The top 10 FAQs answered for taxpayers in the US-2020.

by Mounica Kota | Oct 4, 2020 | Tax Payers, Tax Planning, Tax Preparation, Tax Refund, Taxtips

The top 10 FAQs answered for taxpayers

in the US-2020.

There have been various changes in the tax laws due to the outbreak of the pandemic COVID-19. Due to the adverse impacts of the pandemic, millions of Americans have become unemployed and are facing a huge financial crisis. To alleviate the situation of economic distress which is being faced by the Americans the IRS has introduced various changes into the tax laws for the year 2020.

The major change which was announced by the IRS was the postponement of the due date for filing federal income tax returns and for making the payment of the Federal Income tax. This due date was on 15^th April 2020 which was postponed to 15^th July 2020. Moreover, there would be no accrual of any interest or no penalties for failure in payment of taxes or failure of tax return filing by 15^th April 2020. The interest accrual and penalties will begin after 15^th July 2020. This relief has been made available for all types of taxpayers such as individuals, an estate, a trust, a corporation, or any business entity.

Now, since there have been such important tax reforms introduced by the IRS there must be several queries in the minds of the taxpayers. So, let us have a look at some of the major queries of the taxpayers related to the reforms in the tax laws.

What do I need to do to avail of the extension of tax return filing due date from 15^th April 2020 to 15^th July 2020?

No, you do not have to do anything to avail of the extension of the tax return filing due date to 15^th July 2020. You will not have to file any additional forms or contact the IRS to avail of this relief in the tax filing deadlines. If you have to pay any taxes that are due, you can do that by 15^th July 2020. After 15^th July 2020, if you need a further extension then you would have to file a request for an automatic extension.

Is there a need to be sick, quarantined, or have any impact from COVID-19 to qualify for this relief?

No, you do not have to be sick, quarantined, or impacted by the COVID-19 in any form to avail of this tax relief introduced by the IRS.

How and by when do I need to make the payment for my first and second quarter Estimated Income Taxes 2020?

The due date for the first quarter and second quarter Estimated Income Taxes was on 15^th April 2020 and 15^th June 2020. However, you can make both the payments by 15^th July 2020. You can do this in the form of a single payment with an amount that is adequate for covering both the first and second quarter Estimated Income Taxes 2020.

What would be the due date for the rolling over of the entire or a portion of a qualified plan loan offset into a retirement plan?

If you are filing your Federal tax returns by 15^th July 2020, then the due date to roll over a part of a complete qualified plan loan offset into an eligible retirement plan is by 15^th October 2020.

I had made an excess contribution to my IRA during the year 2019. Is it feasible to avoid the excise tax if I withdraw the excess amount by 15^th July 2020?

Yes, you can avoid excise tax if you withdrew the excess amount contributed by 15^th July 2020. But, you must not have taken any deduction for the excess contribution which you have done. Moreover, you can even avoid the excise tax if you withdrew the excess amount not only by 15^th July 2020 but also by 15^th October 2020.

Are the tax return filing and payment deadline for exempt organizations, businesses, or any other entities which have the due dates for filing on 15^th May 2020 or 15^th June 2020 have been extended?

All the tax return filings and payments related to the Federal taxes which are from 1^st April 2020 till 1^st July 2020 have been postponed to 15^th July 2020.

I wanted to file a claim for my Tax Refunds for the year 2016. This has to be done by 15^th April 2020. Do the tax relief laws allow this claim to be done later?

Yes, with the changes in tax laws you can file your claim for obtaining tax refunds for the year 2016 by 15^th July 2020.

What do I need to do in case I have filed for an automatic extension for filing the 2019 tax returns? I owe Federal taxes to the IRS.

You can file your tax returns by 15^th October 2020; but, you will have to pay your taxes by 15^th July 2020.

Has the IRS postponed the tax return filing deadlines for partnership firms and S-corporations which were due on 16^th March 2020?

No, there has been no postponement by the IRS for the tax return filing deadlines for the partnership firms and S-corporations that were due on 16^th March 2020. This tax relief is only for filings and payments which are after 15^th April 2020 and before 15^th July 2020.

Does this relief give me more time to contribute to my IRA, HSA, and Archer MSA?

Yes, you can make contributions to your IRA, HSA, and Archer MSA at any time in a year or by the tax return filing due date.

Hence, these common FAQs on the tax payments related to 2020 will resolve your queries related to the tax return filing and tax payments.

Step-by-step guideline on what to do if you cannot afford to pay your taxes

by Mounica Kota | Aug 15, 2020 | IRS, tax deadline, Tax Extension, tax return

Step-by-step guideline on what to do if you cannot afford to pay your taxes

The IRS had extended the tax return filing and payment deadline until 15^th July 2020 for the Americans to alleviate the financial crisis faced by millions of Americans due to the pandemic COVID-19. However, the pandemic has led to the unemployment of millions and millions of Americans. So, even with the extension in the return filing and tax payment deadlines, it is quite difficult for some Americans to pay their taxes on time.

The IRS has a simple reminder for the taxpayers who cannot pay their entire amount of federal taxes which they owe. They should file their tax returns on time and pay as much as possible. By this, the interest and penalties of taxpayers would reduce and there would not be much accumulation of interest to pay back.

If a taxpayer plans to pay his taxes as much as he can afford, then the IRS has some convenient methods to do this i.e. by IRS Direct Pay Method, Electronic Federal Tax Payment System (EFTPS), Electronic Funds Withdrawal, Debit or Credit card, or by Check/Money Order, etc.

However, for those taxpayers who feel payment of taxes are unaffordable at the moment; they can follow a detailed plan.

Step1 – File by the new 15^th July deadline even if it feels difficult to afford the payment on time

As said earlier, due to the pandemic COVID-19 the deadline to pay the Federal taxes has been pushed to 15^th July 2020. However, with this extra time, taxpayers should not wait much more to file their taxes. Taxpayers must consult tax professionals for filling the forms. By this, the credits and deductions to lower the bill can be found out easily.

Many taxpayers might consider the option of the deadline extension. However, the extension would provide more time for filing the tax returns but not for

paying the taxes. Even if there is an extension, the tax payment must be done on time. So, an extension should only be filed by the taxpayers if due to some reason the taxpayer is not able to file the tax returns on time.

Step2 – Pay as much as possible by the tax deadline

This is also recommended by the IRS that the taxpayers should wait till the deadline, try to arrange for the tax amount, and pay off as much as possible. Some taxpayers even prefer discarding some of their unwanted materials in exchange for cash which can be utilized in payment of their taxes which are due.

Taxpayers can contact the IRS on the toll-free number to discuss alternate payment options. IRS might help the defaulter taxpayers with other payment options like a short-term extension to pay the taxes, an

agreement for installment, an offer in compromise, or by temporary delay in the collection by reporting that the taxpayer’s account is currently not collectible until the taxpayers can afford to make the payment.

Step3 – Keep paying the taxes you owe even after filing

Even after Tax Day, taxpayers would have a period of around 1 month or 2 months before the IRS would contact them about the rest of the tax payment. During this available time of 1month or 2 months, taxpayers should try to pay out as much as possible to reduce the balance left out.

In case the taxpayers are not able to make their complete payment by this time, the IRS would suggest options for making the rest of the payments in monthly installments.

Step4 – Rectify the problem

You should approach a tax professional and try to work with him or his team to ensure that you are not stuck with the problem of unaffordability related to tax payments. This can be feasible either by setting aside profits from a side business or by the adjustment of withholdings from your paychecks.

Your issues can be best identified and rectified by the tax professionals so that these issues are avoided in the future.

Conclusion

Hence, you can follow these steps and try to pay off as much tax as you can. Avoiding the aggregation of penalties is important to avoid any further financial and economic hardships.

References

Top 10 things to keep in mind for your tax filing

by Mounica Kota | Jul 17, 2020 | Charitable Contributions, ITIN, Tax Extension, tax filing

Top 10 things to keep in mind for your tax filing

Filing tax returns can be tricky, confusing and you ought to be cautious while filing your tax returns.

So, let us give you some basic tips to follow while filing your tax returns. These tips will help in avoiding common mistakes to ensure that your taxes are filed properly and you obtain the maximum refunds.

1.Filing for an extension

You can easily file for an extension in the timeline of your tax return filing but, an extension in the due date for tax payment cannot be done. You might have the thought that you may end up having taxes to pay once your return filing is completed. So, you should pay whatever amount you owe to the IRS by the July deadline so that you could do reconciliation after the returns have been filed successfully. If you do not pay your taxes by the deadline, you might have to pay a penalty which you should try to avoid.

2.Document your charitable contributions meticulously

Nowadays, charitable contributions are getting a lot of scrutiny from the IRS. So, if you are planning to claim charitable contributions as itemized deductions in your tax returns then you must have written acknowledgment from charitable organizations for contributions made of $250 or more. The contribution made can only be claimed if they are made to a qualified organization. In case of your contribution being less than $250, you must keep a list or record of what you contributed and to whom.

3.Know about new due dates for some tax returns

There might be some information forms that would be needed by you for filing your tax returns might be having different due dates than that of your tax returns. So, you need to be alert and visit the IRS’s website for the information on these new due dates.

4.Need for amendment

Many taxpayers have to file amended tax returns due to reasons like receipt of updated Forms 1099, Schedules K-1, and other information forms later than filing your actual tax returns. You need to be aware of the factor that if you are receiving any rectified information returns ad you have already filed your tax returns then you would not have to amend your returns if the difference is not more than $100 in your income or not more than $25 in your withholding. In these cases, your information and filing both would be considered as correct and no penalty would be charged.

5.Expiry of your ITIN

If you are using your ITIN for tax returns filing, then you must be careful about your ITIN being expired. If your ITIN has not being used for filing federal tax returns once within three years then your ITIN must have been expired and it needs to be renewed. You can renew your ITIN by submission of Form W-7 and the necessary documents as well. If you are filing your tax returns without a valid ITIN or without submitting a renewal application for your ITIN then there might be adjustments made into your tax returns. Your income tax return would be processed but you would not receive the refunds and any exemptions claimed on the income tax return would be denied to you.

6.Disaster losses

In case of any loss incurred in an area that has been federally declared disaster area, the losses can be claimed as an itemized deduction on your federal income tax returns. This loss must be related to your home, your vehicles, or any household items and the amount which you can deduct are reduced by any insurance payment which you have received or reduced by any salvage value of your property. These losses can be deducted on Schedule A of Form 1040 for the year in which the losses have occurred.

7.ID Theft

The tax season is the best season for identity thieves. You must be very vigilant and should try to keep your financial information secure. You should not send your financial information to a tax preparer by electronic medium if the medium is not encrypted. Moreover, you should be careful about phishing scams which can be in the form of fake email, text, or anonymous phone call.

8.Private debt collectors on the job

There has been a relative change in the IRS procedure i.e. the use of private debt collectors for certain federal bills that are overdue. If your tax debt is to be collected by debt collection agencies then you would be notified by a letter that confirms this. The collection agencies would send collectors who can be said as IRS contractors and any check you pay would be addressed to the IRS.

9.Query resolution with the IRS

Your queries on tax returns can be addressed by the Interactive Tax Assistant present on the IRS. This can be helpful for you in resolving your queries and thus, assisting you in filing your tax returns correctly.

10.Selection of your tax preparer

If you are planning to hire a tax preparer for preparation of your tax returns then you must obtain referrals, check the credentials of the tax preparers, interview them, and understand the method they use to bill, etc. These are the vital information that you must collect and you must check if they have a PTIN (IRS Preparer Tax Identification Number) or not which is mandated by the law.

Conclusion

Hence, you can follow these tips and file your tax returns successfully on time without facing any inconvenience or difficulties.

Does the Stimulus package help in Tax Refunds for the NRIs in the US?

by Mounica Kota | Jul 2, 2020 | federal government, Government Benefits, Stimulus payment, Tax Refund

Does the Stimulus package help in Tax Refunds for the NRIs in the US?

The Federal Government had been sending Stimulus checks to millions of Americans including the NRIs to alleviate the financial and economic stress created by the pandemic COVID-19. These stimulus checks have been of great help to those NRIs who have been struggling to meet their basic expenses due to either loss of work or business shut down because of COVID-19.

If you are an NRI and have also received the Stimulus check, an obvious thought in your mind must be about the co-relationship between the Stimulus package and your tax refunds. There is a relationship between the Stimulus check you have received and your income tax; however, by the receipt of Stimulus check your tax refund would neither be decreased nor would your tax liability be increased.

How are Stimulus checks and Income taxes related?

The IRS is in charge of sending out the Stimulus checks to the NRIs and even it is the IRS that is responsible for all decisions associated with tax refunds and collection of payments for NRIs.This reason might cause apprehensions in your mind especially when you are an NRI and owe to pay taxes to the IRS.

However, you do not need to worry about your taxes about the receipt of the Stimulus checks. The Stimulus money is not considered as taxable income.

The Stimulus check you receive is not going to increase the amount of tax you owe to pay to the IRS while filing your tax returns for 2020. It is also not going to decrease your tax refunds to be obtained for the year 2020. The involvement of IRS and your tax filings are only involved here because of the reference they provide to your income which is a major factor in the determination of your Stimulus amount.

Your amount of Stimulus check would be calculated based on your federal tax return for the year 2018 or the year 2019. If your 2019 tax returns have been filed, then that would form the basis for the calculation of your stimulus payment otherwise the IRS would be using your tax return information of the year 2018. If you do not receive your Stimulus payment this year, you would be able to claim it next year while filing 2020 tax returns.

There might be a scenario in which your income has changed tremendously over the recent period. In such a case, the working procedure can be summarized as mentioned below.

In case of your income being lower than that of your income in 2018 or 2019, the IRS would calculate your Stimulus payment based on your income of the year 2020. In this case, your Stimulus payment would be received after your income tax returns for the year 2020 are filed.
If your income is on the higher side in 2020, then the IRS would not force you to pay back your Stimulus money and you would not even lose any money from your 2018 or 2019 refund.

In case of tax non-filers

If you have not filed your tax returns recently then

If you are the recipient of Social Security benefits or are a military/railroad retiree then you can obtain Stimulus payment without the need to file your income tax returns.
If you have not filed tax returns for 2018 or 2019 and have not received any federal benefits, you can obtain your Stimulus checks by filing the tax returns for 2019 or by using the IRS tool for non-filers.

Stimulus Payment- An advance on the tax refund or a Government benefit

a. Stimulus payment is not an advance income tax refund and it is not going to affect your tax refunds based on your 2019 or 2020 tax returns. Moreover, you will not have to pay back the Stimulus money.

b.Stimulus payment can be said to be a federal tax credit for 2020 or an advance of a refundable credit on your 2020 tax returns and can also be referred to as Stimulus rebate.

In case of this rebate, you would receive the payments immediately rather than waiting till next year unlike the Federal child tax credit or Earned Income Tax credit.

c. Your eligibility to receive Social security benefits or Unemployment benefits would not affect your Stimulus payment receipt.

Can Stimulus payment be seized?

Suppose you owe money to the Federal Government in the form of back taxes or student debt loans, your Stimulus payment would be safe by the process known as Federal offset.
But, the Federal Government can be able to take a portion of your entire Stimulus payment if you are overdue on Child support payments.
Some cases in which your Stimulus check can be seized are court orders to make certain payments through debt collectors or if you owe money to bank/credit unions in cases like an overdue auto loan, an overdrawn account, or a delinquent personal loan.

Conclusion

Hence, in these difficult times caused by the novel coronavirus, the Stimulus payments can be considered as a support system for those NRIs who are facing a financial crisis. You must remain informed about the various aspects related to the Stimulus payment and try to resolve your queries with the IRS in case of delay or troubles in obtaining your Stimulus check.

Top #5 things to note about the extended Tax deadline July 15-2020 from April 15-2020 which is just round the corner

by Mounica Kota | Jun 20, 2020 | Federal Tax Payment, tax deadline, Tax Extension

Top #5 things to note about the extended Tax deadline July 15-2020 from April 15-2020 which is just round the corner

Millions and millions of Americans have been affected by the deadly coronavirus whose impact is worsening further day-by-day. Americans are facing health problems, losing their sources of income and are facing a very difficult time. In such bad times, the Federal Government has been quite supportive and has taken up various initiatives by which the economic stress of the Americans would be reduced.

One of the major initiatives taken by the Federal Government to reduce the economic burden on the Americans affected by the pandemic COVID-19 is the extension of the tax return filing and the tax payment deadline to 15th July 2020 by the IRS. This extension in tax filing deadline is applicable for all taxpayers i.e. both residents and non-residents and including individuals, corporations, estates, trusts, and other non-corporate tax filers as well.

Let us know about the major five things about this tax deadline extension provided by the Federal Government.

a.Extension for filing tax return and tax payment

This extension offered by the IRS is applicable both for filing Federal tax return and Federal tax payment. Originally, the Federal Government was about to give the deadline until 15th July 2020 to pay the taxes along with penalties and interest. However, the rules have been modified due to the economic stress caused due to the pandemic COVID-19. But, those taxpayers who are expecting their tax returns must file them soon to obtain the refunds faster.

b.Eligibility for availing the extended deadline

According to the IRS, there are is no such eligibility criteria for a taxpayer to avail the extended deadline. Any person who has a pending Federal Income Tax payment or returns due for 15th April 2020 can avail of the relief of deadline extension. This extended timeline is also applicable for the estimated Federal Tax Income payment 2020. This timeline extension is only applicable for those payments or return filing due on 15th April 2020 and not due on any other date.

c.State tax laws

There are a large number of states who have also extended their timeline for Federal income tax return filing and payment dates to 15th July 2020 as that of the Federal Government. States such as Alabama, Arizona, Kansas, Ohio, South Carolina, District of Columbia, West Virginia, Michigan, New Jersey, Montana, Oklahoma, Minnesota, Kentucky, Wisconsin, Maine, Georgia, Illinois, California, Colorado, and many more have their tax return filing and payment extended up to 15th July 2020.

However, there are some states like Hawaii, Idaho, Iowa, and Virginia which have extended their timelines differently than that of the Federal Government. The timeline in Hawaii has been extended to 20th July, in Idaho has been extended up to 15th June 2020, in Virginia had been extended up to 1st June 2020 and up to 31st July 2020 in Iowa.

d.Inability to pay by 15th July 2020

In case a taxpayer feels that he would not be able to pay his Federal Income tax even by the extended timeline i.e. 15th July 2020, then he would have to file for an automatic extension. The taxpayer must request for the automatic extension of the timeline by 15th July 2020. He can be able to request for the extension automatically by e-filing using Form-4868. Moreover, if business entities or trusts would be interested in filing for an extension, then it can be done electronically through the Form-7004.

e.IRA and HSA

Since the deadline for filing tax returns and tax payment has been extended till 15th July 2020; the taxpayers can make contributions to their IRA and HSA up to 15th July 2020.

Additional Information

However, there are some other items whose deadlines have been extended until 15th July 2020.

The Estimated Federal Tax payment for the second quarter has also been extended till 15th July 2020 which was 15th June 2020 earlier. So, by this, the taxpayers would have to now submit both the Estimated Federal Tax payments for both the 1st quarter and the 2nd quarter by 15th July 2020.
The partnership return filings and the corporate return filings have been extended till 15th July 2020.

Hence, the extended timeline for making the Federal tax payment, filing the Federal tax returns, and even payment of State Tax is almost round the corner and taxpayers should be prepared for it from now.

References

All you need to know about an expected delay in tax refunds in 2020 due to COVID-19 pandemic

by Mounica Kota | Jun 2, 2020 | COVID - 19 pandemic, Income Tax refunds, IRS, Social Security Number, Tax Refund

All you need to know about an expected delay in tax refunds in 2020 due to COVID-19 pandemic

In response to the outbreak of the pandemic COVID-19, the Federal Government had delayed the deadline for filing Federal tax returns and for tax payment as well. However, it was advised that if you had to receive a tax refund from the IRS then it would be wise to file the tax returns soon. Due to the coronavirus and the social distancing norms, it was not only difficult for the taxpayers to prepare and file the returns but also for the IRS staff to process the refunds.

In these difficult times, it is always good to have some additional cash and everyone needs this additional amount but the tax refunds for 2020 would be delayed.

IRS Operations with a reduced workforce

The IRS offices were closed across the entire country and it was operating with limited staff and resources. The most important task which the IRS has been doing in the past two months was the issuing of Coronavirus Stimulus Payment to around 150 million Americans which can be termed as a “mission-critical” function.

Due to the outbreak of the pandemic COVID-19, the IRS had limited the services it was rendering. The live phone help has been suspended and even the Taxpayer Assistance Centers were closed. Still, the official webpage of the IRS says that they have been carrying out the critical functions pro-actively. Specifically, the IRS has been processing Federal tax returns and issuing refunds to the Americans even with limited staff. From 1st June 2020, many IRS staff members would have returned to their offices for performing those tasks which cannot be done from home. These staff members on resuming work would begin with the backlog of work they have which would mainly consist of processing tax returns and issuing refunds to the people.

Method of tax return filing – Reason for delay

According to the IRS, the fastest method by which you can receive your tax returns on time is by filing your tax returns electronically. Most of the taxpayers who would use the e-filing method and would choose Direct Deposit would receive their tax refunds within 21 days of the filing. However, there would be delays in obtaining tax refunds by those taxpayers who would opt for the paper return method.

More than 10% of the American population still uses the paper method for filing their tax returns. The closure of the IRS offices means that IRS would not be able to process those returns which have been mailed in. So, when the processing of returns would be delayed then obtaining a refund would also be delayed. Currently, it is unclear as to by when the IRS would be resuming the processing of those returns which have been filed by paper.

According to several reports, by 1st May 2020, the IRS had received around 125 million Federal Tax returns and it had processed 113 million tax returns approximately. There has been a 7.2% drop in the refund processing rate of the IRS due to the pandemic COVID-19. However, the average tax refund this year is $2973 and the IRS says that it does not expect any delay in issuing the outstanding refund requests as well.

Tax Refund Status

Usually, the tax refunds are issued to the taxpayers within less than 21 days of filing the tax returns. You would be able to track the status of your Federal Tax refund on the official website of the IRS after 24 hours of filing the tax returns.

The three important things needed for checking your Federal Tax refund status are

Social Security Number or Taxpayer Identification Number
The exact amount that would be refunded
Your filing status

Other causes for tax refund delays

Apart from the coronavirus, there can be some other reasons which would cause a delay in the process of obtaining tax refunds. In case, you have filed your tax returns too early and have claimed the Earned Income Tax Credit or the Additional Child Tax Credit then you will have to wait longer there might also be a delay if you have filed your federal tax returns either faster or later.Moreover, other causes for delay in obtaining your tax returns could be due to wrong Social Security Number, incorrect bank account number, misspelling of your name, wrong calculations or you have outstanding debts such as back taxes, child support, or Federal Student Loan, etc.

You can keep a tab on your Income-tax refunds by checking your Tax Refund Status regularly and understanding the details associated with tax refunds.