Penalties highlight for tax returns filed after 14-Sep

by | Oct 12, 2020 | Tax Refund, tax return, tax returns, taxes, Taxtips

Penalties highlight for tax returns filed after 14-Sep

  

The IRS has very recently urged the US citizens to act immediately if they have taxes due and have not filed their tax returns for 2019. After 14th September 2020, the IRS would be imposing huge penalties on those who owe taxes and are not updated concerning their tax returns.

 The deadline for tax filing was 15th July 2020 due to the adverse consequences caused by the pandemic COVID-19. Several taxpayers have submitted their request for an extension to file their tax returns would not be paying any penalties until 15th October 2020. However, it is an essential point to keep in mind that this extended period is for the filing of tax returns only and not for the payment of tax. Any tax which is due after the 15th July 2020 deadline would be considered as a failure to pay penalty and interest would be charged on it.

 There are still many taxpayers who did not make an extension request but owe taxes; will be facing the failure to file the tax returns and also the failure to pay the penalties. It is advisable for these taxpayers to immediately file their tax returns and pay as much as they can before huge penalties are levied from 14th September 2020 onwards. 

  • The penalty charged for non-filing of the tax returns by the specified date or by the extended date even is 5% of the tax which is unpaid for each month.
  • It can also be charged for that part of the month for which there has been a delay in the tax return filing at the rate of 25% of the tax unpaid.
  • If there has been a delay of 60 days in the filing of tax returns, a minimum penalty is charged.
  • In case, there has been no filing of tax returns even after 60 days; the minimum penalty charged is either $435 or 100% of the unpaid tax whichever is lower.
  • This year, this period of 60 days starts after 14th September 2020. After 14th September 2020 heavy interest or penalties would be charged on the tax defaulters.
  • Apart from the penalties, interest would also be charged for any tax which has not been paid by the tax payment due date of 15th July 2020.
  • However, if there is a refund due for a taxpayer no penalty would be charged for the filing of tax returns late by the taxpayer.

 Probabilities of Penalty Relief may be available 

  • If there has been no assessment for any penalties for taxpayers for the past three years would be eligible for an abatement of penalties.
  • If a taxpayer is not eligible for the relief of his first-time penalty relief, still he can qualify for penalty relief if the cause for non-filing of tax returns or non-payment of tax was due to some reasonable reason.
  • The different types of penalty relief which are offered by the IRS are 

Reasonable cause 

The reasonable causes for failing to file tax returns are:-

  • Natural disasters, fire, or any other disturbances
  • Inability in obtaining the necessary records
  • Death, any serious illness, unavoidable absence of the taxpayer or his immediate family member
  • Other causes which state that despite using all care to meet the tax obligations, the taxpayer has not been able to do so.

  Administrative Waiver and Abatement of a first-time penalty

 A taxpayer would be eligible to qualify for the administrative waiver from the penalties due to filing of tax returns late or for non-payment of taxes on time under the below circumstances:-

  • The taxpayer did not have to file tax returns previously or he has no penalty for the previous three tax years which are before the one in which penalties have been received.
  • If the taxpayer has paid or rather has made the arrangement for making the payment all due taxes.
  • If the taxpayer has filed the current tax returns or has filed an extension in the time to file a tax return.
  • A taxpayer can also be eligible for an Administrative waiver if he has received incorrect oral advice related to tax returns and payment from the IRS.

  Statutory Exception

 A taxpayer would qualify for a Statutory Exception if he has received incorrect written advice from the IRS. The taxpayer would have to submit various evidence to prove this such as

  • The written request made for advice
  • The erroneous written advice which was sent by the IRS
  • Report on any tax adjustments which have been made due to the erroneous advice obtained from the IRS.

 The taxpayer can file Form 843, Claim for Refund and Request for Abatement to request for penalty relief in case of incorrect advice obtained by the IRS.

 Get extra time for the tax payment

If a taxpayer owes tax but is not able to make the full payment, then he can opt for payment of taxes by a payment plan which includes an Installment Agreement.  A qualified taxpayer or an authorized representative is eligible to apply for a payment plan to make payments of the taxes over time. A taxpayer who is unable to pay the full amount must contact the IRS to know about the options available.

The IRS might provide options like short-term extension, and installment agreement or offer in compromise can be offered, etc.

Conclusion

Hence, taxpayers must be alert and file their tax returns before the deadline if they have not done so to avoid huge penalties.

Can a property be seized if you owe back tax to the IRS?

by | Oct 12, 2020 | IRS, owe taxes, property tax, tax filing, Tax Payers, Taxtips

Can a property be seized if you owe back tax to the IRS?

“Can the IRS seize my property if I owe taxes?” This is properly the first question every person who owes tax to the IRS enquires. The mere thought of losing their most valuable asset can create a sense of terror and fear in the minds of taxpayers who might have taxes due to the IRS. However, this might depend on why you owe taxes to the IRS, how much tax you owe, and your financial circumstances.

 The IRS has the authority to seize the property of a taxpayer if the taxpayer has been neglecting or avoiding payment of taxes to the IRS.  This process is otherwise known as Tax Levy. By Tax Levy, the IRS has the legal authority to seize a taxpayer’s property which might include a real estate for the settlement of taxes for which there have been several notices sent to the taxpayer.

 When will the IRS seize your property?

  • Seizure of your property is the last method which the IRS might follow for the settlement of the back taxes.
  • Before the seizure of your assets, the IRS would take the below-mentioned steps for the tax settlement: –
  1. The IRS would assess your outstanding tax and would issue a notice to you which would be demanding for the payment of the taxes.
  2. If you have neglected the notice sent to you by the IRS, then
  3. You will be sent a final notice of intent to levy and also a notice of your right to have a hearing before 30 days of the implementation of the tax levy.

 If the IRS decides to take your property 

  • The IRS would calculate and provide you with the minimum bid price of your property.
  • If necessary, you can challenge the price laid off by the IRS and state the fair market price of your property.
  • The IRS would issue a notice and make the announcement for sale of the property.
  • After the announcement, the IRS waits for 10 days before your property is sold off.
  • The entire amount obtained from the sale of the property would be used to recover the expenses incurred in the property seizure, selling of the property, and payoff of your tax debts.
  • You will obtain a refund if any amount is left out after the sale is over and if any excess money is left out.

 Will the IRS visit your home?

 The IRS representative can visit you for tax-related discussion only in circumstances such as

  • You owe taxes to the IRS and there is a need for a discussion.
  • There is an audit process
  • If there is a criminal investigation needed

 However, there has been an increase in the fake IRS visits and tax scams lately which urges the taxpayers to be aware of their rights. You have the right to verify whether the IRS representative is authorized or not by asking for their credentials. 

What are the other properties which the IRS can seize?

 By a tax levy, the IRS can be able to seize the below-mentioned properties. 

  1. Real estate
  2. Your vehicle
  3. Wages by Wage Garnishment
  4. A levy can be put up on your bank account
  5. Investments and collectibles

 Can you get back your seized property?

 In case, you want to get back your seized property you would have to take some immediate action for resolving the tax debt. You must get in touch with the IRS to request a release of your seized property. Moreover, help from a tax professional would help you in the expedition of the process. In case the IRS would not approve your request for the release of the seizure, you can have an opportunity to appeal against it.

 There are certain circumstances in which the IRS would have to undo the seizure of your property. 

  1. Your seizure can be released if you have fulfilled your tax liabilities.
  2. If the tax collection period got completed before the seizure of your property was done.
  3. If you have enrolled in an installment agreement program and the agreement does not allow the seizure of property.
  4. If by the release of your property, you would be able to cover your tax balance.
  5. If by the seizure of your property, you would be facing some economic hardships and would not be able to avail of the necessities of life.
  6. If the value of the property seized by the IRS would exceed the tax owed and the release of the property would not prevent the IRS from the tax collection.

 Protection of your assets from the IRS

 If you want to avoid any kind of trouble with the IRS, then you must be careful about the rules. Either paying of your taxes or responding to the IRS notice, everything must be done on time and carefully.

 Some of the basic steps by which you can take to prevent a tax levy are:-

  1. Find out methods by which you can utilize your finances to cover up your tax debts.
  2. In case you are not able to pay off your entire tax debt in full, then you can enter into an installment agreement.
  3. You can check with the IRS if it is feasible to classify your taxes as uncollectible.
  4. You can also try to request the IRS for an offer in compromise.

 Conclusion

 As a US taxpayer, you must fulfill your civil responsibilities on time. Ignoring or neglecting the notices or communication obtained from the IRS can lead to serious consequences. So, you must abide by the laws, regulations and must take matters related to the IRS quite seriously.

Covid-19 tax implications for the unemployed NRI’s in the US

by | Oct 12, 2020 | capital losses, Tax Extension, Tax Planning, Tax Preparation, Tax Refund

Covid-19 tax implications for the unemployed NRI’s in the US

The pandemic COVID-19 has led to a complete economic setback across the United States. Many businesses have been closed down some partially and some completely. Millions of Americans have become unemployed and are facing various financial crises. The US Government has provided various tax reforms to alleviate the economic stress faced by the Americans during these challenging times.

Let us talk about some of the major tax implications for the unemployed NRIs during this distressful COVID period.

Unemployment compensation

For Income Tax, the unemployment compensation offered is taxable. This would include the unemployment benefits obtained from State and the $600 which has been received from the Federal Government. You will have to inform us about this total amount received on Form 1099-G. You must spend your benefits after considering the consequences.

Federal Income Tax Withholding

To avoid surprises, you can opt to choose for Federal Income Tax Withholding from your unemployment benefits obtained during the year. This process would be almost similar to withholding on from your paycheck thus; you would owe less at the tax time.

Estimated Payments

You might be feeling that you would owe more at the tax time; to avoid this you can make estimated tax payments throughout the year. You can keep on making estimated tax payments throughout the year and thus, avoid a potential penalty. Moreover, the IRS has waived any penalty and interest on the tax payments which were due on 15th April 2020 which was later on extended to 15th July 2020.

Retirement Plans

Any withdrawal which you are making from your retirement plans or pension plans is considered to be taxable unless they are being transferred to an IRA. Under the provisions of the CARES Act, this tax is not due at once. You can make the payment of this tax in three years. You must check with a tax advisor if you are planning to make a withdrawal from your retirement plan as the taxability of the retirement income can be complicated.

No penalty on early withdrawal from retirement income

In general, there is a 10% early withdrawal penalty on making any withdrawal from your Retirement account before you reach the age of 59-1/2 years unless it is an exceptional case. However, this year you are eligible to withdraw up to $100,000 from your IRA or 401(k) plan without having to pay any penalty. But, you will have to pay Income Tax on the withdrawal you make in the form of Retirement Income or Accrued benefit.

Loan against 401(k)

If you need extra cash, you can take a loan against your 401(k) plan. You would be able to borrow up to 100% of your account balance or $100,000, whichever is less. At the time of re-payment, you would be able to defer the payment and pay back the loan in five years without any taxes applied. However, you must check with the authorities before opting for this as the implications might vary for different plans.

Contributions made to the IRA

If you have made any contributions to your IRA and now to need the money back, you can avail of this benefit as well. The contributions made to the IRA if returned before your date of tax return filing can be withdrawn without paying any penalties. You are eligible to take out the contribution and any dividend which has been earned. However, even if you make the contribution back you will not be able to claim a deduction for the contribution made initially on your return.

Insurance premium costs

Now since you are unemployed, you will be responsible for making the payment of your health care costs. So, you are eligible to deduct the cost of the health insurance premiums including the COBRA costs as the Medical expenses. You can include the costs related to these premiums and other eligible medical expenses on Schedule A when you itemize your deductions. However, you should keep in mind that only those expenses are deductible which can exceed 10% of your AGI i.e. Adjusted Gross Income. Moreover, you can also use the money from your HSA (Health Savings Account) for making the payment of the medical expenses. Even if you lose your job, the money present in the HSA is yours. 

Available Tax Credits

You should not overlook those credits for which you had not qualified when you were employed. In the previous years, your income might have exceeded the threshold for the Earned Income Tax Credit (EITC) but you would be eligible to avail the credit now. If you meet the Earned Income Restrictions and other criteria now you can obtain the credit.

Conclusion

So, even if you are unemployed there are several methods by which you can avail of certain benefits, credits. You must resolve any queries which you have about the credits and deductions so that the tax which you owe can be reduced.

SBA Debt Relief for small business owners

by | Oct 9, 2020 | Blog, income tax, IRS, Tax Deduction, tax filing, Tax Payers, Tax Refund, tax return, Taxtips

SBA Debt Relief for small business owners

The pandemic COVID-19 has created a lot of financial problems for people across the country. People from every profession are facing several economic issues due to the coronavirus and are continuously struggling to lower the impact of the pandemic on the profession/work-related front. However, if you are a small business owner then your business must have been impacted badly by the spread of the COVID-19. So, one of the ways by which you can be able to obtain some financial aid during these challenging times is through the US Small Business Administration (SBA) Debt Relief Program.

SBA Debt Relief Program

The SBA is a part of the $2 trillion packages offered by the US Government under the provisions of the CARES (Coronavirus Aid, Relief, and Economic Security) Act. It can be described as a debt-payment assistance program that would help in providing immediate relief to the various small businesses in the United States with the help of Small Business Administration Loans.

By the SBA Debt Relief Program, financial assistance can be provided to small business owners by making a payment of principal, interest, and any other fees which the borrowers owe for the current 7(a) loans, 504 loans, and other Microloans as well.

How to participate in the SBA Debt Relief Program?

If a business is eligible to participate in the SBA Debt Relief Program there is no need for any application. Participation is automatic. The SBA has given instructions to the different lenders for not collecting any loan amount during the debt relief period. The SBA has said that it would make the loan payments for these borrowers.  According to the provisions of the CARES Act, the SBA should start making the payments within a month of the date on which the first payment of the loan taken needs to be done.

  1. In case the loan payment of a borrower was to be collected after 27th March 2020, then the lenders were provided with the instruction to inform the borrower about having the option of loan payment returned or applying the payment for even more reduction in the loan balance after the payment has been made by the SBA.
  2. If the loans are not deferred then the SBA can start making the payments on the due date of the next payment and will be making the payments for 6 months.
  3. For those loans which are on deferment, the SBA will be making the payments with the immediate next payments that are due after the end of the deferment period. The SBA will be making the payments for the upcoming 6 months.
  4. In the case of those loans which have been made after 27th March 2020 and have been fully disbursed before 27th September 2020, the SBA will make the payments. The SBA will start with the first payment which is due and would do the payments for the upcoming 6 months.

Can the SBA Debt relief program be applied to PPP and EIDL loans?

  • The Debt Relief Program by the SBA does not apply to the Paycheck Protection Program (PPP) loans to or to the Economic Injury Disaster Loan (EIDL).
  • EDILs which have the status of regular servicing which means when the loan is in a closed state with accordance to the Terms and Conditions of the loan authorization, the payment for the final disbursement has been made and the SBA guarantee fee has also been paid as of 1st March 2020, automatic deferments would be provided by the SBA through 31st December 2020.
  • However, interests would keep on accruing during this period.

 Can you get a PPP loan even if you have received the SBA debt relief?

 Yes, even if you have received the SBA Debt Relief you can fill an application for obtaining the PPP loan. You must keep in mind that the procedure for obtaining a PPP loan is different from that of the process for obtaining the SBA Debt Relief.

 

Conclusion

 So, the SBA Debt Relief is an excellent initiative by the Government to alleviate the distress caused to the economic condition of the small businesses within the country due to the pandemic COVID-19. The borrowers might have several queries related to the SBA debt relief program and must contact their lenders for this purpose.

 

The 2020 guide for tax checklist for newly married couples in the US

by | Oct 8, 2020 | 2020 IRS Form W4, 401(k), Tax Planning, Tax Preparation, Tax Refund

The 2020 guide for tax checklist for newly married couples

in the US.

On your wedding day, taxes can be the last thing in your mind; but, tying the knot can have a huge impact on your tax situation. 

  • In the tax year 2020, single people would pay tax at the rate of 37% on the taxable income which is above $518,400.
  • For those married couples who are filing their tax returns jointly, the threshold is just $622,051 which is far from double the amount which is available for the single taxpayers. This can be a very significant tax penalty.
  • However, there are some cases in which the married would also get a marriage bonus. This means married couples would pay less income tax than they would have paid in case of being single.

 Here is a checklist of the important items which you must review if you are a newly married couple.

 

Change of name and address

 Name Change

 If you are changing your name through your marriage, you must report it to the Social Security Administration. Your name on your tax return must match the name which is present on the file at the SSA. If there is a mismatch, then it can lead to a tax refund. For updating this information, you can fill out Form SS-5. You can take the completed form to the local office of the SSA along with the documents which would prove your identity and a certified copy of your marriage certificate.

 In case, you are already at the tax filing deadline but have not changed your name with the SSA then you can file a joint return with your spouse by using the name mentioned in your Social Security Card.

 Address Change

 If there has been a change in your address due to marriage, then you must inform it to the IRS and the US Postal Services. You can do this by filing the IRS Form 8822 Change of Address. The postal services must be informed to forward your mails to your new address by going online at USPS.com or by visiting the local post office.

 Withholding

 After marriage, you and your spouse must change the withholding. This can be done by filling out a new Form W-4. Newlywed couples must give this new Form W-4to their employers within 10 days. When both the spouses are working, they would move into a higher tax bracket or can be affected by the Additional Medicare Tax. The IRS Withholding Estimator on the website IRS.gov can be used to complete the new Form W-4.

 

The IRS has revised the Form W-4 for the tax year 2020. The new form would help determine how much federal income tax must be withheld from your paycheck based on your

  1. Filling status
  2. Other income
  3. Credits and deductions

 Filing Status

 Married people would be able to choose to file their income taxes either jointly or even separately. Even if filing jointly is more beneficial, it is good if you find out which works the best among both the ways. If you are married as of 31st Dec of the tax year, the IRS would consider you to be married for the full year.

 However, after marriage the process of filing tax returns with the Married filing separately Status would rarely work in reducing your tax bill. If you are choosing “Married but filing separately” Status, then it would have some special rules such as.

  1. You cannot deduct Student Loan Interest.
  2. You cannot claim the Earned Income Tax Credit
  3. You cannot claim the Child and Dependent Credit
  4. Your deduction related to Capital losses is limited to $1500 instead of $3000 which can be in case of a joint return.

 Scams

 You need to be aware of and avoid the various tax scams. Any contact by the IRS will not be initiated by using the email, phone calls, or any other text messages. You can check out your details or if you think you owe money to the IRS, and then you must visit the IRS webpage and view your tax account.

 

Conclusion

 So, these tax rules and checklist would give you a clear idea about how your tax is going to be impacted after your wedding. You must know about the changes that would occur and the steps you must take to be eligible for availing the tax benefits after being a married couple.

Types of interest that is eligible for Debt-Tax Deductible

by | Oct 7, 2020 | income tax, IRS, Tax Planning, Tax Preparation, Tax Refund, taxes

Types of interest that is eligible for Debt-Tax Deductible

There is a number of debts that would accrue interest on them such as student loans or home mortgage, etc. When the interest accrual is for a longer period, the repayment amount goes on increasing and it turns out to be quite expensive to repay them. If you have several debts then, it is quite obvious for a lot of interest to get accumulated quickly. You might be having low-interest rates but then the only way to pay off is by reducing your outgoing expenses.

 Is the interest levied on debt tax-deductible?  It might be sometimes; however, it might depend on the type of interest and many other criteria.

 Let us find out the types of interest which can be eligible for a tax deduction.

 

The interest which is eligible for a tax deduction

 

Student Loan Interest

 A large number of the students are under the burden of debts due to the Student loan and to reduce the burden caused by these debts, the IRS provides a tax deduction on the interest which is levied on the Student loan. By the Student loan interest deduction, you can deduct a maximum of $2500 from your income which is taxable as long as the Modified Gross Income (MAGI) of your previous year is less than $70,000. The student loan must be taken either by you, your spouse, or a dependent. The loan must have been taken by you for educational purposes during the period in which you, your spouse, or dependent was enrolled for at least part-time into a degree course.

 

Home Mortgage Interest

If you are borrowing money for purchasing a home, then you might have the eligibility to avail of the mortgage interest deduction. According to the regulations of the IRS, if you have bought your house after 15th December 2017 you can be eligible to take up to $750,000 in the form of the interest deduction. Moreover, this is also applicable to those mortgages which are up to $1 million and have been purchased before 15th December 2017.

 If you are paying home equity loan debt, you can be eligible to take the advantage of the home mortgage interest deduction. However, this is feasible only if you are utilizing the home equity loan for purchasing, constructing, or improving the home which secures your home equity loan.

 If you want to claim your interest deduction on a home mortgage, you will require the IRS Form 1098 or the mortgage interest statement which you would obtain from your lender. You would also need proper records that would document the details of your home and mortgage. Moreover, you would obtain the need to obtain the Schedule A too for claiming your itemised deductions. You must carefully read the IRS Publication 936 to get more detailed insight into the types of documentation that the IRS would need to check for your deduction approval. 

 

Margin Debt Interest

 In case you are borrowing money from a particular lender for investing, then you would be able to claim a deduction for the interest on the margin debt that has been incurred by you. The value of the deduction is capped at the net taxable income obtained from the investment which you would be able to claim during a tax year; however if you do not have any net taxable income obtained on the investment to claim you can easily carry forward the remaining interest expense.  By this, you will have the ability for interest deduction from the net taxable investment income in the next tax-filing year.

 The tax deduction for the margin debt interest can be calculated by the use of the IRS Form 4952.

However, you can even calculate the margin interest which is deductible by the below-mentioned steps.

  1. You consider your gross income and perform subtraction of qualified deductions, net gains, and all other expenses incurred from investment.
  2. The remaining number obtained is your net investment income.

Let us suppose, you have $1000 as your investment income and $500 as your interest expenses you would be able to deduct $500 on your tax returns obtained.

 

Business Loan Interest

 Business loans would help in providing funds for the expenses incurred in the operation and growth of your business. There are several uses of business loans and can include the accommodation of lines of credit to property mortgages. Business loans also accrue interest over time and this interest accrued is tax-deductible.

 The major conditions which determine the tax deductibility of the business loan interest would include the type of business loan you have procured, the relationship between lender-debtor, legal liability for the debt and a proper agreement from both lender and debtor for the debt to be repaid.

 Some of the common categories of business loans which would be eligible for small business deductions are:-

  1. Term loans
  2. Short-term loans
  3. Business lines of credit
  4. Personal loans
  5. Business Purchase loans

You should use the IRS Form 8990 for calculation of the amount of business interest you can deduct for a particular tax year.

  • Sole proprietors and single-member LLCs must claim their deductible interest in the Section –Expenses of Schedule C on Line 16.
  • In the case of partnerships and multiple-member LLCs, the expenses related to these interests on business loans can be claimed by recording in Form 1065 and the “Other Deductions” section.

 

What are the benefits of deducting paid interest?

Your taxable income can be reduced by using the benefit of the interest deduction.

  • By taking the advantage of interest deduction, you would be able to move into a lower tax bracket.
  • Also, you can be taxed at a lower federal rate by utilizing the benefit of the interest deduction.

 

Conclusion

 Hence, the above-mentioned categories of interest are eligible for the deduction of debt tax and would be beneficial for you to have low taxable income.