The truth behind tax fraud alerts

by Mounica Kota | Feb 15, 2020 | IRS, Scams, Tax Abusive Promoters, Tax Frauds, Tax Return Preparer

The truth behind tax fraud alerts

Tax fraud and scams are becoming quite common in the US and the taxpayers need to be alert about these fraud scams. The IRS constantly warns the taxpayers to be cautious against these types of scams and frauds which can be very dangerous.In case of any scheme which is offering you exemptions from your obligations while paying taxes, you need to consult a tax professional or IRS before subscription to the scheme. The electronic filing of tax returns has made it easier for these tax scams to be operative frequently.

Let us find out some of the common tax frauds and scams occurring in the US.

Phishing

Tax scams can be considered as an illegal practice for avoiding the payment of taxes. These practices can result in imprisonment, payment of fines and tax re-payment along with fines. One of the common tax scams is Phishing which can be carried out by unsolicited email addresses or websites. These email addresses or websites act as legitimate websites for common people and lure them to provide their financial information. You should report about these tax scams such as receiving any emails from a source claiming to be the IRS, any monetary losses occurring due to the IRS, etc. to the IRS.

Abusive Tax Return preparer

You should be very careful while choosing a tax preparer for preparing his tax returns. Most of the tax return preparers will offer great services to their clients. However, some preparers can file fraudulent tax returns on your behalf and you are to be legally prosecuted for the tax returns. A tax return preparer can be defined as a person who can be a part of a partnership or a corporation and prepares for the compensation or a portion of refund or makes claims for refund under the provisions of the IRS. These abusive tax return preparers will use several fraudulent means for making illegal deductions which reduces your taxable income. Some of these dishonest means can be listed below.

Claiming of false dependents
Preparation of Schedule C by fraudulent means, claiming of the deduction for those expenses which have not been paid by taxpayers, income earned from other external sources of employment, etc.
Claiming of false Schedule E, Supplemental Income and Loss, etc.
Adding up false itemized deductions such as charity and medical, dental expenses.

There are some basic tips that you can follow to avoid such abusive tax preparers.

You should avoid tax return preparers who claim of obtaining larger refunds than others.
You should avoid signing blank tax form and must avoid return preparers who base their fees on the percentage of refund obtained.
You must consider a well-reputed tax professional that prepares your tax returns, provides you with a copy of the return and is also available for answering questions even after a long time of filing tax returns.

Abusive tax schemes

Tax evasions are very common nowadays especially by the use of foreign jurisdiction. These can involve several foreign and domestic trusts, partnerships, nominees, etc. These abusive tax schemes have gradually evolved into a fraudulent arrangement which gives the impression that you are not in control of your money and handed it over to some trusts. But, you will be receiving your funds through some other loans or your debit/credit card. These abusive tax schemes can involve banking offshore and can also lead to the establishment of scam corporations.

Some of the common abusive tax schemes which are quite common in the US are mentioned below

Abusive foreign trust schemes
International business corporations
False billing schemes

Non-filer Enforcement

Numerous individuals have continuously argued that the imposition of taxes on the citizens is illegal and should be voluntary. However, the IRS has always rejected these types of frivolous arguments and has imposed financial penalties on these individuals. You must be careful about these types of frivolous arguments.

IRS Lead Development Center

However, the IRS continuously works on keeping the common people safe from these tax frauds and scams. There are various educational materials and public awareness campaigns organized by the IRS for making the common people aware of these fraudulent practices.

Moreover, the IRS also organizes civil and criminal investigations which can result in penalties for those carrying such tax scams.

The IRS Lead Development Center also constantly works towards the eradication of these tax abusive promoters, fraudulent tax preparers and hence protects the common people.

Conclusion

Hence, tax scams, fraudulent tax preparers, and abusive tax schemes cause a lot of harm to the Government and the common people. It is necessary for taxpayers to be aware of these scams, educate themselves and report immediately to the IRS in case of any tax fraud.

Reference

What is the process to obtain the US Individual Taxpayer Identification Numbers (ITINs)?

by Mounica Kota | Jan 31, 2020 | federal income tax, IRS, ITIN, SSN, tax filing, Tax Payers, tax return, taxes, W-7 Form

What is the process to obtain the US Individual Taxpayer Identification Numbers (ITINs)?

US Individual Taxpayer Identification Number is an Identification Number which is used by the IRS (Internal Revenue Service) for the administration required in the field of tax laws. ITIN is a nine-digit number that is issued either by the SSA (Social Security Administration) or by the IRS. ITIN is issued by IRS to those individuals who must have a US taxpayer identification number but do not qualify to obtain SSN (Social Security Number)from the SSA.

Why do you need ITIN?

When you are working in the US and earning in the US, but you do not qualify to obtain an SSN, then the ITIN will be helpful during your filing for tax returns.

Let us find out what does an ITIN does.

If you qualify to obtain a tax refund from the IRS, then ITIN will help you in obtaining a refund.
ITIN will help you to file your taxes and help the qualifying dependents to claim the tax benefits.
Moreover, ITIN can help you to apply for a mortgage loan or open a bank account.

Eligibility for obtaining ITIN

You should be falling into these below-mentioned categories to obtain the ITIN.

You should be a non-resident alien who needs to file a US tax return.
You must be a US resident alien who has to file a US tax return.
You should be a dependent or the spouse of a US citizen or resident alien.
You must be a dependent or spouse of a non-resident alien VISA holder such as H4 VISA.
You should be a non-resident alien who is claiming a tax benefit.
You should be a non-resident alien student, researcher or professor filing a US tax return or for claiming an exception.

Procedure to obtain ITIN

For the process of applying for ITIN, you will need the below-mentioned documents.

Form W-7
IRS Application for Individual Tax Identification Number.
Your federal tax return. But, if you are eligible for an exception then you must provide the supporting documents as well for the exception.
Original documentation from the issuing agency for proof of your identity and foreign status.

Since, you will be filing your tax returns in the form of an attachment to your ITIN application you should avoid mailing your filled form to the address which is mentioned in Form 1040, Form 1040A or even Form 1040EZ.
You can send your Form W-7, tax return, and other documents either to the mailing address mentioned in Form W-7 or submit it at the walk-in offices of the IRS. You can also get your form and documents processed by an agent who has been appointed by the IRS.
These Acceptance Agents are those entities such as colleges, financial institutions, accounting organizations, etc. who help the ITIN applicants in obtaining ITIN. These Acceptance Agents would review the application forms and would forward them to IRS for further processing.

Timeline within which ITIN must be applied

When you are ready to file your Federal Income Tax Return, you should also complete your Form W-7. This needs to be done as the return would be needed to be attached to FormW-7.

If you are qualifying for any of the exceptions, then you do not need to file a tax return. You would only submit Form W-7 along with those supporting documents which provide proof for the exception. An applicant is allowed to apply for ITIN during any time of the year but if you need to attach the tax return to Form W-7 and that tax return is filed after the due date then you might have to pay penalties.

When will you receive your ITIN?

The IRS usually takes a time of around two months to complete the processing of the ITIN form. If your documents and details are correct, then your form would be processed and ITIN would be sent to your mailing address approximately within two months.

However, if even after 2 months you do not receive your ITIN or any other document/correspondence from IRS then you can call IRS at the Toll-free number and enquire about your ITIN application.

Hence, ITIN is very much necessary for tax return and if you are filing your tax return with an expired ITIN then your request would be processed but you will not receive any tax exemptions or credit claims.

Reference

Can You File Your Taxes In The US Without A Social Security Number?

by Mounica Kota | Dec 30, 2019 | EITC, global income tax, IRS, ITIN, SSN, Tax Payers, Tax Planning, Tax Refund, taxes, W-7 Form

Can You File Your Taxes In The US Without A Social Security Number?

Citizens of the US use their Social Security Number as identification when it comes to doing their taxes. However, there are a lot of citizens from other places who do not qualify for SSN, yet earn in the country and are liable to pay taxes. If you are one such citizen, you can use the Individual Taxpayer Identification Number or ITIN to file your taxes instead of SSN.

ITIN’s Capabilities

The ITIN is designed only to help citizens without an SSN the capability to file taxes and nothing else. The IRS clarifies that the ITIN cannot be used as:

An authorization to work in the US
Qualification for SSN or other tax credits such as Earned Income Tax Credit (EITC)
A stimulus to impact your immigration status

Who Needs an ITIN?

Anyone who needs to file their taxes and does not have an SSN can apply for ITIN. If you have a dependent and want to claim them in your tax returns and they do not have an SSN, you would need to get an ITIN for them as well.

As per the IRS, resident and non-resident aliens can get ITIN irrespective of what their immigration status is. An easy way to understand is that you would need an ITIN if you need to file your taxes. This is applicable even if you stay in another country.

How To Apply For ITIN?

Getting your ITIN isn’t all that complicated. To apply for ITIN, you need to submit Form W-7 to the IRS. You can either submit the form by mailing it to the IRS or schedule an appointment if you need any helpwith the forms.

To fill the application form, you would need certain basic details such as name, birthdate and mailing address. You would have to mention your US visa number should you have. Also, the form requires you to mention the reason why you want to apply for ITIN.

Expiry of ITIN

An issued ITIN can expire if it has not been used. If you obtain an ITIN and do not use the same for a period of three years, the ITIN will expire on the 31^st of December 2019. ITIN that were issued before the year 2013 would also expire on the 31^st of December 2019. The middle digits for the ITIN in such cases would be 83 and 84. For example, you ITIN could look like (9XX-83-XXXX).

Renewal of ITIN

In the event your ITIN expires, you do not have to worry about filing your taxes. You can always renew the ITIN using the following measures. You must fill up Form W-7 along with an application form for ITIN. While you are required to submit the required documents, you do not have to submit a tax return in the case of renewal. Unless there is a filing requirement, you do not have to submit your tax returns. If your family members were issued ITINs, you must submit their W-7 forms at the same time.

The renewal process of ITIN is a bit similar to getting a new one. You can use any of the following methods.

Mail the forms to the IRS at:

Internal Revenue Service

Austin Service Center

ITIN Operation

P.O. Box 149342

Austin, TX 78714-9342

Schedule an appointment with the IRS Taxpayer Assistance Center.
Apply for an ITIN in person at any Certifying Acceptance Agent that is authorized by the IRS.

You can file your taxes in the US even if you do not have a Social Security Number. You can apply for ITIN using the methods mentioned above and file your taxes.

Reference:

https://www.taxslayer.com/blog/how-to-file-taxes-without-a-social-security-number/

https://www.irs.gov/credits-deductions/individuals/how-do-i-renew-my-itin

Step by Step process to pay off your Income Tax Bill

by Mounica Kota | Dec 18, 2019 | income tax, IRS, Tax Exception, tax filing, Tax Liabilities, Tax Payers, Tax Refund, taxes

Step by Step process to pay off your Income Tax Bill

Discovering that you owe a lot more taxes to the IRS than you can afford can be a very concerning situation. To find out that you do not have any tax refunds is bad enough and if you must pay additional taxes to the IRS, it is pretty much the worst nightmare.However, such a predicament is not the end of the road or the world. You can pay off your income tax bill by following a few simple steps, without taking a lot of stress.

Your Tax Liability

Knowing the amount of taxes that you are liable to pay to the IRS is the very first step. Before you submit your tax returns during the tax season, it is essential that you go through your returns more than once. A little bit of scrutiny here can save you from a lot of pain. It is quite common to forget a deduction or accidentally add the same item twice.

Forgetting a checkbox or a question can at times turn out to be expensive in this matter. Thus, cross-check your return thoroughly before clicking on the submit button. You can compare your current return with that of the previous year to see if there are any major changes. This holds good if there hasn’t been a dramatic change in your tax situation.

And if the IRS sends you a letter for tax dues, do not jump to any conclusions immediately. There is a probability that it might be wrong. If you feel so, you can ask them for clarification.

Minimize any penalties or interest

Penalties and interest can worsen the already grim situation. If you have a large tax bill to pay off, interest or penalties can bloat this number. Fortunately, you can minimize them using any of the following methods.

Underpayment Exception

There might be a situation where you underpaid your taxes this year but had paid your taxes accurately the previous year. If the taxes of the previous year were considerably lower and you paid your current taxes by the due date, you don’t have to pay penalty on your underpayment of taxes.

Pay ASAP

Should you owe any taxes to the government and you do not see a way out, paying it off at the earliest is your best bet. Even if you do not pay the entire amount, pay off as much as you can.

Abatement of Penalties

The IRS is known to reduce or even remove the penalties on a taxpayer if they write a letter to the IRS and make them aware of the situation. Do not forget to ask for an abatement in your letter to the IRS.

Installment Agreement Request

If there is no other way for you to pay the taxes, you can file Form 9465, which is Installment Agreement Request. You are essentially setting up an installment of your tax liabilities. And filing the form online will prevent you from paying the payment user fee. The installment is applicable if:

The taxes you owe are less than $10,000.
A taxpayer can prove that they are unable to pay the dues.
A taxpayer can pay the taxes within 3 years.

Compromise

You can negotiate with the IRS for Offer In Compromise (OIC). In this method, you must offer as much as your net worth is. An OIC resembles bankruptcy in a lot of ways and must only be considered if there is absolutely no other way.

The above steps will help you pay off your income tax bill to the IRS. It is important not to panic and look for a solution if you owe taxes to the IRS.

Reference:

https://blog.taxact.com/steps-pay-off-tax-bill/

Cancer Patient’s Tax Considerations for NRI’s In The US

by Mounica Kota | Nov 24, 2019 | income tax, IRS, NRI, tax deductions, tax filing, Tax Liabilities, taxes

Cancer Patient’s Tax Considerations for NRI’s In The US

The diagnosis of cancer can be heartbreaking for an individual as well as the family. Getting adequate financial assistance during the time is one of the first things that would occur to an individual. While health insurance plans do cover some of the expenses, cancer patients have a lot of expenses that they must cater to. Cancer patients can reduce their tax liability with the help of substantial tax breaks, as they can deduct some of the expenses that they have paid from their pockets.

Eligibility

Taxpayers who use itemized deductions instead of standard deductions can still deduct medical expenses related to cancer. They can deduct expenses related to medical care, hospital stays, medication, diagnosis, provided that these expenses exceed 7.5% of their adjusted gross income (AGI).

Taxpayers can also claim mileage used for medical treatment at 20 cents per mile along with expenses related to attending seminars on education and diagnosis of cancer.

To deduct their health insurance, self-employed taxpayers don’t have to itemize deductions. They can directly deduct their health insurance premiums from their income.

How to Avail the Tax Break

According to the IRS, expenses that qualify for tax deductions under medical expenses include the cost of cure, cost of diagnostics, cost of treatment, cost of prevention, etc. Treatment for cancer is usually very expensive starting from chemotherapy to surgery. And your health insurance policy plays a crucial role in the amount that you can claim under the tax break.

For certain rare types of cancers, patients need to undergo special treatment such as mesothelioma. Travel is an integral part of such treatments and it might be considered for tax breaks.

The IRS lists out all the expenses that qualify for the tax break, which even includes the health insurance premiums which taxpayers pay with pre-tax dollars. To make it even more accessible, there are no restrictions on the mode of payment. You can pay for the care by cash, check or even credit card for the financial year that you want the tax deductions for.

For cancer patient’s tax considerations, there is one important thing that one must keep in mind. The IRS has increased the standard deduction for all the categories. The enhanced limit now stands at $12,200 for single taxpayers and $24,400 for taxpayers filing jointly. And the same for the head of a family is now $18,350.Thus, it still is at the hands of a taxpayer if they want to opt for standard deduction or itemized deductions. The usual condition where it makes sense to opt for an itemized deduction if it exceeds your standard deduction threshold.

When your itemized deductions exceed the standard deductions, you can benefit from the tax considerations for cancer patients. And medical expenses related to treatment or cure of cancer would go under the itemized deduction category, along with expenses such as state and property taxes, contributions to charity, interest paid on the mortgage, etc.

There is another condition that you must satisfy to avail of the benefits mentioned above. If you wish to itemize your deductions pertaining to medical expenses, you can do so only if it exceeds 7.5% of your AGI or adjusted gross income. For 2019, the limit is pushed further to 10% of the Adjusted Gross Income. For the year 2018, if someone had an AGI of $100,000, they would be eligible to deduct medical expenses, if the total expenses exceeded $7,500. The calculation is quite simple, 7.5% of AGI or $100,000, which deduces $7,500 as the threshold amount.Thus, you can claim the medical expenses and reduce your tax liability along with it.

How To Choose A Good Tax Professional To Ensure The Best Tax Refunds

by Mounica Kota | Nov 21, 2019 | global income tax, IRS, tax filing, Tax Planning, Tax Refund, tax savings, taxes

How To Choose A Good Tax Professional To Ensure The Best Tax Refunds

Taxes can be a bit overwhelming for a lot of us. Understanding the different clauses, making the most of the deductions, looking for refunds are just some of the things. In some cases, the tax filing can get quite a bit complicated as well. It is such times that Tax Professionals come to the rescue. Tax professionals or preparers are individuals trained and certified to handle taxes and help you through the entire process. A Good Tax Professional To Ensure The Best Tax Refunds.

Types of Tax Professionals

The first step towards choosing a good tax professional is to understand the different types of tax professionals around. And then make a decision as to whose services would be ideal for your scenario. The two categories of tax professionals that you can choose from are Enrolled Agents and Certified Public Accountants. And both of them have the capability of representing you in front of the IRS, should there be a need for it.

Enrolled Agent

An Enrolled Agent or EA is a licensed tax professional. Individuals can earn the designation of EA either through a special exam or by working for the IRS for 5 years or more.An EA can have an area of specialization, thus do not forget to ask your EA about theirs. Another benefit of taking the help of an EA is that they are specially trained for taxes and will mostly cost you less than a CPA.

Certified Public Accountant

A Certified Public Accountant or CPA are accountants who have had to undergo an education program and pre-defined requirements to get the title. It is important to note that all CPAs might not have the expertise to work on taxes. One of the biggest advantages of taking the help of a CPA is that you might get ancillary helpfor other financial needs such as financial planning or estate planning.

Apart from EAs and CPAs, you can also choose tax attorneys and chains that offer tax preparation services. Tax attorneys are best known for handling tax related disputes which are complex in nature or corporate matters. You can avail of the services on offer by tax preparation chains such as Jackson Hewitt or H&R Block.

Finding Tax Professionals

Now that you know the different types of tax professionals available, the next step is to find out the right tax professionals. Getting referrals from a friend or someone you know is one of the easiest ways of getting a tax professional. Here are some other sources to get a good tax professional.

National Association of Enrolled Agents

You can visit the website of the National Association of Enrolled Agents and look for an EA. The website offers a lot of filters to make your search easy. Filters such as the area of expertise or the ability to speak multiple languages can make your life easier.

American Institute of Certified Public Accountants

The AICPA is a good place to look for CPAs who can help you with your taxes. Remember, these financial experts can offer a lot more than merely your taxes.

Yelp

You can always refer to Yelp to find a good tax professional in and around you, who has a good rating. The local listings on the website can help you to get in touch with a tax professional.

Angie’s List

Though this service is not free, you are more likely to find an authentic tax professional on the website. You get access to a wide range of categories such as financial assistance, tax professionals and reviews from local people to choose from.

Getting tax refunds is an outcome of proper tax filing. Choosing a good professional is essential as they can help one get the best tax refunds and save money.