How to sign your tax refund electronically after the tax refund is submitted?

by Mounica Kota | Feb 12, 2020 | IRS e file Return, Personal Identification Number, Practitioner PIN, Self Select PIN, Tax Refund

How to sign your tax refund electronically after the tax refund is submitted?

Tax returns when filed electronically are convenient and can help you in getting back your tax refund very quickly as compared to filing a tax return by paper. In case of electronic filing of tax returns, after filing of the tax return you will have to do your signature electronically.

A tax return can be signed electronically by the use of a PIN (Personal Identification Number). PIN is a six-digit number that is assigned to taxpayers to prevent the misuse of their SSN (Social Security Number) in making fraudulent tax returns. By a PIN, IRS can identify an eligible taxpayer and thus, accept his tax return which has been filed electronically. So, if you have your PIN then it will not allow anyone else to file a federal tax return by using your SSN.

For signing your tax return which you are filing electronically, you will need the use of

Self-Select PIN
Practitioner PIN

Self-Select PIN

By the self-select PIN (SSP) method, you can select any five-digits except all digits being zero. This five-digit number helps in serving as your electronic signature. You can use your date of birth, prior SSP or your original prior-year adjusted gross income (AGI). This will help in authenticating your identity and no one can misuse your identity.

Original Prior Year Adjusted Gross Income (AGI) is used by many taxpayers as SSP for authenticating their identity. Usually, tax-preparing software will use the information of the previous years for the returning customers but if you are using tax-preparing software for the first time then there are various methods to determine your AGI such as

In your Form-1040 of last year, you would find out the AGI on Line 7.
If you have used a paid tax-preparer last year, then you will be able to obtain a copy of the tax return done last year from the preparer.
In case you are using the same tax-preparer as that of the last year, it will most probably have your prior year Adjusted Gross Income.
Also, if you are using different tax-preparing software this year you can access the previous year software and get a copy of the tax return filed.
In case you are above the age of 16 years and are filing the tax returns for the first time then you can use one single zero as your AGI.

Practitioner PIN

By the practitioner PIN method, you are authorizing your tax practitioner to generate your PIN. By this method, the tax-preparer will verify your identity and then give a signed Authorization form to the tax practitioner. This form is Form-8879 which is the IRS e-file Signature Authorization form and you must provide this form to your tax professional along with your SSP which you would have determined. However, in this method, there is no need for determining your previous AGI, date of birth, etc.

Some of the taxpayers such as primary taxpayers who are below the age of 16 years and have never filed a tax return previously or secondary taxpayers who are below the age of 16 years and have not filed the tax return in the previous year cannot use SSP method for identity authentication. However, they can use the Practitioner PIN method for making an electronic signature after-tax refund is filed.

Again while filing your tax returns; if you have to submit specific documents then you can do that by Form-8453 which is the US Individual Tax Transmittal for an IRS e-file return. This form will help in the transmission of paper documents or any supporting documents. IRS always advises the taxpayers to keep a copy of your tax returns and Form-8879 for future form.

Conclusion

Hence, even though the electronic medium of filing tax has made the entire process easier there is a need for maintenance of security while the operation is being performed. This is feasible by authenticating your identity through your electronic signature and the use of self-select PIN, practitioner PIN.

Reference

How to return an incorrect Tax Refund?

by Mounica Kota | Feb 7, 2020 | paper treasury cheque, Tax Refund, Tax refund cheque

How to return an incorrect Tax Refund?

There might be situations in which you might have obtained an incorrect tax refund. You are not entitled to obtain that tax refund or you might have obtained more than what you should obtain; in such cases, you can return the incorrect tax refund.

There can be several scenarios related to incorrect tax refunds obtained from the IRS.

In case of the refund obtained was a paper treasury cheque and has not been cashed.
In case of the refund obtained was a paper treasury cheque and has been cashed.
In case of the refund obtained being a direct deposit.

Refund is paper treasury cheque and has not been cashed

In this scenario, the below-mentioned steps can be followed.

On the back of the cheque in the endorsement section, “Void” has to be written.
The paper cheque must be submitted immediately to the correct IRS location but by 21days of receipt of the refund. The appropriate location i.e. the name of the city is mentioned in an abbreviated form in the bottom text line. It is mentioned just in front of the words “Tax Refund” in the Refund cheque.
You should simply place the cheque within the envelope without bending it, putting any staple or paper clip on it.
You will have to add a note highlighting “Return of erroneous refund cheque” and should explain in brief the actual reason for returning the refund cheque.

Refund is paper treasury cheque and has been cashed

In case the refund received is erroneous, is in the form of paper treasury cheque and has been cashed then the below-mentioned steps need to be taken.

In this case, you must submit a personal cheque or a money order to the appropriate IRS location. The location i.e. the name of the city must be mentioned in the form of an abbreviation in the bottom text line just in front of the words “Tax Refund”.
This should be done immediately within 21 days of the receipt of the tax refund.
Suppose, you do not have access to the copy of the cheque then you can contact the operations team of the IRS and connect with the assistor. The assistor will give you detailed information on what to do for returning an erroneous tax refund.
You need to mention certain details on the cheque or money order which you are submitting to the IRS.

You need to write “Payment of erroneous refund” on the cheque or money order.
You will also have to mention the tax period for which the tax refund was issued and TIN (Tax Identification Number).

5. Along with these details, you should also give a brief explanation of the reason for which the refund is being done.

6. Since you have cashed an incorrect refund cheque you might have to pay some additional interest to the IRS.

Refund is done by direct deposit

You will have to contact the Automated Clearing House (ACH) department of the bank or the financial institution where the direct deposit has been received. You can inform them about the actual cause and request them to return the refund received to the IRS.
You will have to call on the IRS toll-free number and explain to them the reason underlying the return of the refund obtained in the form of a direct deposit.
There may be a need for paying interest on the erroneous refund.

In general, when there is a change in the tax refund by the IRS then there would a notice sent by the IRS to your mailing address. This notice would explain to you the reason for the adjustments made by the IRS in the tax refunds. You should review the information given and check the refund. Moreover, you can contact the toll-free number for further support or information on this.

Conclusion

So, obtaining an incorrect tax refund can be quite a common happening but when you have an idea of what to do next then it would be easier. You can easily return your incorrect refund obtained and generate the request for obtaining the correct refund soon.

Reference

https://www.irs.gov/taxtopics/tc161

How exactly do you process a tax refund as an NRI in the US?

by Mounica Kota | Feb 5, 2020 | 1040-NR-EZ, Form 1040-NR, tax filing, Tax Refund

How exactly do you process a tax refund as an NRI in the US?

In the US, Do you process a tax refund if you are an NRI then while filing your tax return you would be considered as a Non- resident alien in the country. A non-resident alien is an alien who has not cleared the green card test or has not cleared the substantial presence test. However, in case if you are a nonresident alien at the end of the tax year but your spouse is resident alien, then you can be treated as a ‘Resident alien’ for tax purposes. This can be done by your spouse by filing Form-1040 and using the status ‘Married filing jointly’.

When an NRI must file a tax refund in the US?

You should file a tax return when you are engaged or being considered to be engaged in any trade or business in the US during that particular year.

Even when you are not a part of any trade or business of the US but you have income in the US upon which the tax withheld at the source does not seem to be satisfactory.

You should file a tax refund under the below-mentioned circumstances.

When you are willing to claim a return of any excess withholding or tax overpaid
When you are willing to avail of the benefits of any credits and deductions. For instance, you are not involved in business activities in the US but have income from US property which you are considering as effectively connected income.

Which income needs to be reported?

The income of an NRI which is taxable in the US is mainly classified into two categories.

The US source income is fixed, determinable, annual or periodical.
Income which is effectively connected with either trade or business in the US.

Which forms to be filed by NRIs in the US?

Non-resident aliens are required to file their income tax returns by using the below-mentioned forms.

Form 1040-NR, US Non-resident Alien Income Tax Return or
Form 1040-NR-EZ, US Income Tax Return for Non-resident aliens having no dependents.

You will have to fill Form 1040-NR in case of the below-mentioned circumstances.

You are a non-resident alien who is engaged in any trade or business happening in the US.
You represent a deceased person who needed to file Form 1040-NR.
You represent an estate or a trust which had to file Form 1040-NR

For Form 1040-NR-EZ, you must be having income from the various sources in the US in the form of salaries, wages, tips, scholarship or fellowship grants, refunds from State or local income taxes, etc. Moreover, you must not have any dependents for being able to file Form 1040-NR-EZ.

What is the deadline to file Income Tax Refund by an NRI?

In case you are an employee in the US and you receive wages that are subject to taxes under the US tax laws, then you must file your taxes by the 15th day of the 4th month after the end of the tax year.
In case, you have an office or you have a place of business in the US then you should file your tax refund by the same schedule mentioned above i.e. 15th day of the 4th month after the tax year’s end.

Ideally, if you are filing your tax returns as per the calendar year then you must do it by 15th April of the year.

3. In case, you are not an employee who receives wages or you do not have any office/business in the US then you can file your tax return by the 15th day of the 6th month after the end of the tax year. This means if you are filing your tax return according to the calendar year, you must do it by 15th June.

The Form 1040-NR and 1040-NR-EZ must be sent to the addresses which are mentioned in the instructions of the forms while filing. Suppose, you are not able to file your return by the due date you can request for an automatic extension by filing Form 4868.

Conclusion

Hence, by filing your tax refund on time and in the correct procedure you would be able to avail the benefits on deductions and credit.

Reference

What is the FBAR (form 114) all about?

by Mounica Kota | Jan 28, 2020 | FBAR, Form 114, income tax, Investment & Income, tax filing, Tax Planning, taxes

What is the FBAR (form 114) all about?

Given the increased scope across the globe, it is not uncommon for citizens to have bank accounts in foreign countries. Whether it is for investment or for savings or simply grabbing a good opportunity, there is no dearth of reasons for not having a bank account outside the USA. However, it is essential that you inform the government about the same, under the Bank Secrecy Act.

To report the existence and operations of such foreign bank accounts, you need to file FBAR (Foreign Bank and Financial Account) or Form 114. Here are the two conditions under which you must file FBAR.

The total value of your foreign financial accounts exceeds $10,000 during anytime of the year.
You have a financial interest in a foreign financial account or have signature authority over the same.

The United States Department of Treasury requires all citizens of the country with foreign banks to file FinCEN Form 114 and inform the department of any such accounts. Failing to do so will attract hefty fines and in extreme cases even criminal prosecution.

Who Should File FBAR?

The form is applicable to any US person who has foreign accounts and the account value has exceeded $10,000 anytime during the year. Here are the individuals who qualify as US persons.

A citizen or resident of the United State of America
Any form of domestic trust or estate
Any form of domestic partnership
Any form of a domestic corporation

A common question that a lot of expats have is, how will the government of the US find out whether certain financial assets are being declared or not. The government has been constantly strengthening FATCA guidelines. The government has also got into information sharing agreements with 39 countries and finalizing the discussions with 62 more countries.

As per these guidelines, foreign financial institutions or FFIs are required to inform the government about any accounts held by US citizens. The FFIs would share information such as the name of the account holder, social security numbers or the Tax Identification Number, account number, balance of the account, any interests or dividends earned on the account, etc.

Filing of Form 114

US citizens can file Form 114 online only and it does not have any direct correlation with your expat tax returns. And in the event that you have asked the IRS for an extension for your tax filing, the same does not apply to Form 114. You do not have to explicitly request an extension for the filing of Form 114. The default due date is the 15^th of April it automatically extends to the 15^th of October.

Exception For Filing Form 114

If you meet any of the following conditions or criteria, you might not have to file Form 114 in the first place.

You are a part of a domestic corporation with assets exceeding $10 Million and the corporation has more than 500 shareholders and you do not have any personal interest in these assets.
You are a part of a bank (either employee or officer) that works under the Board of Governors of the Federal Reserve System, Comptroller of the Currency, Federal Deposit Insurance Corporation or the Office of Thrift Supervision and do not have any personal interest in the bank accounts.
You are a part of a bank account for US military financial institutions which is operated by the US for the sole purpose of serving the government operations abroad.

If you have a financial account outside of the US, it is recommended that you verify whether you qualify to file the FBAR and file the same if you do.

Reference:

https://www.taxesforexpats.com/expat-tax-advice/FBAR-Fincen-114.html

https://usofaexpattax.com/report-of-foreign-bank.php

https://www.efile.com/irs-foreign-bank-and-financial-account-assets-report-form/

Should capital gains taxation affect me?

by Mounica Kota | Jan 24, 2020 | capital gains, income tax, Investment & Income, tax deductions, Tax Refund, Taxation, taxes

Should capital gains taxation affect me?

Capital gains taxation a lot of things that we own for either personal use or for investment purpose usually qualifies as a capital asset. Some common examples of capital assets include house, property, bonds, and stocks held as an investment, home furnishings, etc.

When you sell any of these capital assets and make some profit on them, the capital gains taxation come into the picture. The basis of capital gains taxes is that when you sell or exchange your capital assets, you do so at a higher price than you had bought them. Similarly, if you sell a capital asset at a lower price than you paid to buy the same, it would be tagged as a capital loss.

Classification

Capital gains are either classified as long term capital gains or short term capital gains. Here are some details about each category.

Long Term Capital Gains

If you hold on to a capital asset for a minimum of 1 year and then decide to sell or exchange it, any gains that you make would be long term capital gains. And the applicable taxes also vary depending on the type of capital gain. For long term capital gains, most individuals would end up paying no more than 15% as taxes.

There is a possibility that some or all your capital gains might be even taxed at 0% if your income is less than $78,750. The standard rate of 15% is applicable if your income ranges between $78,750 and $434,500 for single taxpayers and between $78,750 and $488,850for taxpayers who are married and filing jointly.

Citizens with annual income exceeding the above, the capital gains tax works out to be 20%. Certain capital assets such as collectibles, selling stocks of small businessses, etc. are taxed at a maximum of 28%.

Short Term Capital Gains

Any assets that you sell or exchange within a year of buying or acquiring it qualifies as sort term capital gain. In the case of any short term gains, the gain is added to your annual income and taxed accordingly.

One of the major benefits of categorizing these gains is that you are entitled to lower taxes. If the same amount were to be taxed like your income, you would end up paying higher taxes. However, with short term and long term capital gains, you can reduce the tax liability by a considerable margin.

As a rule of thumb, short term capital gain taxes tend to be on the higher side. Since it is dependent on the annual income, the maximum taxes can go up to 37%. On the other hand, long term capital gains can be up to a maximum of 20%.

On the other hand, if you sold a capital asset at a lower price than what you acquired it for, you would incur a capital loss. And it is important to know that you can use those losses to offset any of your capital gains. They can offset gains up to $3,000 with the help of capital losses.

If you stay in the house that you are putting up for sale for a minimum of two years, capital gains up to $250,000 for individuals and $500,000 for married couples is tax free. Thus being aware of the taxes can save the day for you.

If you own any of the capital assets mentioned above, you are entitled to pay capital gains taxes on the selling of these assets. The presence of capital gains taxes impacts you in more ways than you realize. For starters, unless it is short term capital gains, you will end up paying fewer taxes.

Reference:

https://www.taxpolicycenter.org/briefing-book/how-are-capital-gains-taxed

https://taxfoundation.org/capital-gains-taxes/

https://www.irs.gov/taxtopics/tc409

Does it make sense to file your taxes early?

by Mounica Kota | Jan 20, 2020 | income tax, tax filing, Tax Planning, Tax Preparation, Tax Refund, taxes

Does it make sense to file your taxes early?

Filing taxes can be a bit boring and overwhelming. Apart from your life and work, you need to devote some time and energy to file your taxes early. A lot of taxpayers barely are able to file their taxes on time, let alone before time.

What if there are some strong reasons and benefits for filing your taxes early? Would that pull you into the idea of filing your taxes early? If yes, here are some of the most prominent reasons why you must seriously consider filing your taxes early.

1.To Avoid Missing Out On Tax Benefits

Usually filing your taxes at the end means, that you are running against the clock. In such cases, the chances of missing out on some information are quite possible. A common mistake made by taxpayers filing their taxes in the end if using a wrong SSN or forgetting to mention their SSN, or their dependent children’s SSN or spouse’s SSN. Missing out on SSN is a sure way of missing out on certain tax deductions and tax credits.

2.A quicker Tax Refund

When you consider data from the previous years, you will find out that about 72% of taxpayers receive tax refunds up to $3,000. That is a decent chunk of money that you can use as rainy-day savings or paying off some debt. Filing your taxes earlier allows for a quicker tax refund.

3.Possibly Bigger Refunds

When you file your taxes early, you can benefit from certain life changing milestones. Milestones such as marriage, or the birth of your child, starting your own business, etc. can translate into better tax refunds or deductions. Which ultimately will help you save money. Thus, filing your taxes early can be beneficial.

4.Debt Management

In the event that you are struggling with some of the debts, opting for an early tax filing can save the day for you. The IRS expects to issue tax refunds within 21 days of your filing tax returns. The earlier you file your taxes, you boost the chances of an early refund and thus, it can help you manage some of your debts as well.

5.Leverage Your Time and Money

When you file your taxes early, you are firstly not under any pressure of filing them before the deadline. It enables a smoother filing. Secondly, the chances of mistakes are also minimal, thereby allowing you to spend less time on tax filing. And more importantly, you can expect an earlier refund as well. You can then use these funds either for a quick trip while your friends and colleagues are busy filing their taxes or use them for other purposes.

6.File Taxes Online

Once you have made up your mind to file your taxes early, you can visit online portals to help you file your taxes. There are a lot of trusted portals, which can help you file your taxes within a few minutes. All you need to do is provide some basic information and answer simple questions. The portals can help you extract the most out of your refunds as well. And the best part is, you can do this from the comfort of your home or office or even while you are vacationing. If you need additional help in the form of an Enrolled Agent or a CPA, the portals would be able to help you with that as well.

Apart from the most obvious benefit of peace of mind and no stress during the tax filing season, the above are some of the other benefits of filing your taxes early. If you have never filed your taxes early, now might be the best time to give it a shot and reap its benefits.

Reference

https://blog.turbotax.intuit.com/tax-refunds/6-reasons-it-pays-to-file-your-taxes-early-19100/