extra work if it is painful for you. Moreover, you can rent out your extra space such as a garage, or room, etc. and use the extra income for paying off your debts.

Get rid of the expensive debts first

This is one of the smartest methods to use for getting rid of the debts which you have. You must choose one of those debts of yours which are charging the highest interest. All the extra payments you can do must be focused on getting rid of this expensive debt first.

Once your expensive debts are paid off, utilize all the money that you were paying for that particular debt in paying off the next expensive debt of yours. By continuing this method, you would be able to pay off all the debts and would be left with the least expensive ones only. You would feel motivated by using this strategy as it helps you in getting rid of the debts quickly.

However, there is another strategy too i.e. the Snowball Method which is a variation of this method and is also helpful in getting rid of debts easily.

Refinancing

The idea of refinancing your present debts would be of great help in paying off your debts. Several loans come up with attractive rates of interest. Getting that money and using it for paying off your debts would be a good strategy indeed. However, you need to be careful and consider the opportunities cautiously while refinancing.

Do not accumulate debts

The golden rule to become debt-free is to prevent the accumulation of further debts. This process is a vicious circle and it needs to stop. One of the best methods by which you can keep a check on your debt accumulation is by the restricted use of your credit card. Moreover, spending wisely by minimizing your expenses is the best method to stop any further accumulation of debts.

After you have stopped the further accumulation of debts, you can opt for the restructuring of your installments and payment strategy. By this, you would have a good financial strategy for your debt payment.

Conclusion

So, if you are interested in saving so that your debts are paid off you need to have a mindset change. You will have to think twice before shopping, make smart shopping decisions, and turn down temptations. With a substantial amount of self-control and discipline while dealing with finances you can easily get rid of your debts this year.

References

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