COVID-19 Financial Scams to be reported to the IRS

by Mounica Kota | Jun 12, 2020 | COVID - 19, IRS Criminal Investigation Division, US Government

COVID-19 Financial Scams to be reported to the IRS

In March the US Government had declared a $2 trillion economic relief package under the CARES Act for providing relief and support to the Americans who have been facing economic challenges due to the outbreak of the pandemic COVID-19. According to the provisions of the CARES Act, economic impact payments would be sent to the eligible Americans. Furthermore, there are propositions for passing another act i.e. the HEROES Act which would also be providing further another round of economic impact payments to the Americans.

However, with these provisions for Economic Impact Payment to the distressed Americans, many criminal frauds related to these payments have also started blooming. These frauds can include using various lures related to the pandemic and stealing of personal/financial information of common people. The IRS has been continuously reminding the people to safeguard themselves against tax frauds and any other financial scams that are related to the COVID-19 pandemic.

Scams and threats related to COVID-19

The CI (IRS Criminal Investigation Division) has seen a significant rise in the number of scams and frauds related to the Economic Impact Payments and other financial schemes. The CI has encountered several instances of criminals using emails and text messages which are stimulus-themed to find out personally identifiable information and details related to bank accounts. Many telephone calls or emails have been received by the common people that suggest that they can get more Stimulus money or even obtain the Stimulus money faster by sharing personal information and paying certain processing fees. The phishing schemes send emails or text message which contain terms like “COVID-19”, “Coronavirus”, “Stimulus”, etc. to grab the attention of the common people.

Moreover, the IRS CI has also encountered scams which are related to the selling of fake COVID-19 at-home test kits, vaccines, pills, and other treatment methodologies for COVID-19. Many other scams claim to be selling huge quantities of medical supplies by the creation of fake websites/shops, fake social media accounts, fake emails, etc. These fraud suppliers then fail to deliver the supplies to the customers once the fund has been received by them.

Numerous other COVID-19 related scams involve the creation of fake charities that solicit donations for individuals, groups, and areas which are affected by the pandemic. Many such criminals are also offering opportunities to make investments into those companies which are working on vaccine development for COVID-19. They portray that the company would increase in value as a result and the promotions are put in the form of research reports which make predictions about target price and relate to microcap stocks or the low-cost stocks issued by those companies which are small and have limited public information.

What to do when you encounter COVID-19 scams?

The IRS has been constantly reminding the common people to report any phishing or fraudulent scam encountered by them during the COVID-19.

a. Scams related to COVID-19 must be reported to the National Center for Disaster Fraud (NCDF) Hotline at the number 866-720-5721. The scam can also be reported through the NCDF Web Complaint Form. The NCDF can investigate and prosecute the criminals involved in any scams which are related to natural or any man-made disasters. The Hotline Staff would obtain necessary information related to your complaint which would be further reviewed by the enforcement officials.

b.The taxpayers can also inform any such scams encountered during the COVID-19 to the IRS. Taxpayers receiving unsolicited emails or social media attempts for providing personal information from an organization that appears to be the IRS or closely connected to the IRS must forward those emails to phishing@irs.gov.

c.The Treasury Inspector General for Tax Administration (TIGTA) can help in investigating those external attempts that are being made to interfere with the Federal Tax Administration. Taxpayers can report about COVID-19 scams online by using the link TIPS.TIGTA.gov

d. Taxpayers are suggested to avoid the scammers and not to engage with them even if they think they are in the upper hand.

e.Common people can enhance their knowledge about phishing and fraud related to COVID-19 by visiting the official webpage of IRS i.e. IRS.gov.

Hence, criminals always keep looking for an opportunity by which they would be able to exploit the bad situations and attain some benefits from it. This pandemic COVID-19 is one such opportunity which is being utilized by the scammers. Taxpayers must be aware and should immediately report anything suspicious to the IRS.

References

https://www.irs.gov/newsroom/irs-warns-against-covid-19-fraud-other-financial-schemes

https://www.theabingtonjournal.com/news/44722/irs-warns-against-covid-19-fraud-other-financial-schemes

https://www.cisa.gov/sites/default/files/publications/Avoid_Scams_Related_to_Economic_Payments_COVID-19.pdf

https://home.treasury.gov/services/report-fraud-waste-and-abuse/covid-19-scams

Health Insurance Tax Deductions for an NRI in the US

by Mounica Kota | Jun 8, 2020 | health insurance, health insurance premiums, tax deductions

Health Insurance Tax Deductions for an NRI in the US

As we all know, health expenses can be highly expensive so having health insurance and being able to claim a tax deduction would help save tax up to a certain extent. However, for an NRI residing in the US claiming health insurance for tax deductions depends on certain conditions. It depends on the health care services and the expenses incurred by the NRI in health insurance.

NRI Health insurance premiums and medical expenses can be tax-deductible only if they are paid out-of-pocket. Moreover, the financial condition of the NRs and from where health insurance has been received are two important factors in determining if the costs would be tax-deductible or not.

Can Health Insurance Premiums for NRIs be deductible on Federal taxes?

The Health Insurance Premiums for NRIs are classified as deductible on Federal taxes as these are the monthly payments made for the coverage which can be termed as “Medical Expenses”. There are various sources from which health insurance can be obtained by an NRI and the scope of these expenses being tax-deductible.

a.When health insurance is sponsored by an employer

The premiums for the health insurance policies sponsored by the employer are not tax-deductible. Employers would deduct the premium payment from the NRI’s payroll on a pre-tax basis. So, the employee contributions are already taking the tax-saving advantage and further deduction is not allowed. Moreover, the contributions made to HSA (Health Savings Account) are paid by the NRI on a pre-tax basis and would not be tax-deductible.

b.COBRA insurance

In the case of COBRA insurance, an NRI can continue the employer-sponsored coverage even though he is no longer working in that organization. The premiums for COBRA insurance are tax-deductible because an NRI would pay that entirely by himself on an after-tax basis.

c.When health insurance has been purchased through an insurance marketplace

In this scenario, the health insurance premium of the NRI would be tax-deductible as these would be termed as “Medical Expense”. Suppose, an NRI is eligible to be enrolled in his spouse’s health insurance program which is employer-sponsored but he opts out for that coverage then he will be unable to avail the tax deduction.

d.Medicare

The premiums for Medicare plans depending on the plan the NRI selects such as Medicare Part B, C, or D plus Medigap would be eligible for a tax deduction. In the case of Medicare Part A, the expenses would not be tax deductible if the premiums have been paid by Social Security.

How to claim tax deductions for health insurance?

There are two options offered by the IRS to claim tax deductions for health insurance by the NRIs.

Standard Deduction
Itemizing the Medical Expense

In both cases, the AGI (Adjusted Gross Income) of the NRI would be reduced and the tax to be paid would be mitigated.

If an NRI is opting for Standard Deduction, then he would not be opting out for Itemized Deductions by default. By Standard Deduction, the process of tax preparation becomes quite easy and simple. The rates for Standard Deduction in case of NRIs can be listed below.

Single Taxpayers – $12,400
Married taxpayer filing return jointly – $24,800
Married taxpayer filing return separately – $12,400
Head of Household – $18,650

In case an NRI decides to opt for itemizing the health insurance, then currently in 2020 he can only deduct those medical expenses which are allowable and exceed 10% of his AGI.

An NRI can easily decide on choosing Standard deduction or Itemization of Medical Expense by having a look at his Schedule A 1040 Form. This would give him a chance to compare his itemized expenses with Standard Deduction and decide on which one to opt for.

Health Insurance Deduction for Self-Employed NRIs

In case of an NRI being self-employed then his threshold for permissible medical expense deduction lowers down to 7.5%. Suppose, the AGI of an NRI is around $100, 00 then medical expenses which would exceed $7,500 would be eligible for tax deductions.

Those NRIs who are independent contractors can also claim the health insurance deduction under the Self-employed category. By this, a self-employed NRI’s AGI can be directly reduced by health insurance premiums.

What can and cannot be deducted from tax?

The IRS would allow for any medical expense that has been paid from the pocket prescribed by the doctor for a tax deduction. Some of the common expenses included under this list are Medical tests, Dental Insurance, Therapy, Crutches, Hearing Aids, Birth Control, Prescription drugs, etc. In addition to these expenses, some other expenses which include travel costs for health care are also tax-deductible.

However, some expenses are not tax-deductible such as co-pays, Premium tax credits, expenses related to cosmetic surgery or hair transplant, or expenses related to non-prescribed drugs, etc.

References

Can the market losses be utilized to adjust tax payment?

by Mounica Kota | Jun 5, 2020 | capital losses, stock market, Tax Deduction, Tax Rules

Can the market losses be utilized to adjust tax payment?

Losses incurred in the stock market can be termed as Capital Losses. Capital Losses are said to be incurred when a capital asset such as an investment or a real estate decreases in its value. When this capital asset is sold at a price which is much lower than the actual purchase price of the asset, then the capital loss is realized. There are always fluctuations in the stock market and your investments might give you huge profits or even bring your losses. Losses are always demotivating; however, you can note that capital losses can be used to reduce the income tax bill which you owe to pay to the IRS.

Tax Rules related to Capital losses

Like it is mandatory to report Capital gains as income, similarly, Capital losses can be used as deductions on your tax returns.

Capital losses are mainly of three categories which are listed below.

Realized Capital Loss – Realized capital loss occurs after you have sold your asset or investment.
Unrealized Capital Loss – These losses are those capital losses which do not need to be reported.
Recognizable Loss – Recognizable loss is defined as the amount of loss that can be declared in a given year.

According to the US Tax laws, your realized capital losses can have an impact on your income tax bill. Moreover, realized capital losses can be used for lowering the income tax bill only if the asset you have sold was owned for investment. Also, you need to think wisely and create realized capital loss; for instance, if you sell a coin collection for a price lower than its cost price intending to utilize it as a deduction on income tax bill it would not be acceptable.

Determination of Capital Loss

For calculation related to income tax purposes,
Amount of capital loss = Number of shares sold, times the pre-share adjusted cost basis – the total sale price.
Cost Basis price refers to the fact that it provides the basis from which any capital gains or capital losses are figured, of the stock share, is the total of the purchase price and any fees(such as any commission or brokerage fees).
There is a need to adjust the cost basis price if there was a stock split during the period you had owned the stock. You will have to adjust the cost basis concerning the magnitude of the stock split.

Deduction of Capital Losses

Capital losses can be used to offset the capital gains in a taxable year. By this, you would be able in the removal of some portion of your income from your tax return.
A capital loss can be used by you to offset your ordinary income but up to a limit of $3000 in a year in case of a lack of capital gains by which you would have been able to offset your capital losses.
If you are willing to deduct your stock market losses, then you would have to fill Form 8949 and Schedule D while filing tax returns.
Your short term capital losses would be calculated against your short term capital gains by using Part I of Form 8949 to arrive at the net short term capital gain or loss. In case of a lack of capital gains for that year, the net would be a negative number equal to the total of your short-term capital losses.
Part II of Form 8949 will be used for the calculation of your net long term capital gain or loss. It would be equal to any long term capital losses minus long-term capital gains.
The next step is the calculation of the total net capital gain or loss by a combination of your short-term capital gain/loss and the long-term capital gain/loss. The resulting figure would be entered into Schedule D Form.
If your net figure obtained is a negative number (the difference between short term and long term gains/losses) which indicates an overall capital loss then this loss is deductible from any other taxable income with a limit on the amount set by the IRS.
For taxpayers, filing tax returns as Married and filing jointly the maximum amount deductible from total income is $3000. However, for taxpayers filing tax returns as Single or Married and filing separately the maximum deduction permissible is $1500. Moreover, if the amount of your net capital loss is more than the permissible limit you can carry it forward for the next taxable year.

Hence, you must attempt to take your tax-deductible capital losses in a very tax-efficient manner to have maximum benefit. Choosing a short-term capital loss for tax deduction would be more advantageous than that of a long-term capital loss. In general, you should opt for taking any capital loss in the year in which you are tax-liable for short-term gains or in which you have obtained zero capital gains as this would help in saving on your ordinary income tax rate.

References

https://www.investopedia.com/articles/investing/062713/capital-losses-and-tax.asp

https://www.investopedia.com/articles/personal-finance/100515/heres-how-deduct-your-stock-losses-your-tax-bill.asp#:~:text=Deducting%20Capital%20Losses&text=If%20you%20don’t%20have%20capital%20gains%20to%20offset%20the,forward%20to%20future%20tax%20years.)

All you need to know about an expected delay in tax refunds in 2020 due to COVID-19 pandemic

by Mounica Kota | Jun 2, 2020 | COVID - 19 pandemic, Income Tax refunds, IRS, Social Security Number, Tax Refund

All you need to know about an expected delay in tax refunds in 2020 due to COVID-19 pandemic

In response to the outbreak of the pandemic COVID-19, the Federal Government had delayed the deadline for filing Federal tax returns and for tax payment as well. However, it was advised that if you had to receive a tax refund from the IRS then it would be wise to file the tax returns soon. Due to the coronavirus and the social distancing norms, it was not only difficult for the taxpayers to prepare and file the returns but also for the IRS staff to process the refunds.

In these difficult times, it is always good to have some additional cash and everyone needs this additional amount but the tax refunds for 2020 would be delayed.

IRS Operations with a reduced workforce

The IRS offices were closed across the entire country and it was operating with limited staff and resources. The most important task which the IRS has been doing in the past two months was the issuing of Coronavirus Stimulus Payment to around 150 million Americans which can be termed as a “mission-critical” function.

Due to the outbreak of the pandemic COVID-19, the IRS had limited the services it was rendering. The live phone help has been suspended and even the Taxpayer Assistance Centers were closed. Still, the official webpage of the IRS says that they have been carrying out the critical functions pro-actively. Specifically, the IRS has been processing Federal tax returns and issuing refunds to the Americans even with limited staff. From 1st June 2020, many IRS staff members would have returned to their offices for performing those tasks which cannot be done from home. These staff members on resuming work would begin with the backlog of work they have which would mainly consist of processing tax returns and issuing refunds to the people.

Method of tax return filing – Reason for delay

According to the IRS, the fastest method by which you can receive your tax returns on time is by filing your tax returns electronically. Most of the taxpayers who would use the e-filing method and would choose Direct Deposit would receive their tax refunds within 21 days of the filing. However, there would be delays in obtaining tax refunds by those taxpayers who would opt for the paper return method.

More than 10% of the American population still uses the paper method for filing their tax returns. The closure of the IRS offices means that IRS would not be able to process those returns which have been mailed in. So, when the processing of returns would be delayed then obtaining a refund would also be delayed. Currently, it is unclear as to by when the IRS would be resuming the processing of those returns which have been filed by paper.

According to several reports, by 1st May 2020, the IRS had received around 125 million Federal Tax returns and it had processed 113 million tax returns approximately. There has been a 7.2% drop in the refund processing rate of the IRS due to the pandemic COVID-19. However, the average tax refund this year is $2973 and the IRS says that it does not expect any delay in issuing the outstanding refund requests as well.

Tax Refund Status

Usually, the tax refunds are issued to the taxpayers within less than 21 days of filing the tax returns. You would be able to track the status of your Federal Tax refund on the official website of the IRS after 24 hours of filing the tax returns.

The three important things needed for checking your Federal Tax refund status are

Social Security Number or Taxpayer Identification Number
The exact amount that would be refunded
Your filing status

Other causes for tax refund delays

Apart from the coronavirus, there can be some other reasons which would cause a delay in the process of obtaining tax refunds. In case, you have filed your tax returns too early and have claimed the Earned Income Tax Credit or the Additional Child Tax Credit then you will have to wait longer there might also be a delay if you have filed your federal tax returns either faster or later.Moreover, other causes for delay in obtaining your tax returns could be due to wrong Social Security Number, incorrect bank account number, misspelling of your name, wrong calculations or you have outstanding debts such as back taxes, child support, or Federal Student Loan, etc.

You can keep a tab on your Income-tax refunds by checking your Tax Refund Status regularly and understanding the details associated with tax refunds.

References

Top #10 things to know about IRS and its working amidst the pandemic

by Mounica Kota | May 30, 2020 | COVID - 19 pandemic, federal government, IRS, tax return, taxes, US Government

Top #10 things to know about IRS and its working amidst the pandemic

The outbreak of the pandemic COVID-19 has brought a tough time for everyone. With the economic lives of people being hugely affected due to the coronavirus, the US Government has taken various steps for providing relief to the Americans.The Coronavirus Stimulus Package under the CARES Act is one such major step taken by the Federal Government which would be of certain help to the Americans for dealing with financial issues arising due to the pandemic.

The Internal Revenue Service (IRS) has been playing a major role in the implementation of the various tax laws which have been passed recently by the Federal Government. Along with the normal course of operational activities of the IRS associated with filing of tax returns and their processing, it is also working tirelessly towards the determination and distribution of the Stimulus payments to the eligible taxpayers.

Let us have a look at the major 10 things which we should know about the operations and working of the IRS during the outbreak of COVID-19.

a.Information Center for all queries

The official website of the IRS i.e. IRS.gov/coronavirus is the first place where the taxpayers can find answers to all of their queries related to tax returns and stimulus payments.All updates associated with tax returns processing and stimulus package would be posted by the IRS therein this website. The taxpayers should avoid calling up the IRS and check out the IRS.gov/coronavirus website for tax updates amidst the pandemic.

b.Limited live assistance from IRS

The phone lines of the IRS and the Assistance Centers for taxpayers are to be non-functional for an infinite period.The IRS hotlines including service as well as compliance hotlines such as automated under reporter, collection functions, etc. are not operational for long. Moreover, the IRS has suspended all compliance activities related to tax such as audit and collection till 15th July 2020.So, taxpayers and tax professionals should not worry about missing the tax deadlines. The Local Taxpayer Assistance Centers are also not operational currently.

c.All audits to be put on hold

The IRS has announced that all new audits have been suspended and would resume only after 15th July 2020. But, it is quite obvious for the taxpayers to expect that the IRS must utilize the audit power it has to prevent the erroneous tax refunds.The IRS would be filing filters that would help in stopping suspicious refunds such as Earned Income Tax Credit Returns, suspected identity theft returns, etc. till the taxpayers would be able to verify the returns.So, this freezing of the refund audits will continue and would be troublesome for taxpayers as they will not be receiving any prompt response from the IRS.Moreover, taxpayers can take advice from the local Taxpayer Advocate Service Office in case of facing any queries due to the withholding of audits and refunds.

d.Temporary respite if a taxpayer owes tax

The IRS has halted the enforcement of any tax collection till 15th July 2020. Moreover, all the pending collection alternatives by the IRS and any offers related to compromises in tax laws are also on hold till 15th July 2020. According to the provisions of the People First Initiative, liens, levies, and any restrictions on passport have also been put on hold.

e.Difficulty in reaching out to the IRS even after COVID-19 is over

The IRS would even have its phone lines and hotlines non-functional after the pandemic is over.After the normal operations start, the resources of the IRS would be occupied with the backlog of tax filing issues and people trying to contact the IRS for other tax filing assistance. However, the IRS would be providing other means such as email or e-fax by which taxpayers would submit their documents.

f.Tax returns are still being processed by the IRS

The stimulus payments are being processed by using the information related to the tax returns of 2019 or 2018. If an individual has not filed his tax returns for 2019 or 2018, then this is the right time to do it now. The returns can be e-filed easily and can get accepted in a day without any inconvenience.

g.No requirement of monthly installment agreement payment

Under the provisions of the “People First Initiative”, the IRS has announced that taxpayers can skip their monthly installment payment during the period of 1st April 2020 to 15th July 2020. This would not be considered as a tax payment default by the IRS.

h.Account-related queries can be sorted by IRS transcripts

Taxpayers can obtain their transcripts by creating an IRS account online, review these transcripts and get solutions to any queries related to issues like previous AGI, amount of penalty, amount of estimated tax payments, etc.

i.Any hardship-TAS can be reached

Any taxpayer facing financial hardships and having a hold on their tax refunds can contact their local advocate for suggestions. However, the central TAS hotline would remain closed.

j.Stimulus payment will not be used by IRS tax collectors

The IRS has made it clear that it would not use the stimulus payment of any individual for paying off of any tax debt owed by the individual taxpayer.Hence, the IRS is playing a commendable role in helping the common people in improving their economic lives during this difficult time.

References

https://www.accountingtoday.com/list/10-things-to-know-about-irs-operations-during-the-coronavirus-pandemic

https://taxfoundation.org/coronavirus-tax-tracker-covid19/