Tax Tips for the Furloughed NRI’s

by | Oct 12, 2020 | NRI, tax savings tips

Tax Tips for the Furloughed NRI’s

Due to the pandemic COVID-19, millions of Americans are facing a very tough time maybe physically or financially. The rate of unemployment has been increasing at a very rapid rate with many Americans filing the claims for unemployment benefits. Moreover, the rate of unemployment has increased by 14% in the country due to a loss in work or due to many people being furloughed.

 By the CARES Act, the US Government ensured that proper help was provided to those NRIs who have been impacted by the coronavirus. By the CARES Act, unemployment benefits and unemployment increase of $600 in a week was granted. However, if you are a furloughed NRI due to the COVID-19 and are obtaining unemployment benefits then it is quite obvious for you to think about the taxation rules for the unemployment benefit.

 What are the taxation rules for Unemployment Income?

 Unemployment benefit is considered taxable and it must be considered as a part of your income for the tax year. There are some states which would consider the unemployment income as taxable income.

 When you are receiving unemployment income, you would be receiving Form 1099-G which would show the unemployment benefit that you have received.

 Tips for those who are receiving Unemployment Benefit

 Some major tips for those NRIs who are receiving Unemployment Income are mentioned below.

Adjustment of withholdings

 If an NRI is employed, he must take his unemployment benefit into account while filling the W-4 withholding certificate for his employer. This is necessary if there have been no taxes withheld from the unemployment income of an NRI.

 Take out federal taxes

 Unemployment income is taxable; an NRI must take out federal income from his unemployment income so that there are no problems while filing taxes. NRI taxpayers can withhold up to 10% from their unemployment income by filing Form W-4V Voluntary Withholding Request and providing it to the agency which would be paying the benefits. In case, the NRI does not choose voluntary withholding or does not withhold enough then he can even do estimated tax payments.

 The self-employed must consider unemployment while paying estimated taxes

 In case, the NRI is a freelancer, a contractor, etc. then the NRI must consider that the unemployment income would be added up to the self-employment net income and would be taxable. If the self-employed NRI plans to pay his estimated quarterly tax, then he can also consider his unemployment income if he does not have federal taxes withheld from his unemployment.

 Utilize the newfound credits and deductions that are available

 Some of the tax credits and deductions are based on the income of the NRI for which he might not have been eligible before because of higher income. However, the NRI is eligible for this now because of being furloughed. The best examples to explain this are the Earned Income Tax Credit and the Saver’s Credit. According to the IRS data, 20% of people do not remember these two credits. The Earned Income Tax Credit is calculated on the basis of income and is a big credit; in case the NRI has had a low income in the year 2020 due to the loss of wages then the NRI would be eligible for EITC. By this EITC, he would get a credit of worth over $6000 if the family has 3 kids. 

 By the Saver’s credit, contributions would be made towards retirement. In case, the NRI has paid towards his retirement plan in 2020 and is now under the income threshold by which he would qualify for Saver’s credit then he would obtain a credit whose worth would be up to $1000 in case of being single or $2000 if married and filing tax returns jointly.

 The Child and Dependent Care Credit is another tax credit which an NRI might get to see if he had paid someone to take care of his child while he was working or even was job hunting, This percentage of child care credit would be from 20% to 35% of his expenses up to $3,000 if he has a single child and up to $6,000 if he has two or more children based on his income. In case the NRI is having a lower income he might claim 35% of his expenses i.e. $1,050 for a single child and $2,100 for more than two children.

 Conclusion

 So, these are some of the tax tips which would help furloughed NRIs to understand their tax implications without many complications.

Penalties highlight for tax returns filed after 14-Sep

by | Oct 12, 2020 | Tax Refund, tax return, tax returns, taxes, Taxtips

Penalties highlight for tax returns filed after 14-Sep

  

The IRS has very recently urged the US citizens to act immediately if they have taxes due and have not filed their tax returns for 2019. After 14th September 2020, the IRS would be imposing huge penalties on those who owe taxes and are not updated concerning their tax returns.

 The deadline for tax filing was 15th July 2020 due to the adverse consequences caused by the pandemic COVID-19. Several taxpayers have submitted their request for an extension to file their tax returns would not be paying any penalties until 15th October 2020. However, it is an essential point to keep in mind that this extended period is for the filing of tax returns only and not for the payment of tax. Any tax which is due after the 15th July 2020 deadline would be considered as a failure to pay penalty and interest would be charged on it.

 There are still many taxpayers who did not make an extension request but owe taxes; will be facing the failure to file the tax returns and also the failure to pay the penalties. It is advisable for these taxpayers to immediately file their tax returns and pay as much as they can before huge penalties are levied from 14th September 2020 onwards. 

  • The penalty charged for non-filing of the tax returns by the specified date or by the extended date even is 5% of the tax which is unpaid for each month.
  • It can also be charged for that part of the month for which there has been a delay in the tax return filing at the rate of 25% of the tax unpaid.
  • If there has been a delay of 60 days in the filing of tax returns, a minimum penalty is charged.
  • In case, there has been no filing of tax returns even after 60 days; the minimum penalty charged is either $435 or 100% of the unpaid tax whichever is lower.
  • This year, this period of 60 days starts after 14th September 2020. After 14th September 2020 heavy interest or penalties would be charged on the tax defaulters.
  • Apart from the penalties, interest would also be charged for any tax which has not been paid by the tax payment due date of 15th July 2020.
  • However, if there is a refund due for a taxpayer no penalty would be charged for the filing of tax returns late by the taxpayer.

 Probabilities of Penalty Relief may be available 

  • If there has been no assessment for any penalties for taxpayers for the past three years would be eligible for an abatement of penalties.
  • If a taxpayer is not eligible for the relief of his first-time penalty relief, still he can qualify for penalty relief if the cause for non-filing of tax returns or non-payment of tax was due to some reasonable reason.
  • The different types of penalty relief which are offered by the IRS are 

Reasonable cause 

The reasonable causes for failing to file tax returns are:-

  • Natural disasters, fire, or any other disturbances
  • Inability in obtaining the necessary records
  • Death, any serious illness, unavoidable absence of the taxpayer or his immediate family member
  • Other causes which state that despite using all care to meet the tax obligations, the taxpayer has not been able to do so.

  Administrative Waiver and Abatement of a first-time penalty

 A taxpayer would be eligible to qualify for the administrative waiver from the penalties due to filing of tax returns late or for non-payment of taxes on time under the below circumstances:-

  • The taxpayer did not have to file tax returns previously or he has no penalty for the previous three tax years which are before the one in which penalties have been received.
  • If the taxpayer has paid or rather has made the arrangement for making the payment all due taxes.
  • If the taxpayer has filed the current tax returns or has filed an extension in the time to file a tax return.
  • A taxpayer can also be eligible for an Administrative waiver if he has received incorrect oral advice related to tax returns and payment from the IRS.

  Statutory Exception

 A taxpayer would qualify for a Statutory Exception if he has received incorrect written advice from the IRS. The taxpayer would have to submit various evidence to prove this such as

  • The written request made for advice
  • The erroneous written advice which was sent by the IRS
  • Report on any tax adjustments which have been made due to the erroneous advice obtained from the IRS.

 The taxpayer can file Form 843, Claim for Refund and Request for Abatement to request for penalty relief in case of incorrect advice obtained by the IRS.

 Get extra time for the tax payment

If a taxpayer owes tax but is not able to make the full payment, then he can opt for payment of taxes by a payment plan which includes an Installment Agreement.  A qualified taxpayer or an authorized representative is eligible to apply for a payment plan to make payments of the taxes over time. A taxpayer who is unable to pay the full amount must contact the IRS to know about the options available.

The IRS might provide options like short-term extension, and installment agreement or offer in compromise can be offered, etc.

Conclusion

Hence, taxpayers must be alert and file their tax returns before the deadline if they have not done so to avoid huge penalties.

COVID-19 tax relief to the small business owners

by | Oct 12, 2020 | COVID - 19, income tax, tax filing, tax form, Tax Payers

COVID-19 tax relief to the small business owners

The pandemic COVID-19 has affected the economic condition across the entire United States. Business owners all over the country are struggling to survive and lower the impact of the pandemic on their business. Meanwhile, the US Government has introduced various forms by which tax relief can be obtained by the small business owners in the year 2020. Most of these changes belong to the FFCRA (Families First Coronavirus Response Act) and the CARES (Coronavirus Aid, Relief and Economic Security Act). These changes in tax regulations would be helpful for the business owners and the employees to survive the crisis caused by the pandemic.

  Employee Retention Credit

 The Employee Retention Credit is a part of the CARES Act which is mainly designed to keep the employees on the payroll during the times of pandemic.

  • The refundable tax credit which is available is 50% of up to $10,000 in the wages that have been paid to the employees by a business owner whose business has been impacted by the COVID-19.
  • This credit is available to all the employers irrespective of the size of the business and it also includes tax-exempt organic
  • There are only two exceptions i.e. State and Local Government and their instrumentalities and those small businesses which take small business loans such as the PPP loans. 

The qualifying employers for obtaining the Employee Retention Credit must fall into either of the two below-mentioned categories: – 

  1. The employer whose business has been suspended completely or partially by the Government because of the coronavirus pandemic during this quarter.
  2. The gross receipts by the employer are below 50% of a similar timeframe in the year 2019. If the employer’s gross receipts are more than 80% of a similar timeframe in 2019, then they are not eligible for the credit after the quarter-end.

 Paid Sick Leave Credit and Family Leave Credit

 Paid Sick Leave Credit is designed in such a way by which the business would be eligible to obtain credit for an employee who has not been able to work because of having symptoms of coronavirus and is being quarantined or self-quarantined.

  • Employees are entitled to the paid sick leave for up to 10 days at the regular rate of pay up to $511 in a day and $5110 in total.
  • Employers are also eligible to receive credit for payment of those employees who are not able to come for work due to caring for a family member who has been affected by COVID-19 or for taking care of a child whose school/daycare is closed due to COVID-19.
  • These employees would receive paid sick leave for up to two weeks at the two-third rate of the employee’s regular payment or up to $200 in a day and $2000 in total.
  • Moreover, employees can also avail paid family and medical leaves which would be equal to two-thirds of their normal pay ranging up to $200 in a day and $10,000 in total.
  • Also, qualifying leave of 10 weeks would be counted towards the family leave credit.
  • Eligible employers or business owners can immediately receive this credit for sick leave and family leave along with the expenses for a health plan and the employer’s portion of Medicare tax on the employee’s leave.
  • The employers eligible for receiving these credits will report their qualified wages and the associated cost of health insurance for each quarter on their employment tax returns for each quarter or by filing Form 941 which begins with the second quarter.
  • In case, the employment tax details of the employers are not enough for covering the credit then the business owner can submit Form 7200 and receive the advance payment from the IRS.

 Deferred Payment of Payroll Taxes

 By the CARES Act, employers are allowed to defer the payment they do for their employee’s portion of the Social Security Taxes. These taxes would have been due in between 27th March 2020 and 31st December 2020. The employers can make these payments in the form of instalmentse. half by the end of 2021 and the other half by the end of 2022.

  • There is no necessity of special election for the businesses for the deferment of their deposits and payments. The IRS is working on the process of revision of Form 941 for reflection of these changes.
  • This option can be availed by most of the employers; however, those employers who have received the PPP loan would be able to defer the payments until receiving notice that their PPP loan has been forgiven.

 Conclusion

 So, these credits and tax rules will help the small business owners to save their business and also lower the impact of COVID-19.

Estimated Tax Tips for the self-employed NRI’s in the US

by | Oct 12, 2020 | NRI, self employed, tax filing, tax savings tips

Estimated Tax Tips for the self-employed NRI’s

in the US

If you are self-employed NRIs in the US, you will have to make payment for quarterly estimated taxes. Due to the COVID-19 conditions, the deadline for the first and second quarterly estimated tax payment was extended to 15th July 2020. The deadline for the third quarter estimated tax payment was on 15th September 2020 and the fourth payment deadline is yet to come.

 So, you must know about the basic tax tips which are needed by self-employed NRIs in the US for the estimated tax payments.

 Who should make payment for the Estimated Tax? 

  • In the United States, there is a “pay as you go” tax system. This implies that the Government expects that it would receive most of the taxes throughout the year. As a result, employees usually have a certain amount of taxes directly deducted from their paycheck.
  • However, if you are self-employed i.e. you are a freelancer, or a home-based entrepreneur then taxes are not being withheld from your paycheck. You would be subject to making the payment for the estimated tax.
  • Generally, self-employed NRIs would be expected for making a payment of estimated taxes only if you are expecting to owe $1000 or more for your tax payment in a year.
  • In case, you are earning your self-employment income quite unevenly in the year then you would be able to use the Annualised Installment Method at the time of taxation. By this, you can also avoid a penalty for not making the payment of Estimated Taxes every quarter due to uneven income.

 When do you need to pay the estimated taxes? 

There have been some changes in the deadline for payment of estimated taxes this year due to the onset of COVID-19.

  1. 1st Quarter payment – 15th July 2020 (Original deadline was 15th April 2020)
  2. 2nd Quarter payment – 15th July 2020 (Original deadline was 15th June 2020)
  3. 3rd Quarter payment – 15th September 2020
  4. 4th Quarter payment – 15th January 2021

 In case, if the 15th falls on a weekend then you will have to pay the estimated taxes on the next weekday.

How would you figure out your estimated taxes?

 You should use online programs such as QuickBooks Self-Employed which are available for keeping a track of your income, your expenses, and mileage and calculate your estimated taxes for the year. By the online programs, your calculations are done easily thus, finding out your estimated taxes and helping you make the payment on time. Then while annual filing, by the online programs you can very easily export your information of Schedule C into tax filing tools thus, making the procedure easier.

 Pro-tip:- For the self-employed NRIs, there is a new sick and family leave tax credit available. This credit is available under the Family First Coronavirus Response Act. In case you are a self-employed NRI and are also impacted by the pandemic, then you are eligible to fund your sick leave and family leave equivalents. This can be done by considering the 2020 tax credits which would be claimed in 2021 and reducing the 2020 quarterly estimated tax payments if you are eligible for those credits. You can estimate your tax credits by online tax credit calculators and thus, reduce your estimated tax payments by the number of credits you must be eligible for.

 How to pay your estimated taxes?

 Once, you have calculated your estimated tax you must pay them on time. There are several options by which the self-employed NRIs can make their estimated tax payments. 

  1. You can use the Electronic Federal Tax Payment System (EFTPS) for the payment of your estimated taxes. It would help in making instant payment and the EFTPS is also considered to be free.
  2. QuickBooks Self-Employed online program would also help you in filing your estimated taxes with the IRS. This method is also fast and error-free as you will not have to re-enter the necessary information into your checkbook or the computer system of the IRS.
  3. Your estimated tax payment can be mailed using the mailing address provided by the IRS in your respective State. Also, you should be careful that your payments are postmarked by the due date for avoiding penalties.

Pro-tip: – You must keep a record of all the estimated tax payments you have done as you will have to enter the information while filing your taxes.

 Conclusion

 Hence, this information about estimated tax calculation and payment would definitely help you to understand the process better.

Can a property be seized if you owe back tax to the IRS?

by | Oct 12, 2020 | IRS, owe taxes, property tax, tax filing, Tax Payers, Taxtips

Can a property be seized if you owe back tax to the IRS?

“Can the IRS seize my property if I owe taxes?” This is properly the first question every person who owes tax to the IRS enquires. The mere thought of losing their most valuable asset can create a sense of terror and fear in the minds of taxpayers who might have taxes due to the IRS. However, this might depend on why you owe taxes to the IRS, how much tax you owe, and your financial circumstances.

 The IRS has the authority to seize the property of a taxpayer if the taxpayer has been neglecting or avoiding payment of taxes to the IRS.  This process is otherwise known as Tax Levy. By Tax Levy, the IRS has the legal authority to seize a taxpayer’s property which might include a real estate for the settlement of taxes for which there have been several notices sent to the taxpayer.

 When will the IRS seize your property?

  • Seizure of your property is the last method which the IRS might follow for the settlement of the back taxes.
  • Before the seizure of your assets, the IRS would take the below-mentioned steps for the tax settlement: –
  1. The IRS would assess your outstanding tax and would issue a notice to you which would be demanding for the payment of the taxes.
  2. If you have neglected the notice sent to you by the IRS, then
  3. You will be sent a final notice of intent to levy and also a notice of your right to have a hearing before 30 days of the implementation of the tax levy.

 If the IRS decides to take your property 

  • The IRS would calculate and provide you with the minimum bid price of your property.
  • If necessary, you can challenge the price laid off by the IRS and state the fair market price of your property.
  • The IRS would issue a notice and make the announcement for sale of the property.
  • After the announcement, the IRS waits for 10 days before your property is sold off.
  • The entire amount obtained from the sale of the property would be used to recover the expenses incurred in the property seizure, selling of the property, and payoff of your tax debts.
  • You will obtain a refund if any amount is left out after the sale is over and if any excess money is left out.

 Will the IRS visit your home?

 The IRS representative can visit you for tax-related discussion only in circumstances such as

  • You owe taxes to the IRS and there is a need for a discussion.
  • There is an audit process
  • If there is a criminal investigation needed

 However, there has been an increase in the fake IRS visits and tax scams lately which urges the taxpayers to be aware of their rights. You have the right to verify whether the IRS representative is authorized or not by asking for their credentials. 

What are the other properties which the IRS can seize?

 By a tax levy, the IRS can be able to seize the below-mentioned properties. 

  1. Real estate
  2. Your vehicle
  3. Wages by Wage Garnishment
  4. A levy can be put up on your bank account
  5. Investments and collectibles

 Can you get back your seized property?

 In case, you want to get back your seized property you would have to take some immediate action for resolving the tax debt. You must get in touch with the IRS to request a release of your seized property. Moreover, help from a tax professional would help you in the expedition of the process. In case the IRS would not approve your request for the release of the seizure, you can have an opportunity to appeal against it.

 There are certain circumstances in which the IRS would have to undo the seizure of your property. 

  1. Your seizure can be released if you have fulfilled your tax liabilities.
  2. If the tax collection period got completed before the seizure of your property was done.
  3. If you have enrolled in an installment agreement program and the agreement does not allow the seizure of property.
  4. If by the release of your property, you would be able to cover your tax balance.
  5. If by the seizure of your property, you would be facing some economic hardships and would not be able to avail of the necessities of life.
  6. If the value of the property seized by the IRS would exceed the tax owed and the release of the property would not prevent the IRS from the tax collection.

 Protection of your assets from the IRS

 If you want to avoid any kind of trouble with the IRS, then you must be careful about the rules. Either paying of your taxes or responding to the IRS notice, everything must be done on time and carefully.

 Some of the basic steps by which you can take to prevent a tax levy are:-

  1. Find out methods by which you can utilize your finances to cover up your tax debts.
  2. In case you are not able to pay off your entire tax debt in full, then you can enter into an installment agreement.
  3. You can check with the IRS if it is feasible to classify your taxes as uncollectible.
  4. You can also try to request the IRS for an offer in compromise.

 Conclusion

 As a US taxpayer, you must fulfill your civil responsibilities on time. Ignoring or neglecting the notices or communication obtained from the IRS can lead to serious consequences. So, you must abide by the laws, regulations and must take matters related to the IRS quite seriously.