Estimated Tax Tips for the self-employed NRI’s in the US

by | Oct 12, 2020 | NRI, self employed, tax filing, tax savings tips

Estimated Tax Tips for the self-employed NRI’s

in the US

If you are self-employed NRIs in the US, you will have to make payment for quarterly estimated taxes. Due to the COVID-19 conditions, the deadline for the first and second quarterly estimated tax payment was extended to 15th July 2020. The deadline for the third quarter estimated tax payment was on 15th September 2020 and the fourth payment deadline is yet to come.

 So, you must know about the basic tax tips which are needed by self-employed NRIs in the US for the estimated tax payments.

 Who should make payment for the Estimated Tax? 

  • In the United States, there is a “pay as you go” tax system. This implies that the Government expects that it would receive most of the taxes throughout the year. As a result, employees usually have a certain amount of taxes directly deducted from their paycheck.
  • However, if you are self-employed i.e. you are a freelancer, or a home-based entrepreneur then taxes are not being withheld from your paycheck. You would be subject to making the payment for the estimated tax.
  • Generally, self-employed NRIs would be expected for making a payment of estimated taxes only if you are expecting to owe $1000 or more for your tax payment in a year.
  • In case, you are earning your self-employment income quite unevenly in the year then you would be able to use the Annualised Installment Method at the time of taxation. By this, you can also avoid a penalty for not making the payment of Estimated Taxes every quarter due to uneven income.

 When do you need to pay the estimated taxes? 

There have been some changes in the deadline for payment of estimated taxes this year due to the onset of COVID-19.

  1. 1st Quarter payment – 15th July 2020 (Original deadline was 15th April 2020)
  2. 2nd Quarter payment – 15th July 2020 (Original deadline was 15th June 2020)
  3. 3rd Quarter payment – 15th September 2020
  4. 4th Quarter payment – 15th January 2021

 In case, if the 15th falls on a weekend then you will have to pay the estimated taxes on the next weekday.

How would you figure out your estimated taxes?

 You should use online programs such as QuickBooks Self-Employed which are available for keeping a track of your income, your expenses, and mileage and calculate your estimated taxes for the year. By the online programs, your calculations are done easily thus, finding out your estimated taxes and helping you make the payment on time. Then while annual filing, by the online programs you can very easily export your information of Schedule C into tax filing tools thus, making the procedure easier.

 Pro-tip:- For the self-employed NRIs, there is a new sick and family leave tax credit available. This credit is available under the Family First Coronavirus Response Act. In case you are a self-employed NRI and are also impacted by the pandemic, then you are eligible to fund your sick leave and family leave equivalents. This can be done by considering the 2020 tax credits which would be claimed in 2021 and reducing the 2020 quarterly estimated tax payments if you are eligible for those credits. You can estimate your tax credits by online tax credit calculators and thus, reduce your estimated tax payments by the number of credits you must be eligible for.

 How to pay your estimated taxes?

 Once, you have calculated your estimated tax you must pay them on time. There are several options by which the self-employed NRIs can make their estimated tax payments. 

  1. You can use the Electronic Federal Tax Payment System (EFTPS) for the payment of your estimated taxes. It would help in making instant payment and the EFTPS is also considered to be free.
  2. QuickBooks Self-Employed online program would also help you in filing your estimated taxes with the IRS. This method is also fast and error-free as you will not have to re-enter the necessary information into your checkbook or the computer system of the IRS.
  3. Your estimated tax payment can be mailed using the mailing address provided by the IRS in your respective State. Also, you should be careful that your payments are postmarked by the due date for avoiding penalties.

Pro-tip: – You must keep a record of all the estimated tax payments you have done as you will have to enter the information while filing your taxes.

 Conclusion

 Hence, this information about estimated tax calculation and payment would definitely help you to understand the process better.

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.

Who qualifies to be your dependent when you file your Income Tax Return?

by | Oct 10, 2020 | income tax, IRS Tax Refunds, tax filing, tax returns, taxes

Who qualifies to be your dependent when you file

your Income Tax Return?

 By claiming your dependents, you would be able to save a huge amount of taxes. So, if you have a family you must know how the dependents are defined by the IRS for income tax purposes. However, you may not completely aware of who in your family can qualify as your dependent or not.

 

Who would qualify as a dependent?

 Mainly, there are two types of dependents i.e. 

  • Your qualifying child
  • A qualifying relative

 In both the conditions, the below-mentioned criteria must be fulfilled for qualifying to become dependent. 

  • The person must be a US citizen, a US resident, a US national, or a Canadian/Mexican resident. Some people think of claiming a foreign exchange student who is staying with them temporarily. This is feasible only if the foreign exchange student fulfills this above-mentioned condition.
  • You would not be able to claim a person as your dependent if he claims a personal exemption for himself or is claiming another dependent on his tax forms.
  • You would not be able to support the claim of a person who is married and files taxes jointly with his spouse.

Qualifying child. 

  • To be a qualifying child, the child doesn’t need to be your biological child. The child must be related to you and can be your brother, sister, adopted child, stepchild, niece, or nephew as well.
  • The qualifying child must be below the age of 19 years unless he is suffering from some disability (permanent and total). However, there is an exception to this rule and you can claim a child in case of him being below the age of 24 years and being a full-time student for a minimum period of 5 months in a year.
  • The child should be a citizen of the US, US national, or a United States/Canadian/Mexican resident.
  • A child would be qualifying if he is dependent but not self-supporting. He must be living with you for more than a year unless there are exceptions like living with the other parent in cases of divorce or being temporarily absent, etc.
  • If you and your spouse have been divorced then, you can use the tie-breaker rules found in the IRS Publication 501. These tie-breaker rules are the basis for the establishment of income, the parentage, and even the residency requirements for claiming the child.  

Qualifying relative.

In case, you are supporting your parents or any other relative then certain conditions should be fulfilled to claim the dependency exemption. 

  • The person whom you are supporting should be your relative and this category of relatives would include:-
  1. Your biological child, your foster child, your stepchild, or, your grandchild.
  2. Your siblings, half-brother, half-sister, stepbrother, step-sister, or the descendants of your siblings.
  3. Your parents, stepfather, stepmother, grandparents, or other ancestors.
  4. Uncle or Aunt such as brother or sister of your parents
  5. Your in-laws can include your father-in-law, mother-in-law, daughter-in-law, son-in-law, brother-in-law, or sister-in-law. However, this can only be feasible when the marriage is active and not if there has been a divorce or separation.
  • The person whom you are supporting must have a taxable income not more than $4200 in the year 2019. However, this limit goes up every year with the changing rules.
  • The relative who would be qualifying for obtaining a tax exemption must have been living at your residence throughout the year or would be on the list of those people who do not live with you.
  • You should have paid for the support of the person in more than half of the person is being supported by multiple people who agree in multiple support agreements that the exemption can be claimed by you.

Conclusion.

So, the process of including qualified dependents for claiming tax exemptions is one of the best benefits which you can avail. By claiming these dependents, you can very easily avail several tax credits and deductions which would help in reducing your tax bills. Hence, you must understand carefully the qualifying criteria for claiming dependents failing which you would miss the opportunity of availing the benefit of low tax bills.

 

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.

 

Tax deductions for your child born in the US.

by | Oct 1, 2020 | Tax Deduction, tax deductions, tax filing, Tax Payers, taxes, US Government

Tax deductions for your child born in the US.

When the deadline for the tax return filing approaches, you should keep your details ready for review so that you do not miss any necessary detail. If you have a kid, then it is feasible that you can obtain some good tax benefits.

 Dependency Requirements.

If you are going to claim your child as a dependent, then there are certain dependency requirements which your child must meet.

  • Your first step is applying for the Social Security Number of your baby. It will take nearly two weeks for your Social Security Number to arrive.
  • Another criterion is that your child should have been living with you for a period of more than half of the year. The time which your newborn child has spent in the hospital would not be taken into consideration here.

 Changes in your tax filing status.

  • In case you were single and now after having a baby you are supporting your household, your tax filing status would change to “Head of the Household”.
  • By this tax filing status, you would be able to obtain a much larger standard deduction and even more favorable tax brackets.
  • So, you can save more on your taxes after being the Head of Household than you were saving while you were Single.
  • However, when married and having a child your filing status would not change.

 Child Tax Credit.

This is considered to be one of the best tax breaks for the parents. You can claim Child Tax Credit up to $1000 for each qualifying child.

Some criteria must be met for your child to be the qualifying child.

  • Relationship – If you are going to claim this credit, then your biological children, foster children, adopted kids, step-children are eligible. Moreover, some of your other family members can also qualify.
  • Age – Your children must be of the age of either 16 years or younger than that to avail of this credit.
  • Dependent – You will have to claim your child as your dependent on the federal taxes.
  • Support – Your child should not have been provided half of the support.
  • Resident – Your child should have stayed with you for nearly half of the year or more.
  • Citizenship – Your child can qualify if he is a US citizen, US resident alien, or a US National.

 Claiming the tax breaks for medical expenses and child care.

  • Medical expenses related to the birth of your child and child care are deductible.
  • These expenses are deductible only when they are exceeding 10% of your AGI (Adjusted Gross Income).
  • To qualify these expenses for deductions, these expenses must be itemized.
  • If you are a working parent, then you are eligible to claim credit for Qualified Child Care Expenses.
  •  You can also claim the Child and Dependent Care Credit if you have paid some worker or Daycare center for taking care of your child while you were working.
  • To qualify for this credit, you should be able to identify the individual who has given support or taken care of your child. You and your spouse should have earned income to avail of this credit if you are filing the returns jointly.  Moreover, the expenses paid for child care should not be given to your spouse or any other dependent on your tax returns.
  • This credit is based on your income and can exceed up to 35% of the child care expenses which qualify for a credit. This can be up to maximum expenses of $3000 for one child and $6000 for more children.
  • However, your Child and Dependent Care might get reduced if your employer is providing you with dependent care benefits that are tax-free.

 Some additional tax breaks.

There are some other tax breaks which parents can enjoy such as:-

  1. You can qualify for obtaining the Earned Income Tax Credit.
  2. Any gifts i.e. in the form of money or property would be free of tax for you and your kid if received from grandparents and other relatives.
  3. You can also be eligible to participate in QTP i.e. Qualified Tuition Program which is being offered by your State. Even though there is no immediate break for the taxes, the earnings in the account would be tax exempted. You could also obtain state deduction or credit for the contributions made.

Conclusion.

So, these factors would help you to understand the different facets related to the tax deductions associated with your child born in the US.

Tax-exempt organizations to start e-filing

Tax-exempt organizations to start e-filing

by | Jul 19, 2020 | e filing extension, Form 990, tax filing, Tax-exempt organizations

Tax-exempt organizations to start e-filing

Non-profit organizations that do not distribute profits can be said to be exempted from federal income tax if they are organized for public purposes. There are several categories of organizations which can be considered in the group of “tax-exempt” such as Educational organizations, organizations associated with public society benefits, human services, organizations associated with arts, culture, humanities, health, public society benefits, trade associations, Veteran’s organization, etc. Even there are different kinds of mutual benefit organizations in the United States which are considered as a tax exempted. 

The status of “Tax-exempt” confers an exemption from the Federal taxes on the earnings obtained from assets that produce income. In the year 2020, there are approximately 1.74 million organizations registered with the IRS which are tax-exempted. Even though many non-profit organizations qualify for tax-exemption, only two-thirds of these qualify for charities which can receive contributions that can be used as tax deductions. 

E-filing by tax-exempt organizations

Out of the non-profit organizations which are registered with the IRS, there are around 35% organizations that need to file their annual federal income tax returns. The tax-exempt organizations ought to file certain forms with the IRS for which the due date is on 15th July 2020.

Tax-exempt organizations can file their necessary forms by IRS’s MeF (Modernized e-file). When e-filing is done by a tax-exempt organization; the organization would send the information return data directly to the IRS rather than using paper forms. The MeF can be defined as a web-based system that allows e-filing through the use of the internet. The XML (Extensible Mark-up Language) format is used by the MeF for storing and transmitting data. The e-file system of the IRS is available for all the tax-exempt organizations that prepare their tax returns themselves or for those who rely on tax professionals for their tax return preparation. Non-profit organizations and charitable trusts or organizations can file their respective forms by the use of the IRS Authorized e-file provider.

By the e-filing method, fast acknowledgment can be obtained from the IRS about the receipt of the return filing. Moreover, by the e-filing method, the processing time would be reduced thus, making compliance with reporting much easier. 

Forms to be filed by tax-exempt organizations

Some of the major forms which need to be signed by the IRS can be listed below.

a.Form 990 which is a series of annual information returns which includes Forms 990, 990-EZ, 990-PF, and 990-BL. Tax-exempt organizations that have total assets worth $10 million or more need to file around 250 tax returns in a calendar year. These returns can be related to income, excise, information returns, employment tax, and many more.

 The Form 990-PF needs to be filed by the private organizations and non-exempt charitable trusts by the e-filing method irrespective of their asset size.

b.Form 990-N which is an annual electronic Notice e-postcard meant for tax-exempt organizations. This form has to be filed by tax-exempt organizations that are small and have gross receipts of up to $50,000 in a year. Organizations that file this form do not need to file Forms 990or Form 990-EZ.  

c.Form 990-T is used by tax-exempt organizations to report unrelated business income. Also, it is used by tax-exempt organizations to report unrelated business income tax liability and report proxy tax liability. Moreover, it can be used to report unrelated business income tax on reinsurance entities.

d.Form 8871 is used by the political organization for notifying the IRS about the organization being a tax-exempt organization of Section 527 Status. If an organization has annual gross receipts of $25,000 or more in a particular taxable year then it must file this form. 

e.Form 8872 is filed by a political organization in the form of a report of its contributions and expenditures

f. Form 1120-POL represents the annual income tax returns for political organizations. This form is signed to report about the organization’s taxable income and income tax liability Section 527.

g.Form 4720 is meant for reporting of Private Foundation Excise Tax return and is mostly used along with Form 990-PF. 

 

E-filing timeline extension for tax-exempt organizations

If tax exempt organizations feel that they would not be able to file their respective forms by 15th July 2020, they can request for an extension in the timeline. This extension request can be done by filing Form 8868. An extension of six months beyond the original due date to file the returns is provided to the tax-exempt organizations filing Form 8868. However, extension in the timeline for filing tax returns does not provide an extension in the timeline for making the Income-tax payments if due for a tax-exempted organization. 

Conclusion

Hence, almost all forms used by the tax exempted organizations can be filed by e-filing method except the Form 990-T. The IRS has been constantly motivating the tax-exempt organizations to make use of e-filing for filing their tax returns.