What does the Coronavirus Stimulus Package mean for you?

by Mounica Kota | Apr 27, 2020 | CARES Act, coronavirus, Stimulus payment

What does the Coronavirus Stimulus Package mean for you?

The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law by the US President on 27th March 2020. This is an economic relief package worth $2 trillion which commits of protecting the Americans from the hazardous impacts caused by the COVID-19. The Coronavirus Stimulus package would help provide some amount of relief to the Americans affected by the pandemic.

Let us talk about the different facets included within the Coronavirus Stimulus package which would help provide economic assistance to the Americans.

Stimulus Checks

Through the CARES Act, around 80% of the American population would be eligible to receive a one-time payment in the form of Stimulus Checks. The amount that would be received as Stimulus payment is mostly dependent on the Adjusted Gross Income (AGI) of the taxpayers. AGI of an individual can be obtained from Line 8b of Form 1040. It is calculated by the Gross income of an individual minus the adjustments made for eligible deductions like IRA deduction or interest on the Student loan, etc.

If you are filing your tax returns as a single filer and your AGI is below $75,000 then you are eligible to receive Stimulus payment of $1200.
In case, you are claiming a dependent below 17 years of age then you would be eligible to obtain an additional $500 for the dependent.
However, there would be a reduction in the Stimulus payment by $5 for every $100 rise in AGI above $75,000.
In case, you are married and are filing your tax returns jointly then your AGI must be below $150,000 to obtain a Stimulus payment of $2400. You can also obtain an additional $500 if you can claim a dependent below the age of 17 years.
Moreover, in this case, also there would be a reduction of $5 from the Stimulus check for every $100 increase in AGI above the $150,000.
For individual tax filers, if the AGI is above $99,000 and no dependent has been claimed by the individual then Stimulus payment will not be received by the individual.
Similarly, for married couples filing tax returns jointly if the AGI is more than $198,000 and no dependents are being claimed then the Stimulus payment would not be received.

Unemployment payments

There would be an increase in the unemployment payment for four months through 31st July 2020 by an amount of $600 per week.
This increase in unemployment payment would be applicable for those who were not qualifying for any employment including freelancers, self-employed individuals, gig workers, part-time employees, etc.

Relief on the payment of Student Loan

The employers would be able to make the payment of the Student loan on behalf of the employees in a tax-free manner. This payment of the Student loan could be up to $5250 in a year.
This implies that there would be an exclusion of the loan payment done from the income of an employee.
This provision is being implemented from the date of signing of the CARES Act into law i.e. from 27th March 2020 until 1st January 2021.

Delay in the payment of Social Security Payroll tax

A portion of the Social Security Payroll tax needs to be done by the employers and this is even applicable to the self-employed individuals. According to the provisions of the CARES Act, the employers can make a certain delay in the payment of their part of the Social Security payroll tax for the rest of the part of the year. The liability can be paid easily over the next two years.

Economic assistance for Small businesses and Self-employed individuals

By the CARES Act, the Small Business Administration has been provided with $349 billion for distributing it among self-employed individuals, independent contractors, and non-profit organizations by the Paycheck Protection Program (PPP).
The Federal Reserve Lending Program would also be receiving support in the form of $454 billion. This amount has to be utilized in providing economic support to non-profit/small businesses that have a workforce of around 500-10,000 employees. The major objective of providing aids to these Small businesses is to retain their workforce by providing them compensation and benefits.

Waiver of penalty for the early withdrawal of retirement funds

A qualified individual who has been affected by COVID-19 might need to withdraw money from his retirement funds. In such a scenario, the individual would get a 10% waiver of the early withdrawal penalty. This waiver would be applicable for up to $100K of retirement funds.
An individual would be qualified for this waiver only if

An individual, his spouse, or his dependent have been diagnosed with COVID-19.
An individual has been experiencing adverse financial conditions due to being quarantined.
If an individual’s working hours have reduced or he is not able to work for taking care of his child as child care/schools have been closed due to COVID-19.

Hence, the Coronavirus Stimulus Package is an effective initiative by the Federal Government which would help reduce the stress of Americans caused due to the pandemic COVID-19.

References

Now is the time to switch to Online Tax Filing, if you have not done it already

by Mounica Kota | Apr 25, 2020 | e filing tax, tax filing, tax returns

Now is the time to switch to Online Tax Filing, if you have not done it already

Gone are those days when tax filing used to be a tedious job with meeting a tax preparer, filing out tax returns manually, sending your returns to the IRS, etc. online tax filing Today, everyone wishes to perform their tasks quickly without investing much time and conveniently as well. Now, this is also applicable to the procedure used for tax filing.

If you wish to complete your tax filing easily without facing any inconveniences, the best method to opt for is online tax filing or e-filing. By online tax filing, you would be able to file your tax returns easily by the electronic medium without the need of commuting to anywhere or mailing anything.

Benefits of e-filing taxes

Some of the major benefits of the online tax filing method can be noted below.

Online tax filing or e-filing is the most secure means to deliver your tax returns to the IRS.
Confirmation from the IRS is sent once your e-filing is done. This gives you a sense of mental peace that your tax returns have been received successfully.

3. By e-filing your tax return, you will be obtaining your returns very soon i.e. within around 21 days of filing. So, e-filing is the fastest and easiest method to obtain your tax refunds.

4. Moreover, e-filing is less expensive as compared to other methods of tax filing.

The Rise of e-filing

In 1986, e-filing began as a pilot project in Cincinnati, Phoenix, and N.C. In that particular year, the number of tax returns filed by e-filing was 25,000. Gradually, the number of Americans using the e-filing method started increasing.

During 2010, 141.5 million income tax returns were filed by the taxpayers out of whom 70% was done electronically.

Due to the different benefits offered by the e-filing method, more and more taxpayers are willing to use this method for filing their tax returns. In the last decade, the number of taxpayers opting for e-filing has increased by around 145%. Since 1990, the IRS has processed approximately 1 billion income tax returns securely filed by e-filing.

In 2011, the IRS had also taken certain initiatives to encourage people for e-filing. The IRS had sent postcards to those taxpayers who had filed their tax returns by paper. The announcement was that the IRS would no longer be mailing paper tax packages to the taxpayers.

How does e-filing work?

For the low and middle-income taxpayers, the IRS has a tool known as IRS Free File. This tool can be accessed on the official website of IRS i.e. www.irs.gov. By this tool, it is easier for the taxpayers to make tax preparation online and also do e-filing at absolutely no cost.

This program or tool of the IRS is created by a partnership between public and private organizations i.e. the Federal Government and the private companies

which are engaged in tax preparation. Those companies which participate in this partnership must exhibit adherence towards strict privacy guidelines.

Americans having an adjusted gross income (AGI) of $57,000 or below that are eligible to select the best amongst the available online tax preparation services. Moreover, a taxpayer can also make use of the Free File Fillable Forms which are available on the official web page of the IRS. This is a free form which can be said to be the Form 1040 electronic equivalent. It takes the numbers as the input and performs the calculations.

After the e-filing of tax returns

Once the returns have been submitted by e-filing, the IRS will be reviewing your returns. This review procedure can take almost 48 hours.
If your returns submitted match all the personal information, and then your return is accepted.
After your return has been accepted and there is a refund due, you would obtain a refund within 21 days.

4. In case, your return submitted does not match with your personal information, your return would be rejected by the IRS. You can make the error corrections and re-submit your return again.

While e-filing your tax returns, you would be able to select the delivery method of your tax refund. Usually, it is advisable to select the Direct Deposit method as refunds are sent quite faster by this method.

Hence, e-filing is the norm nowadays. It is an easy, convenient and secure method to get back your money. So, if you have not tried it yet you can give it a try this time!!

References

https://www.taxslayer.com/blog/making-the-switch-to-online-tax-filing/

https://blog.turbotax.intuit.com/turbotax-news/irs-free-file-program-offers-free-tax-preparation-and-e-filing-13584/

https://blog.turbotax.intuit.com/turbotax-news/what-can-e-filing-your-tax-return-do-for-you-8998/

https://blog.turbotax.intuit.com/tax-tips/the-rise-of-e-filing-4887/

How can your credit card dues affect your taxation during a pandemic?

by Mounica Kota | Apr 23, 2020 | Credit Card Dues, Tax Laws, Taxation

How can your credit card dues affect your taxation during a pandemic?

Do credit card dues affect your taxation during a pandemic? The impacts of the pandemic COVID-19 have been worsening the lives of the common people across the world. COVID-19 has affected around 7.7 lakhs people only in the US with around 41000 amongst them losing their lives. The growing impacts of this pandemic are also leading to financial hardships among the people of the US. With many businesses closing down and several people losing their livelihoods due to the COVID-19, the negative economic impact on the US is quite evident.

In such adverse circumstances, payment of credit card dues and payment of taxes tend to act as nightmares for the Americans.

a.Adverse health conditions

In current times when the number of Americans affected by COVID-19 is going on increasing, it has become imperative to consider health as a priority. If an individual starts showing up symptoms related to COVID-19, then there would numerous expenses incurred for the COVID-19 test and then the treatment if he result comes up as positive. In such a scenario where the health expenses would be shooting up, it would be nearly impossible for him to think about the payment of credit card dues and taxes.

b.Loss of job or income

This situation is quite self-explanatory. When a large part of the American population are losing their jobs or livelihood due to slowdown/closure of business in various sectors, they can’t think about taxes and the payment of their credit card dues.

So, to alleviate the financial stress on the common Americans there have been several initiatives taken by the Federal Government and different financial institutions in the country.

Relief on credit card dues

a.During these difficult times, many banks and credit card companies in the US are offering temporary relief and assistance to those customers who have huge credit card dues or are facing financial challenges

b.The Bank of America has taken the initiative to work on a “case-by-case” basis and allow its customers to stop making the credit card payments, mortgages, small business loans, and even auto loans. This relief would not be hurting the credit score of the customer but they will have to make the payments gradually.

c.The customer can contact the bank authorities personally and discuss his issues. Discussions can be made on matters related to the elimination of monthly maintenance fees, overdraft fees, late payment fees, waiver of interest charges, increase in the credit card limit, etc.

d.Similarly, many other banks American Express, Ally, Capital One, Wells Fargo, Citibank, etc. are also encouraging their customers to contact them for financial assistance. Various provisions like lowering of interest rates temporarily, removal of late payment fees, lowering of monthly payments, no charge for overdraft fees, deferral of payments, forbearance programs, fee waiver for monthly services, etc. can be availed by the customers who are facing financial hardships.

e.Financial institutions can also offer their customers with other options for financial assistance like a reference for a low-interest personal loan, 0% APR balance transfer credit card, suggestions for use of emergency funds, community assistance programs, etc.

Change in tax laws

a. The Federal Government has extended the deadline for federal income tax return filing and tax payment which was due on 15th April 2020 to 15th July 2020.

b. The State Governments in different States have also extended their tax deadlines with alignment to that of the Federal Government. Different states have also taken additional initiatives for reducing the stress of Americans due to State taxes.

c.The deadline for making the quarterly estimated tax payments for the first quarter and the second quarter which were due on 15th April 2020 and 15th June 2020 respectively have been extended to 15th July 2020.

d.Moreover, the deadline for making contributions to the IRA, HSA, and MSA has also been extended to 15th July 2020.

e.Under the CARES Act passed by the Federal Government, various provisions such as Stimulus payments paid leaves, Student debt relief, etc. would help in alleviating the stress of the Americans caused due to COVID-19. The Stimulus payments are the most important amongst these which ensures a one-time payment to be received by the Americans based on their 2019/2018 federal income tax returns and their Adjusted Gross Income (AGI).

Hence, the extension in tax dates by the IRS has given the common people sufficient time to make arrangements for the finances. At the same time, the relief made available on the credit card dues would allow the Americans to save some considerable amount of money and thus, make their payment of taxes according to the extended deadlines.

References

How can the pandemic affect my taxation as an NRI in the US?

by Mounica Kota | Apr 21, 2020 | coronavirus, HSA, IRA, Stimulus payment, Tax Extension, Taxation

How can the pandemic affect my taxation as an NRI in the US?

The impact of the pandemic COVID-19 is on an increase across the entire world. Currently, more than 2 million people have been affected by COVID-19 out of which 1.7 lakhs have already died. taxation as an NRI in the United States has also experienced a very rapid spread of the coronavirus with the number of affected people being 7.5 lakhs approximately whereas the deaths due to COVID-19 have reached 40 thousand persons.

Not only the lives of the people in the US are being affected due to COVID-19, but there has also been a hugely adverse effect on the livelihoods of common people. Several businesses have closed down leading to many people including NRIs losing their jobs. However, the Federal Government has implemented several changes in the tax laws for the NRIs intending to reduce the stress in such troublesome times.

Changes in tax laws for NRIs

a.Deadline extension for filing tax returns

The IRS and the US Treasury had declared that the deadline to file for individual federal income tax return has been extended to 15th July 2020. For this extension of 90 days provided by the IRS, there would not be any penalties charged by the IRS.

b.Deadline extension for tax payment

The deadline for making the federal income tax payment has also been pushed to 15th July 2020. This means if an NRI has tax to be paid this season then there is ample time to make the payments. For providing this extension in the timeline for tax payment, the IRS will not be charging any penalties. Moreover, this deadline extension is also applicable for the first quarter payment of estimated tax payments which were due on 15th April 2020.

c.No necessity for additional forms

An NRI would not need to file for a tax extension to avail of the extended deadline for federal income tax return filing and federal income tax payment as well. However, if an NRI thinks that he would not be able to file the tax returns or pay the taxes even after 3 months then he would have to file for an extension by 15th July 2020.

d.Deadline extension for quarterly estimated tax payment

For the self-employed NRIs who had their quarterly estimated tax payment due on 15th April 2020 and 15th, June 2020 would obtain an extension for the payment till 15th July 2020.

e.Changes in the deadlines for payment of State Tax

In general, the deadlines for filing federal tax returns and payment of federal tax are different from that of the State tax. However, due to the outbreak of COVID-19 the deadlines for Federal tax returns and tax payment had been extended. Most of the States have aligned their tax payment deadlines with that of the new Federal deadline. Some states have defined their guidelines for the payment of tax and deadlines. Complete information on the State tax-related changes and deadlines can be obtained from the respective State tax agencies.

f.Deadline extension for contributions to be made into IRA, HSA, and MSA

Along with the extension in the deadline of Federal taxes, there has been an extension in the deadlines for making contributions to the IRA, HSA, and MSA. The deadline for contributing to the IRA, HSA, and MSA has been extended to 15th July 2020. However, in the case of IRA, the NRI must ensure that when he is making the additional contribution towards the IRA the custodian should earmark the additional contribution for the year 2019 and not consider it as 2020 return.

g.Stimulus Payments

Under the Coronavirus Aid Relief and Economic Security (CARES) Act, the Federal Government has announced the process of one-time payments to be sent in the form of Stimulus payments. These Stimulus payments would mainly depend on the filing of tax returns for 2019 and the Adjusted Gross Income (AGI) of an NRI.

NRIs filing tax returns as single filers and having an AGI below $75,000 would obtain $1200 as Stimulus payment. When the AGI is above $75,000 then the amount obtained reduces by $5 for every $100 increase in the AGI above $75,000. NRIs filing tax returns jointly as married couples and having an AGI below $150,000 would receive $2400 as Stimulus payment. If the AGI exceeds $150,000 then the Stimulus payment received would reduce by $5 for every $100 increase in the AGI above $150,000. In both cases, an additional $500 can be obtained if the filer claims a dependent below the age of 17 years.

However, along with these changes being implemented in the tax laws, the IRS is also processing the tax returns according to the normal procedures. So, it is advisable for the NRIs also to file their tax returns soon if they have not done it yet and obtain their refunds.

References

COVID-19 and Stock Market: How will it affect next year taxation?

by Mounica Kota | Apr 18, 2020 | capital gains taxation, COVID - 19, stock market

COVID-19 and Stock Market: How will it affect next year taxation?

The pandemic COVID-19 has created great havoc in the physical and economic lives of people across the world. In the US, COVID-19 has not only affected the lives of people but also has created a huge amount of economic disruption. Several businesses have been closed temporarily whereas many small businesses might not even be able to open anymore. Many employees are losing their jobs and the overall economy is being affected.

The impact of the pandemic has also been experienced in the global stock markets by recent slides and low values. In the current times, we are in the middle of a pandemic and we have never been prepared for this by the financial markets or by the investment books.

In such tough times, we must be prepared by taking some precautionary steps.

You must check your investment portfolio thoroughly and understand in detail about the stocks in which you have made the investments. You should also understand how investments have been done in these stocks so that you would be ready.
A risk assessment must be done to understand the major risk areas of investment and steps to deal with them.
Investments must be arranged in different kitties so that recovery can also be easy and quick.

However, even during these grim times when the stock market rates are falling steeply, some hand-picked options would help in keeping your finances stable for next year’s taxes.

a.Capital Gains

In simple terms, capital gains are the profits that are earned due to the sale of a capital asset such as a stock, bond or real estate. It is when you are selling an investment such as a stock for an amount which is more than you have paid to purchase it.

Capital Gains are taxed and this taxation depends upon your income. The maximum percentage for taxation of the Capital Gains can be around 20% of your income which can add up to be a huge amount on your tax bill. So, if you are having a loss in your investment you can it can be helpful in reducing your tax bill of Capital Gains. This can help you in keeping an additional amount of money with yourself when the stock markets are down.

b.Loss realization for Capital gains in 2020

Throughout the world, investment owners are experiencing the value of the majority of their investments going down. When fluctuations occur on the Stock board they are known to be paper gains or paper losses. It means that you were just having an observation of the market without taking any action to sell your stocks/bonds.

However, it is quite obvious that market fluctuations would not only be your sole reason to reduce your Capital gains or offset your taxable income. In order to be able to claim the losses incurred in your investments, you should be able to realize the losses. Here the act of realization of losses in an investment indicates the act of selling the investments.

If you are willing to obtain a reduction in your income which is taxable for the year 2020, you must sell those investments on which you had paper losses in the year 2020. Hence, the investments would sell for an amount which is less than the amount at which those investments were bought.

c.Retirement Accounts

Usually, the value of your IRA or 401(k) will not affect your taxes. The traditional IRAs and the 401(k) plans are said to be funded by the help of pre-tax income. According to the Federal Government, these can be considered as ‘paper’ income.

However, if you have a Roth IRA then your taxes would be affected by it. In case there is a loss of value for your Roth IRA hen you would be able to claim that loss on your taxes. But, if you wish to claim your Roth IRA loss on taxes then you will have to close any similar IRAs which you already have.

The theory of Stock Market Recovery

However, amidst all these precautionary measures and preparations to stabilize finances, one thing which must be kept in mind is that the current market situations will turn around in the upcoming few months. Currently, market losses and its impacts are being experienced worldwide and in such scenarios, it would be wiser to evaluate your risks and your investments as well.

Hence, if you have been able to push through your paper losses during market fluctuations you would be able to have much higher capital gains once the market bounces back.