Top things to remember during the holidays & as the 2021 tax season approaches.

by Mounica Kota | Dec 5, 2020 | 2021 Tax Returns, Blog

Top things to remember during the holidays & as the 2021 tax season approaches.

The current season is a combination of the holiday shopping season, the upcoming tax season along the concerns related to coronavirus. The Internal Revenue Service (IRS) and the Security Summit partners have jointly issued warnings to the taxpayers as well as the tax professionals to be very much aware of the tax scams and any other identity theft schemes by criminals.

The IRS and the other State Tax Agencies have opened up the National Tax Security Awareness Week. This coincides with Cyber Monday which is the start of the holiday shopping season. The combination of the holiday shopping season and the tax season along with the current trend of working remotely due to coronavirus has made the necessity for online security.

Common people can stop being prey to online thefts and scams if certain simple steps are taken for the protection of tax and sensitive financial data. The IRS, Tax agencies of the States, and the country’s tax industry are together functioning as the Security Summit which indicates the beginning of the 5^th Annual National Tax Security Awareness Week which provides security tips.

Let us have a look at some of the basic steps which everyone must remember as the holidays and tax season approaches.

Common people should never forget to use security software for their computers and cell phones. They must keep the software updated as well.
The antivirus in your device must have the basic feature of stopping the malware and also a firewall is present for intrusion prevention.
There are a large number of phishing scams occurring every day which would include any kind of imposter emails or calls. This is one of the best ways by which common people can avoid tax scams is by not opening any email attachments or links that are present in suspicious emails. This year with the Economic Impact Payment being incorporated due to the coronavirus scams and frauds are going to be a common occurrence.
For online accounts, you must use strong and unique passwords. The account holders can use Password Manager or use such words/phrases which can be easily remembered.
Whenever possible, people must use multi-factor authentication and authorization. Various email providers and other social media websites are offering this feature which is very helpful for getting protected against hacking.
If online shopping is being done, it should be done from a secured site whose address begins with “HTTPS” where S denotes Secure Communication while using a communication network. Moreover, a padlock icon should be present in the window of the browse for security.
As a necessity for security, avoiding shopping from public places like malls where the Wi-Fi is unsecured.
The common people should ensure that their Wi-Fi at home is also secured with the help of a password. When more homes are connected to the web, it becomes important to have a secured system.
It is necessary to create a backup for your files on the computer and mobile phones. External hard drive or cloud service can be a very good option for copying data from either computers or phones thus, providing a good place for recovery of important financial data.
Due to the current scenario of the corona, most Americans are working from home. It is necessary for the creation of a Virtual Private Network (VPN) which would help in connecting securely to the workplace.

Apart from these areas where security threats are a common scenario, another area that can be susceptible to security risk is mobile phones. Nowadays, those using smartphones are more susceptible to security risks as they can open a scam email using their phone more promptly rather than using their computers. Since mobile phones are being used for various purposes these days, it is necessary to ensure that phones and tablets are secure means.

Common people must always remember that the IRS would never call any person or send an email about Economic Impact Payment or any other tax refunds. The IRS would also never call about any threats of jail or legal complications in case of non-payment of taxes. If any such call, email, or text is received then it is a scam.

The Federal Bureau of Investigation has issued several warnings about frauds or other scams related to the pandemic COVID-19. These warnings are mainly about the schemes associated with taxes, healthcare fraud, testing of anti-body, cryptocurrency fraud, etc. Common people can file complaints related to tax fraud at the National Center for Disaster Fraud.

Conclusion

So, tax scams and frauds are a common occurrence these days and it is necessary to be alert about these scams. Awareness and caution among common people can help avoid tax scams during the upcoming tax season.

What to do if you have missed your Tax Extension deadline?

by Mounica Kota | Nov 21, 2020 | Blog, Tax Extension

What to do if you have missed your Tax Extension deadline?

Due to the poor economic conditions caused by the pandemic COVID-19, the US Government had extended the tax filing deadline for the Americans due on 15^th April 2020 to 15^thJuly 2020. However, millions of Americans have not been able to file their tax returns by the 15^th of July 2020 and have filed for an extension. By this extension, the tax return filing deadline would be extended up to 15^th October 2020 which has even passed now.

So, if you have missed your extended tax return filing deadline then you might be wondering about certain factors. Let us have a look at what are the common things to be considered if you have missed your extended tax filing deadline.

Should you still file your tax returns if you have missed the extended deadline?

Yes, even if you have missed your extended tax return filing deadline you must file your tax returns soon. You must fill your tax returns even if your income level was lower than the minimum income level set by the IRS i.e. $12,200 when you are filing your tax returns as a single individual and $24,400 in case if you are married and are filing your tax returns jointly for the year 2019. You must also file your tax returns even if you are eligible for availing credit like Earned Income Tax Credit.

The sooner you are going to file your tax returns; the penalties you would pay for missing the extended tax deadline would be less.

What would happen if you miss filing tax returns by the extended deadline?

If you are going to obtain tax refunds from the IRS, then you would not be paying any penalty for missing your extended tax filing deadline. But, if you missed your extended tax deadline and have taxes due to pay to the IRS then you would have to pay penalties. Usually, this penalty is 5% of the tax that has not been paid and varies up to 25%. This penalty is calculated at the beginning of each month for which the tax has not been paid yet.

Will a penalty be charged if you owe money to the IRS?

If you owe money to the IRS, then there would be three types of penalties which you would have to pay.

Failure-to-file penalty.

This penalty would be charged if you are not able to file your tax returns on time. This failure to pay the penalty would be applicable for a full month or for a specific part of the month for which the return filing has been delayed.
Failure-to-pay penalty.

If you have not been able to pay your taxes to the IRS on time, then the IRS would impose a penalty. This penalty would be around 0.5% of the tax that is due to be paid to the IRS.
Interest.Interest would be charged by the IRS if you are not able to file your tax returns on time or pay your taxes according to the due dates.
Will you still be paying penalties if miss the extended deadline due to financial hardships.

With the havoc created by the pandemic COVID-19, it is quite obvious for you to be facing economic hardships. However, if you can state the reasonable cause behind the inability to file tax returns or inability to pay your taxes your penalties might be relaxed.

In case, you have been affected by the natural disaster which has been declared by the Federal Government then you would obtain relief while paying the taxes or filing the tax returns.

So, even if you have missed your extended tax filing deadline you should not forget completely about filing tax returns.

How to claim your unclaimed refunds?

by Mounica Kota | Nov 7, 2020 | Income Tax Refund, Income Tax refunds, IRS Tax Refunds, Tax Refund

How to claim your unclaimed refunds?

To know that you have a refund due to being obtained from the IRS is one of the best things especially in these troubling pandemic times. If your refund amount is a big one, it can be utilized for different purposes such as paying off your debts, investing in an emergency fund, etc. However, you might have missed out on your refunds which were due to be obtained from the IRS. According to the IRS, $2,781 was the unclaimed refund amount available in the year 2020 which is expected to increase more in the year 2021.

The causes for the unclaimed refunds can be different for different taxpayers and so are the methods by which the refunds can be retrieved.

Unclaimed Tax Money and Refunds

According to the IRS, billions of refund checks are bounced back if your address has been changed or there has been a change in your bank account number. The IRS would be unaware of the information related to the new address /new bank account number. Your refund check would return and would lie unclaimed in such a scenario.

Another vital reason leading to unclaimed tax refunds is that you considered your income to be very low. As a result, you did not prepare your tax returns and did not e-file a tax return as well. For instance, you are a salaried professional, and taxes were being withheld from your paycheck every month. However, you considered your income too low and did not file the tax returns. But, you would be able to claim the money that has been deducted from your salary in the form of a tax refund. Also, there might be a probability that taxes were not being withheld from your paycheck but you can receive a refundable EITC (Earned Income Tax Credit).

How can you receive your unclaimed refunds?

Some of the methods by which you can easily receive your unclaimed refunds are:-

In case, it has been just less than a year when your tax refund was issued you can put forward a request to the IRS for reissue of the refund. This can be done by use of the IRS’s unclaimed refund database. In this case, for protection, you would have to provide your filing status, Social Security Number, and your refund amount as well. If there is a need to address updation, it can be done here. The advantageous part is that your information related to refund would remain available on this IRS website until the next tax return has been filed.
In another scenario, if it has been more than a year but less than three years since you filed your returns but have not received your refunds – you have two options available. You can request for your lost refund to be reissued. While filing the tax returns, you can use the “Married Filing Jointly” Status and complete Form 3911 which is the Taxpayer Statement Regarding Refund. Also, if you are not using this status you can give a call to the IRS at 1800-829-1954 to request for reissue of your refunds.
If after filing your return request, you found out that a particular credit or deduction would have led to a refund. Or you have made an error while filing your returns then you can make amendments to your tax return and get your unclaimed tax refund. This amendment can be done by filing Form 1040X and mailing it to the IRS. This can take some additional time i.e. up to 16 weeks but would get your unclaimed refunds.

Conclusion

So, if you have had tax refunds but have not obtained them due to some reasons you can still receive them. Filing a return within three years of the return due date and also filing a return for an earlier year will help you in avoiding penalties related to late returns.

Wondering how to get debt-free this year?

by Mounica Kota | Oct 31, 2020 | IRS, Tax Extension, tax filing, Tax Planning, Tax Preparation, Tax Refund, Taxtips

Wondering how to get debt-free this year?

This simple guide would help you!!

Repayment of debts can give you nightmares and this entire problem is a vicious circle. With one debt leading to another, the entire process can push you into financial troubles.

So, it is essential to get rid of your debts soon; however, it seems to be a difficult thing if done without prior planning.

Let us check out a simple guide which would help you to get debt-free this year.

The Essentials

It’s a consumer world today and it’s the current trend to purchase new and fancy items. You might be having the best of clothes, apparel, and gadgets but you are interested in upgrading them. Expansion of your wardrobe has become a hobby and a passion too.

Let’s think rationally and put an end to this. It is necessary that you prepare a list of the essential items and only purchase those which are needed. Avoiding unnecessary purchase is the best way to minimize your expenses thus, leading to less debt accumulation.

Budgeting and tracking your expenses

Budgeting is highly essential to keep your finances under control. When you make a budget, know your expenses, and spend accordingly you would be able to save. These savings can be your savior while you are struggling to get rid of your debts. There are various budgeting tools and apps available that can be utilized to keep a check on your income and spending. When you are aware of your spending habit, you can easily find out those areas where you can cut off the spending. The cut-off spending would be used in paying off debts.

Search for shopping options which are cheaper

When you are trying to have a debt-free life, it is essential to introduce some changes to your shopping options. You can resort to techniques like shopping in bulk. This would be less expensive. Moreover, for the general household shopping, you can plan to visit the stores once during the month. Your shopping list for essential items would help you in obtaining all the necessary items at once without the need for visiting the stores and also spending again and again.

If you fill up your cupboards with the groceries, stationeries and other items when they are on sale and then skip shopping each month for at least 1-2 months, you would be able to save quite a good amount. The savings made can be utilized in making your debt payment then you would get rid of your debts in a considerable period.

Handle your credit card wisely

You can consider your credit card as a source of cash that would be needed at times of emergency. But, if you are making improper use of your credit card you might be accumulating debts. You should ensure that your credit card is used only in times of emergency. Avoid making payments by using your credit card; rather plan the purchase of items only when you have cash with yourself.

You should keep on checking the records of your credit card continuously. This would help you in keeping a track of how much debt you have to pay off. Moreover, you must be aware of any fraud schemes which can occur with your credit card. Also, if you feel that the interest rates of your credit card are too high you can negotiate with your card issuer. If you have had a good history of paying your bills on time then you can expect getting a lower interest rate.

Make extra money

If you decided to get rid of your debts this year, then you must find out other methods to increase your income. You can take up an extra job or work in extra shifts, putting all extra money earned into the debt payment. Once your debts are paid off, you can stop doing this extra work if it is painful for you. Moreover, you can rent out your extra space such as a garage, or room, etc. and use the extra income for paying off your debts.

Get rid of the expensive debts first

This is one of the smartest methods to use for getting rid of the debts which you have. You must choose one of those debts of yours which are charging the highest interest. All the extra payments you can do must be focused on getting rid of this expensive debt first.

Once your expensive debts are paid off, utilize all the money that you were paying for that particular debt in paying off the next expensive debt of yours. By continuing this method, you would be able to pay off all the debts and would be left with the least expensive ones only. You would feel motivated by using this strategy as it helps you in getting rid of the debts quickly.

However, there is another strategy too i.e. the Snowball Method which is a variation of this method and is also helpful in getting rid of debts easily.

Refinancing

The idea of refinancing your present debts would be of great help in paying off your debts. Several loans come up with attractive rates of interest. Getting that money and using it for paying off your debts would be a good strategy indeed. However, you need to be careful and consider the opportunities cautiously while refinancing.

Do not accumulate debts

The golden rule to become debt-free is to prevent the accumulation of further debts. This process is a vicious circle and it needs to stop. One of the best methods by which you can keep a check on your debt accumulation is by the restricted use of your credit card. Moreover, spending wisely by minimizing your expenses is the best method to stop any further accumulation of debts.

After you have stopped the further accumulation of debts, you can opt for the restructuring of your installments and payment strategy. By this, you would have a good financial strategy for your debt payment.

Conclusion

So, if you are interested in saving so that your debts are paid off you need to have a mindset change. You will have to think twice before shopping, make smart shopping decisions, and turn down temptations. With a substantial amount of self-control and discipline while dealing with finances you can easily get rid of your debts this year.

References

How to make the most of your capital losses in 2020?

by Mounica Kota | Oct 24, 2020 | capital losses, tax filing, Tax Planning, Tax Preparation, Tax Refund, Taxtips

How to make the most of your capital losses in 2020?

Capital gains can be said to be the profits that are made when you can sell an investment for more price than at which you have purchased them. On the contrary, if the investments you have made sell at a price which is less than the price at which you bought them is known as Capital Loss.

If you have incurred some capital gains this year and you also have some capital losses in your portfolio, then you can consider the harvesting of these capital losses. By harvesting these losses, you would offset the gains as a result of which you would not have to pay any taxes on the Capital gain income. This process is also termed as Tax-loss harvesting.

Let us check out the process by which you can begin the process of offset of your capital gains by the harvest of capital losses.

Computation of the gains

You should make a list of the sale you have done related to your stocks, bonds, and real estate during the year. You can add the capital fund dividend which you are expecting into your mutual funds.

Offset the losses which have been realized

This would include the various stocks you had purchased when the stock market was high. You even thought or expected the stock market to go higher. However, you had to sell your stocks at a point when the stock market dropped. You also had to sell your stocks at a price that was lower than your purchase price. Moreover, while this process of loss offset you should not forget about the loss carryovers from the previous years. You would be able to find the loss carryovers on Page 2 of the previous year’s Schedule D of your income tax return.

If gains are more than losses, check out for unrealized losses

It might be the scenario that you are holding on to a stock whose prices have dropped. You might be hoping that the prices of the stocks would increase or they will regain their value. You can consider this time as the best time to sell the stock that you have been holding.

Checking of the Income Tax bracket

Before you decide to sell your stock which has dropped in value, you must think about taking some advantages out of the lower capital gain tax rates. For most people, the maximum capital gains rate is around 15%. The rate at which the capital gains are taxed varies according to your taxable income and your filing status i.e. Single, Married and filing jointly, Married and filing separately, Head of the Household.

Wash Sale Rule

The awash sale is said to occur at a point in time when you are either selling or trading securities/stocks at a loss. This wash sale occurs within 30 days of before or after the sale of the securities.

You can purchase substantially identical securities.
By a fully taxable trade, you can acquire substantially identical securities.
Substantially identical securities can be acquired by the use of a contract or option.

If this is done then any loss incurred on the sold assets can be disallowed by the IRS. However, there are a few steps that can be taken to ensure that the capital loss incurred can be used to offset your capital gain.

You must wait for a minimum of 31 days before you start re-investing into another Stock Fund.
The next step is to invest in a similar type of fund.

In case, you have disallowed the loss incurred from a wash sale, then you must add up the cost of the disallowed loss into the cost of new securities. This would lead to an increase in the cost of your new stock and also reduce the gains on the sale of the newly purchased stock.

Avoid harvesting too many losses

After you have offset the losses which you have incurred against the gains, the excess losses could reduce up to $3000 of the ordinary income obtained from employment or different other sources. In case, your capital losses are much more than that then the excess losses can be carried over to the upcoming year.

Conclusion

So, these above-mentioned techniques and strategies would help you in making the complete use of capital losses in the year 2020.esting.

Is your income tax refund guaranteed?

by Mounica Kota | Oct 21, 2020 | income tax, IRS Tax Refunds, tax filing, Tax Refund

Is your income tax refund guaranteed?

You would file a tax return claiming the refund of your income tax if the excessive deduction of tax has been done at the source or during the payment of self-assessment tax. Your income tax refund is guaranteed if you and the IRS are on the same terms related to your refunds. Mostly, the IRS pays back the refunds within 10-15 days of the receipt of the tax return filing.

There are some major factors that would help you to determine how fast you can receive your tax refund.

How early you have filed your income tax return?
If you e-filed the tax refund or have sent by mail?
If you are claiming any tax credits such as EITC and CTC
If you have any existing debts with the Federal Government or not

Once your tax returns have been e-filed, you can check the status of your tax returns by

You can use the Where’s My Refund tool by the IRS to find out the status of your income tax refund.
You can also call the IRS on the Customer Support number to understand the status of your tax refund.

Can your tax refund be held back?

Your tax refunds can be held back by the IRS and then obtaining your tax refund may not be guaranteed under the below-mentioned scenarios.

a.The inaccuracy of your tax return

Your tax refund can be held back by the IRS if there has been an error made by you while filing your tax returns. There are chances that there is a discrepancy in the return that has been filed in the past.

If the IRS thinks that there has been an error made by you while filing your tax returns, then your refund can be changed by the IRS. In case, you feel that the change has done is incorrect, you can prove this to the IRS and ask for a reversal. You have 60 days within which you can do so. After 60 days are over, you will have to file for an amended return so that the IRS would issue your refund.
If you have claimed some erroneous deductions, then the IRS can conduct an audit to find out about the accuracy of your tax returns. If you can prove to the IRS that the claimed deductions are correct then the IRS will issue your refund.
The IRS has the authority to freeze your refund if your previous tax returns are being audited and it feels that you owe additional taxes to the IRS.

b.You owe back taxes

If you have pending taxes to be paid to the IRS, then the IRS would keep your refund to pay your taxes. The IRS can also take your refund if you are on a payment plan known as an Installment Agreement. However, if you are unable to pay your taxes in one go you must get into a payment agreement with the IRS for minimizing your penalties. This would also help in the prevention of collection enforcement actions.

c.You have unfiled back tax returns

In case, you have unfiled tax returns then the IRS can freeze your refund and start a delinquent return inquiry. This will continue until you have filed your pending tax returns and have also cleared all the associated pending tax bills.

d. A problem in your tax account

The IRS might suspect some problem with your IRS tax account and thus hold your tax refunds.

Victim of tax identity theft –

The IRS might suspect that there has been a tax identity theft. You will have to contact the IRS for proving your identity. Once, your identity is proved you can obtain your tax refund easily.

Dependent related discrepancy –

This might happen when someone else has claimed your child as a dependent on his tax return. You will have to explain and prove it to the IRS that you should be able to claim the dependent on your tax refund.

e.Other debt

There are some other categories of debts that might be pending on you such as Student loans, Child Support, Unemployment compensation re-payments, or the State Taxes. These debts can be collected from the IRS by holding on to your refunds. However, to resolve this problem you would have to get in touch with the source of your debt and not the IRS.

So, if any of these reasons are not expected in your case then your income tax refund is guaranteed.

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