All you need to know about Multiple State Tax filing

by Mounica Kota | Jul 11, 2020 | Multiple State Tax, Resident State Tax, State Tax Return, tax filing

All you need to know about Multiple State Tax filing

Multiple state tax filing As the pandemic COVID-19 continues to affect common people in the worst manner, many Americans who were residing in different states for work are gradually returning to their native states. People have now decided to return to their native States and work remotely. So, now you have quite a large number of tasks lined up for yourself.

You need to settle down, make yourself a part of the new community, and obtain a new driving license, register to vote in the new state, and many more. One more additional task is the filing of the tax return. Until now, you were filing only the Federal tax returns but now you would have other tax returns to file. These would include the need to file a tax return in the State you moved from to the State you have moved to.

Queries and confusions related to multiple state tax filing usually arise if you are earning income in different states during the same calendar year. These confusions can occur due to several reasons such as

If you are changing your residency in the mid of a calendar year to a new State.
If you are into a profession where your work makes you present in multiple states in a particular calendar year.
If you own investment property outside your home state.

Determination of State residency

For most the Americans, determination of resident state is quite simple. The complications and risk of being open for a State Audit might arise if your stay time is split between multiple states.

You will have to prove to the State about your residency by showing up things like where you had been living in most of the year, where you own property; your bank accounts are present in which State, where are you registered to vote, etc.

Determination of your State residency is the primary step in the calculation of your State tax as it will help in determining the State in which you would have to file a state tax return as a resident.

Non-resident State tax return

For those non-resident states where you have earned income, you will have to file a Non-resident state tax return. In this form, you will have to report only those incomes which were earned in the Non-resident states.

a. In case, you are the owner of an investment property in the Non-resident State then your tax return to be reported would be rental income minus the associated expenses.

b.If you are a consultant who is working in some project out of the resident state then the income to be reported would be the proportion of your salary earned while you are working on that project.

c.There are some states such as New Jersey and Pennsylvania which are into an agreement by which there is no obligation for the residents of the states to file a non-resident state tax return if they are earning in the non-resident state.

Resident State tax return

In case of your home state’s tax returns, you have to report all income that you have earned which even includes the income that has been earned in different states. This implies that all your income in that calendar year would be subject to resident state’s tax laws.

While you are completing your tax returns, you will have the opportunity to list down the taxes which you owe to pay to other states. This would be applied as a credit against the taxes which are owed to the resident state

and so,you are not in a bad state by making a part of your income outside your resident state.

Part-year resident State tax return

The part-year resident State tax return would be relevant for those Americans who have moved from one state to another in the middle of a calendar year. By this, you would have an opportunity to split your income between the two states and claim to be a resident of both the states.

For the calendar year in which you are moving from one state to another, you would file the Part-year resident State tax return. However, you do not have to worry about paying double of your State tax.

Mostly, states would tax only income earned within the state and not outside the state. When you know the exact income earned in each state, you can easily report the exact income for each state. This can be feasible if you had a savings account in your old state which you closed while moving and opened a new one in your new state.

Conclusion

Hence, filing of State tax returns is somewhat confusing and would take some more time. You must determine your state of residency carefully, understand your income allocation as you cannot take the numbers reported on your W-2, and review your state tax returns carefully.

How to save taxes with a Virtual Wedding in pandemic times?

by Mounica Kota | Jul 8, 2020 | Married Life, Tax Deduction Ideas, Virtual Wedding, Wedding Favours

How to save taxes with a Virtual Wedding in pandemic times?

As the pandemic COVID-19 continues to spread across the United States affecting millions of people, there has also been a complete shutdown for many businesses including the wedding industry. Many couples who had planned for a wedding during this year have either canceled it or have postponed it. However, many couples have resorted to other alternative means of solemnizing their wedding i.e. by Virtual wedding. How to save taxes with a Virtual Wedding in pandemic times.

With social distancing being the necessity of the current times, many couples have also resorted to performing their weddings by using modern-day technologies. Weddings via Zoom or through other modes of video conferencing are the current trend now. So, are you also thinking of having a Virtual wedding? You would be able to save a considerable amount of money on expenses like food, venue, etc. and would also have opportunities to save tax.

Tax deduction ideas for virtual wedding

In case you got married in 2019 or you are planning for a virtual wedding this year, these tax deduction ideas will be of great help to you.

Your wedding gown

You might think that what would be the tax deduction on the purchase of the wedding gown which you have been dreaming of. However, the best part is that you can be able to donate your beautiful wedding gown and claim a tax deduction in the form of a charitable contribution. It is also feasible that the price of your wedding dress can help you in obtaining an appraisal. In case, the wedding dress costs more than $5000 then the wedding gown must also be appraised.

If you are donating your wedding gown, then you should preserve the receipts and documentation to help claim your tax deduction. There cannot be a feeling better than the feeling of content which you would experience in donating your precious wedding gown. You would feel so happy that the gown which had a special place in your heart has come to someone else’s aid or help. You must ensure that when you are donating your wedding gown, you must donate it to a 501(c) (3) qualified organization i.e. a non-profit organization.

Wedding gift registry

As your wedding date approaches, you are sure to prepare a traditional gift wish list. If you are planning for a wedding this year you can create a charity registry as well along with the traditional gift wish list. The charity registry can be created easily by registration on myregistry.com and you can motivate your guests to make donations for a good cause. These donations can be used to claim tax deductions so, your guests would be happy to donate and even celebrate with you. There would be a noble cause for which your guests would be contributing and it is sure to make them feel good.

You should be well aware that there are two basic requirements to be met if you intend to claim tax deductions for the charitable donations that you are making.

You should ensure that you must have enough tax deductions so that you can obtain the benefit from claiming the itemized deductions.
Moreover, as said earlier the donations must be made for a nonprofit organization to be able to claim the tax deductions.

Wedding favors

Due to the pandemic COVID-19, weddings and social gatherings are not permissible; so, a virtual wedding would is the best alternative solution for the current situation. However, wedding favors in times of virtual wedding can sound to be quite impractical. But, you can plan for making a good donation on behalf of all those who attended your special day. This would help in serving two major purposes i.e. – a donation can be of great help to the needy and it would also help you in achieving a tax deduction.

Conclusion

Hence, in these distressful times, cancellation of wedding or postponement of wedding for an infinite period can be even more distressful. A plan for a virtual wedding can be your mood lifter and implementing certain charity plans associated with your wedding can make it sound even more interesting. Your charity receipts and acknowledgments should be intact for a tax deduction which can increase your tax refunds and boost your funds for your married life.

All you need to know about the Stimulus Package Relief for the deceased

by Mounica Kota | Jul 5, 2020 | coronavirus, coronavirus stimulus checks, Deceased persons

All you need to know about the Stimulus Package Relief for the deceased

Millions of people across the United States have already received their payments from the Coronavirus relief package and many are still waiting for their stimulus payments to arrive. However, a surprising fact which has come up into light is the receipt of stimulus payments by the deceased Americans. The beneficiaries of these deceased Americans have been receiving the stimulus payment and are in a dilemma about the next course of action.

The CARES Act was passed by Congress in March and since then there has been huge pressure on the IRS for the quick distribution of the Stimulus money amongst the people. This scenario of deceased persons receiving the Stimulus money has also been addressed by the US President as quite a normal happening which would be taken care of by the IRS eventually.

How are the deceased Americans receiving coronavirus stimulus checks?

If an American had filed his tax returns for the year 2018 or 2019 and has passed away then his beneficiaries might be receiving the Stimulus payments. The major reason underlying this is the use of the recent tax information by the IRS to determine the eligibility for the receipt of the Stimulus payment.

There is a master file of all deaths that have happened in the country with the Social Security Administration.

IRS could have cross-referenced with this master file and scrubbed the data for removing the names of the deceased individuals from the list of Stimulus check recipients. However, this would have taken a longer duration and the Stimulus payments would have been delayed for all Americans. Precisely, many tax and law consultants have stated that the IRS has followed the law because according to law the IRS needs to look at what has been reported by the taxpayer in his 2019 returns, his income, and his filing status. The payment would be based on these eligibility criteria and not on whether the taxpayer is deceased or not.

What to do if you receive a Stimulus check for your deceased relative?

The IRS FAQ page on its official website gives detailed information on what needs to be done if you are receiving the Stimulus payment for any of your deceased relatives or family member.

Based on the IRS’s instructions about repayments, any stimulus amount obtained for a person who had died before the receipt of the payment should be returned. However, there is a small exception in this case as well. In case, you are married and had filed your income tax returns jointly but your spouse had passed away before the receipt of the Stimulus check then you are entitled to return only that portion of the payment which was intended for your spouse and keep your portion of the payment. The amount which you need to return would be $1200 unless your joint AGI (Adjusted Gross Income) was more than $150,000.

How to return the Stimulus payment received for a deceased relative?

If you have received Stimulus payment for any of your deceased relatives and wish to return the payment, then you must follow the instructions specified by the IRS.

a. Payment received as paper check which has been cashed or payment received by direct deposit

You need to send a money order or a personal check to the appropriate IRS location in the state in which you are residing. The ‘Economic Impact Payment Information Center’ can be referred to obtain the mailing address on which the money order or check would be sent.
You need to mention ‘Payable to US Treasury’ on the money order or check. You must also mention the 2020 EIP and the Social Security Number or Taxpayer Identification Number of the person to whom the check had been addressed.
You should give a summary of the reason for which you are returning the check.

b.Payment received as a paper check but has not been cashed

If you have not cashed the check, then you need to mention ‘Void’ on the endorsement section of the backside of the check received.
You can mail the voided Treasury check to the appropriate mailing address of the IRS location.
You can put in a note which explains the reason for your return of the check.

Conclusion

Despite all the understanding about the return of the check, it can be said that the need to return the Stimulus payment made for a deceased person has not been officially stated in the IRB (Internal Revenue Bulletin). This has only been said in the FAQs of the IRS and the IRS may change its regulation at any time.

Does the Stimulus package help in Tax Refunds for the NRIs in the US?

by Mounica Kota | Jul 2, 2020 | federal government, Government Benefits, Stimulus payment, Tax Refund

Does the Stimulus package help in Tax Refunds for the NRIs in the US?

The Federal Government had been sending Stimulus checks to millions of Americans including the NRIs to alleviate the financial and economic stress created by the pandemic COVID-19. These stimulus checks have been of great help to those NRIs who have been struggling to meet their basic expenses due to either loss of work or business shut down because of COVID-19.

If you are an NRI and have also received the Stimulus check, an obvious thought in your mind must be about the co-relationship between the Stimulus package and your tax refunds. There is a relationship between the Stimulus check you have received and your income tax; however, by the receipt of Stimulus check your tax refund would neither be decreased nor would your tax liability be increased.

How are Stimulus checks and Income taxes related?

The IRS is in charge of sending out the Stimulus checks to the NRIs and even it is the IRS that is responsible for all decisions associated with tax refunds and collection of payments for NRIs.This reason might cause apprehensions in your mind especially when you are an NRI and owe to pay taxes to the IRS.

However, you do not need to worry about your taxes about the receipt of the Stimulus checks. The Stimulus money is not considered as taxable income.

The Stimulus check you receive is not going to increase the amount of tax you owe to pay to the IRS while filing your tax returns for 2020. It is also not going to decrease your tax refunds to be obtained for the year 2020. The involvement of IRS and your tax filings are only involved here because of the reference they provide to your income which is a major factor in the determination of your Stimulus amount.

Your amount of Stimulus check would be calculated based on your federal tax return for the year 2018 or the year 2019. If your 2019 tax returns have been filed, then that would form the basis for the calculation of your stimulus payment otherwise the IRS would be using your tax return information of the year 2018. If you do not receive your Stimulus payment this year, you would be able to claim it next year while filing 2020 tax returns.

There might be a scenario in which your income has changed tremendously over the recent period. In such a case, the working procedure can be summarized as mentioned below.

In case of your income being lower than that of your income in 2018 or 2019, the IRS would calculate your Stimulus payment based on your income of the year 2020. In this case, your Stimulus payment would be received after your income tax returns for the year 2020 are filed.
If your income is on the higher side in 2020, then the IRS would not force you to pay back your Stimulus money and you would not even lose any money from your 2018 or 2019 refund.

In case of tax non-filers

If you have not filed your tax returns recently then

If you are the recipient of Social Security benefits or are a military/railroad retiree then you can obtain Stimulus payment without the need to file your income tax returns.
If you have not filed tax returns for 2018 or 2019 and have not received any federal benefits, you can obtain your Stimulus checks by filing the tax returns for 2019 or by using the IRS tool for non-filers.

Stimulus Payment- An advance on the tax refund or a Government benefit

a. Stimulus payment is not an advance income tax refund and it is not going to affect your tax refunds based on your 2019 or 2020 tax returns. Moreover, you will not have to pay back the Stimulus money.

b.Stimulus payment can be said to be a federal tax credit for 2020 or an advance of a refundable credit on your 2020 tax returns and can also be referred to as Stimulus rebate.

In case of this rebate, you would receive the payments immediately rather than waiting till next year unlike the Federal child tax credit or Earned Income Tax credit.

c. Your eligibility to receive Social security benefits or Unemployment benefits would not affect your Stimulus payment receipt.

Can Stimulus payment be seized?

Suppose you owe money to the Federal Government in the form of back taxes or student debt loans, your Stimulus payment would be safe by the process known as Federal offset.
But, the Federal Government can be able to take a portion of your entire Stimulus payment if you are overdue on Child support payments.
Some cases in which your Stimulus check can be seized are court orders to make certain payments through debt collectors or if you owe money to bank/credit unions in cases like an overdue auto loan, an overdrawn account, or a delinquent personal loan.

Conclusion

Hence, in these difficult times caused by the novel coronavirus, the Stimulus payments can be considered as a support system for those NRIs who are facing a financial crisis. You must remain informed about the various aspects related to the Stimulus payment and try to resolve your queries with the IRS in case of delay or troubles in obtaining your Stimulus check.

Tax Implications on the decrease of interest rates by the IRS in the 3rd quarter

by Mounica Kota | Jun 28, 2020 | COVID - 19, Interest Rates, Internal Revenue Code, Tax implications

Tax Implications on the decrease of interest rates by the IRS in the 3rd quarter

The pandemic COVID-19 has brought huge havoc in the lives of the Americans. Millions of Americans have been affected by this dreadful disease and are struggling between life and death. Businesses across the country have been shut down some temporarily and many permanently. The rate of unemployment in the country is soaring high and it is a state of economic fallout for the Americans.Tax Implications on the decrease of interest rates by the IRS in the 3rd quarter

In such adverse circumstances, the US Government has taken up various initiatives by which the economic lives of the Americans can be improved up to a certain extent. The deadline for Federal Income tax return filing and payment due for 15th April 2020 had been postponed till 15th July 2020. The Federal Government had also made Stimulus Checks available for the Americans under the CARES Act. Many other unemployment benefits, paid leave benefits and much more have been made available for the Americans to alleviate the burden they are facing due to the impact of COVID-19.

One such initiative by the IRS to bring some relief to the taxpayers during these stressful times is the lowering of the tax interest rates for the third quarter of the year 2020.

Decrease in the tax interest rates for the 3rd quarter

On 4th June 2020, the IRS announced that the interest rates for the 3rd quarter 2020 will be decreased effective since 1st July 2020.

The new rates after the reduction would be as follows.

3 percent for overpayments
2 percent in case of any corporation
One-half or 0.5 percent for the portion of a corporate overpayment which exceeds 10,000
3 percent for any underpayments
5 percent for large corporate underpayments

According to the Internal Revenue Code, the rate of interest can be determined quarterly. For taxpayers who are other than the corporations, the rate of overpayment and underpayment is equivalent to the federal short term rate plus 3 percentage points.

Interest rates on the Overpayment and Underpayment of taxes

Section 6621 of the Internal Revenue Code helps in the establishment of the interest rates on the overpayment and the underpayment of tax. According to the Section 6621(a) (b), the overpayment rate can be calculated as the sum of the federal short-term rate plus 3 percentage point (with an exception of 2 percentage points in case of a corporation), except for the rate for that portion of a corporate overpayment of tax that exceeds $10,000 for a taxable period is the sum of the federal short-term rate added to 0.5 of a percentage point.

According to Section 6621(a) (2), the underpayment rate can be said to be the sum of the federal short-term rate plus 3 percentage points.

Section 6621(c) states that for the purposes of interest payable under Section 6601 on a large corporate underpayment, the underpayment rate under Section 6621(a)(2) can be determined by the substitution of 5 percentage points for 3 percentage points.

Furthermore, Section 6621(b) (1) states that the Secretary would be determining the federal short-term rate for the first month in each quarter. Section 6621(b) (2) (A) states that the federal short-term rate determined for any month under Section 6621(b) (1) is applicable for the first quarter starting after that month. As per Section 6621(b)(3), the federal short-term rate for any month is the federal short-term rate determined during that month by the Secretary with accordance to Section 1274(d) which is rounded to the nearest full percent.

The Federal short-term rate which is rounded to the nearest full percent based upon the daily compounding determined in April 2020 is 0 percent. Thus, accordingly, an overpayment rate of 3 percent and an underpayment rate of 2 percent are established for the quarter beginning 1st July 2020. The rate of overpayment for the portion of a corporate overpayment which exceeds $10,000 for the quarter beginning 1st July 2020 is 0.5 percent. The rate of underpayment for large corporate underpayments for the quarter beginning 1st July 2020 is 5 percent. These rates would be applicable to the amounts bearing interest during that particular quarter.

Sections 6654(a)(1) and 6655(a)(1) state that the underpayment rate which has been established under section 6621 is applicable in the determination of the addition to tax under sections 6654 and 6655 for failure by a taxpayer in payment of the estimated tax for any taxable year. So, the 3 percent rate is also applicable to estimated tax underpayments for the third quarter which begins on 1st July 2020. Moreover, according to section 6603(d) (4), the rate of interest on the Section 6603 deposits is considered to be 0 percent for the third calendar quarter in 2020.