Being temporarily Furloughed can affect your taxes

by | Feb 1, 2021 | 2021 Tax Returns, Back taxes, Blog, Tax Planning, Tax Preparation, Taxtips

Being temporarily Furloughed can affect your taxes

Being temporarily Furloughed can affect your taxes

By the pandemic COVID-19, many Americans have been affected by the financial perspective as some have lost their jobs while some have been furloughed from their work. When you lose your job or rather you are laid off, there is no assurance or promise that you would be re-hired by the same organization. However, if you are furloughed it means you can come back and start working again when the circumstances change. In the case of furlough, you will not have to face the formalities of the re-hiring process and even would be able to enjoy employer benefits such as health insurance benefits even during the times of being furloughed.

In case, you have been furloughed you must have received the Unemployment benefits and you may not be sure about the taxability of the Unemployment benefits. The Stimulus payment that has been received under the CARES Act is not taxable. However, the unemployment benefits are taxable and you would have to report them in your 2020 tax returns. After your return to work, you would be receiving your salary check and your Unemployment benefits would be coming to an end. The salary you are going to receive would remain taxable. However, if you are re-hired into your organization but with a lesser number of work hours then you would still be receiving the unemployment benefits.

What to expect while filing the tax returns?

 From a tax refund perspective, what can you expect while you are filing your tax returns for the year 2020? The tax refund you obtain would mainly depend on the amount you have taken out of your salary paycheck for the Income Tax withholding. In case you have taken out more in each pay period than the Income taxes you owed then while filing a tax return it’s obvious for you to obtain a tax refund.

  • During the year 2020, if you have received lesser paychecks as you were furloughed for a particular period of the year then there would have been few pay periods during which the withholding was taken out. So, this would result in a lower refund at the time of filing your tax returns.
  • Moreover, if you did not have any taxes that have been withheld from your unemployment benefits then you might not be having enough taxes withheld for covering taxes at the tax rate.  
  • Furthermore, you can make a voluntary request for withholding 10% of the unemployment benefit which you have received. This can be done by filling the Form W-4V i.e. Voluntary Withholding Request.
  • Since you have earned quite less during the year 2020 due to unemployment it would affect your tax rates too. This would mainly depend on for what duration you were furloughed and what was the amount of other income you had during that year.

Steps that can be taken for tax rates if furloughed

If you have been furloughed for some time during the year 2020 and there has not been enough withholding done from the Unemployment benefits, then the below-mentioned steps can be taken.

  1. You can easily adjust your withholding once you join back your work by filling the new Form W-4 Employee Withholding Certificate.
  2. You can claim various credits and deductions such as the Earned Income Tax Credit (EITC), some education tax benefits, or the Saver’s Credit, etc.  You might not have been eligible for taking these credits earlier as your income would have been higher than the income threshold.
  3. The Coronavirus Response and Relief Supplemental Appropriations Act have a special look back provision. The lookback provision would help those workers who had lower income during the year 2020 or received Unemployment income in compensation for their regular wages in obtaining more tax credits and larger refunds.

Conclusion

Hence, if you have been furloughed then the above-mentioned guidelines on the tax rules would be helpful for you to understand the credits, deductions along with tax refunds.

2021 New Year’s Tax Resolutions that you must abide as an NRI in the US.

by | Dec 31, 2020 | 2021 Tax Returns, NRI, NRI business, NRI Norms

Planning for your taxes is very important and proper planning would help you in avoiding any further interest payment to the IRS due to missing tax deadlines.

With the annual fresh start which comes along with the New Year is approaching very rapidly, this is one of the best opportunities for the NRIs in the US to make certain resolutions. These resolutions can be related to finances and taxes as well. Tax Resolutions for a year can also be helpful in planning for the achievement of financial goals during a particular year.

If you are an NRI in the US, then it’s time for you to make your New Year Tax Resolution. Let us check out the major points which must be considered while making your New Year Tax Resolution for the year 2021.

Gathering your tax-related documents

Since you are a taxpayer in the country, you must gather the below-mentioned documents immediately before the tax season arrives.

  1. Income from the employment – Form W-2 meant for you and your spouse.
  2. Income from Investment – Various forms such as 1099 and K-1s.
  3. Income obtained from the State and other local Income Tax refunds – Form 1099-G.
  4. Alimony received is taxable – For those divorce cases which have been finalized before 1st January 2019.
  5. Income obtained from home businesses – Home expenses, Office expenses, Home size, Office size.
  6. Income obtained from the business – profit or loss statement.
  7. Benefits from Social Security – Form SSA-1099.
  8. IRA –Form 1099-R.
  9. Income obtained from the sale of the property – Original cost and the cost of improvement, Canceled Debt Information(Form 1099-C).
  10. Income or expense from rental income.
  11. Miscellaneous income – This includes scholarships, jury duty, Medical Savings Account, winnings from gambling, etc.

Income Adjustments.

You must be aware of these adjustments as they can help in the reduction of your taxable income. You must make these adjustments thus increasing your tax refund.

  1. Interest on Student loan
  2. Contributions made to the IRA
  3. Energy Credits
  4. Health insurance payments made by self-employed people
  5. Expenses of educator
  6. Contributions made to Medical Savings Account
  7. The alimony paid which is tax-deductible
  8. SEP, SIMPLE, and other pension plans purchased by self-employed people

Itemized Tax Deductions and Credit.

There are some tax credits or deductions which would be helpful in reducing the tax burden. If you have made a good tax plan then you must track this throughout the entire year.

If you are availing of the below-mentioned tax credits and deductions then you must have the related documents as well.

  1. Education cost – Form 1098-T and other documents to support education expenses
  2. The charity has done –The cash amount donated and the value of the donated property, expenses made out of your pocket
  3. Costs related to adoption – The Social Security Number of the child, legal, medical costs, and costs related to transportation
  4. Childcare cost – The name of the provider, address, the tax id, and the amount that has been paid
  5. Casualty and losses due to theft – Reimbursement of insurance, the amount of damage occurred
  6. Home Interest paid – Form 1098
  7. Dental expenses

Recovery Rebate Credit.

You can be able to claim the Recovery Rebate Credit if the below-mentioned criteria are met.

  1. You have not received Economic Impact Payment for this year
  2. If Economic Impact Payment was less than $1200 if you are filing your tax returns as Single individuals or $2400 if you are filing your tax returns jointly and are married.

EITC/ACTC Refund Availability.    

Before mid-February, the IRS will not issue any refunds if you are claiming the Earned Income Tax credit or Additional Child Tax Credit. The IRS has instructed the employer to hold the entire refund amount if a portion is not being associated with the EITC or ACTC. Most of the people would receive their EITC or ACTC related funds by the first week of March if there are no further issues related to the tax return.

Conclusion.

So, as an NR in the US, you must be aware of these factors and make New Year resolutions that would be helpful in obtaining the tax returns conveniently.

2021 Tax Schedule.

by | Dec 28, 2020 | 2021 Tax Returns

A list of the important tax deadlines for the year 2020 would be very helpful for you to be prepared for the tax-related responsibilities and take your necessary actions.

  • Open Enrolmentfor the Marketplace Insurance – 1st November 2020 to 15th December 2020.

In case, you are interested in Marketplace Insurance for the year 2021 you must enroll by the Health Insurance Marketplace maximum by 15th December 2020. If you are interested that your coverage must be effective immediately by 1st January 2021 then it is necessary for you to select the plan by 20th December 2020.. 

  • Deadline for the maximization of 401K contributions- 31st December 2020. 

If you are working for another person or firm or you are self-employed you can maximize the contributions made into your 401(k) until the year-end. By this, you would be able to save money for your retirement. 

  • Opening of the IRS E-filing – Late January 2021. 

The opening date for IRS e-filing for the tax year 2020 has not been confirmed yet. By the mid of the late month of January usually, the IRS starts accepting the tax returns by using an electronic medium. 

  • Sent out of W-2 and 1099-NEC. 

It’s time for you to start checking the arrival of your Form W-2 and Form 1099-NEC in your mail. 

  • Last day for making the IRA Contributions – 15th April 2021. 

In case, In case, you have not made the maximum contribution to your IRA for the year 2020 you can make contributions into your IRA by 15th April 2021 and also obtain tax deductions.  You must inform your plan administrator that the contribution which is being made is for the tax year 2020. 

  • Tax Deadline for the tax year 2020- 15th April 2021. 

Filing of your individual tax returns is said to be due for the Tax Year 2020 and you must e-file your tax returns by 15th April 2021 midnight. 

The tax payment quarters of the Self-employed. 

If you are self-employed, then you must ensure that you are paying the estimated quarterly taxes. Let us give you the deadline for the payment of the estimated self-employment taxes. 

  • 4th Quarter 2020 Estimated tax payment due for – 15th January 2021. 

If  you have the fourth quarter estimated tax payment pending for the year 2020, then you can send your estimated tax payment by 15th January 2021.

  • Estimated tax payment for the 1st quarter – 15th April 2021 

If you are self-employed and have the payment to be made for the first quarter income then the payment has to be done by 15th April 2021. 

  • Estimated tax payment for the 2nd quarter – 15th June 2021. 

If you are self-employed and have the payment to be made for the second quarter income then the payment has to be done by 15th June 2021.

  • Estimated tax payment for the 3rd quarter – 15th September 2021. 

If  you are self-employed and have the payment to be made for the third quarter income, then the payment has to be done by 15th September 2021.

  • Estimated tax payment for the 4th quarter – 17th January 2022. 

 If you are self-employed and have the payment to be made for the fourth quarter income, then the payment has to be done by 17th January 2022.

The top 5 Life Events that can change your Tax Schedule.

by | Dec 13, 2020 | 2021 Tax Returns, Tax Planning, Tax Preparation, Taxtips

The top 5 Life Events that can change your Tax Schedule.

The most important phases of our lives have a great impact on our finances which can be more than we expected at times. You are purchasing a new house or you are becoming a parent, these life events are going to have an impact on your finances definitely.

So, let us have a look at those major life events which can have an impact on your Tax Schedule.

Marriage

When it is about your marriage and your taxes, it is necessary to ensure that the name with which you are filing your tax return must be the same as that of the name in your Social Security Card. In case your address has been changed then it can be changed at the time of your tax return filing. You would also have to make a choice of either married and filing returns jointly or married and filing returns separately.

Becoming parents

If you are becoming parents, then it is also going to have a great impact on your finances. This may be the case if you are having your own child or if you are adopting a kid. If you are going to have a new member in your family then the first and foremost important thing which must be kept in mind is the Social Security Number of the new child. By this, you would be able to claim your child on your income tax return in the next year. This would include your ability of taking the advantage of the federal child tax credit and the deductions that can be availed under the qualified child care expenditure. If you are adopting a kid, you would receive additional credits which would also include adoption charges, court fees, and all other necessary expenses related to transportation.

Purchase of a new house

If you have not started the itemizing of your tax returns, this is the ideal time to do so. There are a large number of new deductions available which would include private mortgage insurance, taxes related to real estate, and qualified home mortgage insurance. You can obtain a large number of benefits from Residential Energy Credits. In case, you have purchased a new water heater but it was expensive but you can use it in the form of savings in the future.

Demise of spouse

This is quite an unfortunate situation and you may not like to discuss it much. But, this situation would arise and you must be well-prepared for such a situation. Firstly, you must be qualifying as a widow or a widower and you should claim this status within a period of two years from the death of your spouse. The qualifying widows or widowers can avail themselves the same standard deduction as that of those Americans who are married and are filing their tax returns jointly.

Change in job

It is quite a well-known fact that a large amount is withdrawn from the paychecks of the taxpayers every year. Due to this, many American taxpayers get a huge amount of tax refund after filing their tax returns. If you obtain a good amount of tax refund it would appear quite attractive, but you would most prefer to have that amount with yourself throughout the year rather than waiting to obtain the refund at the year-end. So, if you have had a change in the job very recently then this is the best moment when you can make adjustments to your Form W-4 and have complete control of the tax scenario for filing your tax returns the next time. You should keep in mind that if you have a higher withholding it would increase your refund but your paycheck amount would be less. But, if withholding is less; you would be able to access your funds whenever the need arises.

Conclusion

So, you must always keep the tax implications in your mind if you have made any changes or are planning for making any changes in the near future. You must keep in mind the planned as well as the unexpected events of your life to plan your taxes accordingly and avail yourself of the benefits too.

Top 8 things-to-do now to make tax filing easier in 2021.

by | Dec 12, 2020 | 2021 Tax Returns, Blog

Top 8 things-to-do now to make tax filing easier in 2021. 

The IRS has been encouraging taxpayers lately to file their tax returns for 2021 in a very easier and convenient manner without any errors. The IRS has given a large series of reminders to the taxpayers about the upcoming tax filing and the steps which must be taken for filing tax returns in an error-free manner.

The IRS has made a special page available on the IRS.gov website which gives taxpayers the easy steps for making federal tax filing much easier for the year 2021.

Let us check out the important 8 things to do now for making federal tax return filing much easier for the taxpayers in 2021.

  1. Usually, most of the income is taxable and so it is necessary for the taxpayers to collect their income documents properly. These income documents can be the Form W-2 obtained from their employers, Form 1099 obtained from banks, and the records of virtual currencies.  These incomes can also include unemployment income, refund interest, and any other income which has been obtained from the gig economy.
  2. During the beginning period of 2020, the taxpayers might receive the Form 1099-NEC, Nonemployee Compensation other than the Form 1099-MISC if they have offered any kind of services and have received the payment for that.
  3. The taxpayers must also need Notice 1444, Economic Impact Payment which would depict the amount of payment they have received during the year 2020. This amount depicting the Economic Impact Payment would be helpful in the calculation of the Recovery Rebate Credit for which they might be eligible while filing the Federal tax return in 2021. Some of the taxpayers who do not qualify for receiving the Economic Impact Payment in the year 2020 might be qualifying for obtaining the Recovery Rebate Credit while filing their taxes for the year 2020 in the tax year 2021.
  4. Taxpayers must ensure that any address changes must be updated with the IRS. Also, any legal name change should be notified to the Social Security Administration for avoiding any kind of delay in the federal tax processing process.
  5. Those taxpayers who have their Individual Tax Identification Number (ITIN) must ensure that the ITIN has not expired yet. If the ITIN of a taxpayer has not been used on a federal tax return for at least once in the last three years then it would expire by 31st December 2020.
  6. If the ITIN of a taxpayer has expired, then the IRS suggests the taxpayer’s submission of Form W-7. The application for IRS Individual Taxpayer Identification Number can be used for the renewal of the ITIN. If taxpayers have not renewed their ITIN before filing their tax returns might have to face the consequences of delayed tax refunds and can also result in ineligibility for availing some types of tax credit.
  7. The Tax Withholding Estimator is a tool that has been designed by the IRS that would help in the determination of the correct tax amount which can be deductible from the paychecks of the taxpayers. The Tax Withholding Estimator can also help in the determination of whether any adjustments into withholding is necessary or not.  If any changes into the Withholding are necessary then it can be done by submission of a new Form W-4 to the employer.
  8. If a taxpayer is receiving any form of income that is non-wage income such as Self-employment Income, Investment Income, Social Security Benefits which is taxable, etc. then the taxpayer must make estimated tax payments in a quarterly manner. 

Conclusion 

So, the time for filing tax returns is running out and the taxpayers must be prepared enough to complete tax filing in time. These major 8 things if kept in mind can be helpful in making tax filing easier and on time without much hassle.

 

 

The top 10 Tax Tips for the Year-End to make the New Year a big success

by | Dec 8, 2020 | 2021 Tax Returns, Blog, Tax Planning

The top 10 Tax Tips for the Year-End to make the New Year a big success.

The year 2020 is about to end and it is the best time to make some very smart decisions related to taxes. These smart moves can be helpful in an increase in your tax refund and can also lower your taxes to be paid.

Let us have a look at some of the tax tips which would be helpful in getting your finances organized for saving more money during tax time.

  • Accelerate your deductions and income deferment. 

In general, there are a large number of tax deductions associated with a particular year. If you own a home, you would have a mortgage interest deduction and in case of making any additional mortgage payment on 31st December then you would have the eligibility to claim the additional interest that has been paid as a deduction.

 By this, you would be able to avail the benefit of tax deduction instantly rather than by waiting for a period of 12 months to pay your taxes in the next year. However, before you use this tax strategy you must keep in mind that as per the tax reforms if you have bought a new house after 15th December 2017 you would be able to deduct the interest on a home loan which is up to $750,000 and not $1,000,000 for those who purchased the house before that date. 

  • Bonus deferment. 

In case, you are about to obtain a bonus at the end of the year the extra money might push you into another tax bracket thus, increasing your taxes owed. If you would be able to defer your bonus until the beginning of the next year, you can avoid your tax payment while filing taxes for 2020.  

  • Donate for charity. 

Christmas and New Year time is the best time when you can use the unnecessary items in your closet for helping those who are the needy. By this, you can also reap the benefits of tax deductions for the donations made to a qualified charitable organization. These donations can be monetary as well as non-cash donations and would be helpful in tax deduction if you are itemizing your tax deduction.

 Under the provisions of the CARES Act, even if you are not itemizing and claiming your Standard Deduction you can still avail the benefit of a new charitable deduction up to $300 on the taxes you owe for 2020 for any donation you have made towards a 501(c) (3) organization. Moreover, by the CARES Act, there would be a temporary removal of the limit that has been placed on the number of cash contributions that you can make if you are itemizing your deductions. 

  • Retirement plans.

Another method by which you would be able to decrease your income that would be taxed is by making some contribution to your retirement account. Even if you are making a contribution to a traditional IRA or a 401(k) plan then also you would be able to reduce your taxable income. In case, you are self-employed and making contributions to a SEP IRA you can still contribute up to less than 25% of your total income obtained from self-employment income or a total of $57,000 for the year 2020. 

  • Finance Courses. 

You can also take some finance courses or training for improvement of your skills on finances. This would be helpful in reducing your taxes and also increasing your tax refund. 

  • FSA. 

In case you have an FSA and there is money left out in your FSA then you can use the money left for some other useful activities. These useful activities can be a doctor’s visit or any other important expense which must be done immediately. 

  • Additional Dependent Credit. 

There can be some other additional dependent credit which can be availed by you in case you qualify for a new dependent credit i.e. “Other Dependent Credit” which would be up to $500.  This can be helpful in reducing the taxes you owe approximately by $500. 

  • Form W-4. 

In case, you have not had the expected outcome for the year 2019 because of the changes in law or due to changes like becoming a parent, losing your job, having an increase or decrease in pay, or getting a new job then the amount which would be withheld from your paycheck can be corrected by refilling the Form W-4. 

  • Buy and Sell Low. 

You can sell your investments that are causing loss to offset the losses caused against the gains obtained. In case, your losses are more than your gains you can apply for a tax deduction of $3000 against your income. Any other income which would be additional can be passed on to the next year. 

  • Gather the receipts associated with the taxes of the home property. 

You can be eligible for the deduction of state and local property income or sales tax up to an amount of $10,000. These taxes were completely deductible in the past.