Step by Step process to pay off your Income Tax Bill

Step by Step process to pay off your Income Tax Bill

by | 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:

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

 

 

Top 10 Tax Refund Takeaways From 2019

Top 10 Tax Refund Takeaways From 2019

by | Dec 15, 2019 | 401(k), capital gains, IRA, Tax Extension, Tax Liabilities, Tax Payers, Tax Planning, tax return, Taxation, taxes

Top 10 Tax Refund Takeaways From 2019

As winters approach, Tax Refund Takeaways 2019, taxpayers across the country have even less time to plan for their taxes. In no time Spring will be looming and you do not want to be caught in the crosswinds. This festival season, you can set aside some of your time and plan for your taxes, if you haven’t already done this. It is to ensure that your tax liability is low and that you have a better chance at a higher tax refund. Here are the top 10 takeaways considering the proposed changes in taxes in 2019.

1.401(k) and HSA

You can contribute towards traditional IRAs up to the 15th of April of next year. However, you will miss out on the provisions for 401(k) and Health Savings Account if you do not make any contributions till the 31st of December. Taxpayers can deductions up to $7,000 for contributions towards health insurance plans.

2.Delay Your Mutual Fund Purchase

If you wish to buy mutual funds during this time of the year, you might want to rethink the decision. Especially if you want to hold them in a taxable account. The problem with buying at this time is that you would have to pay taxes on the year end dividends. This is applicable even if you just purchased the shares.

3.Capital Loss Harvesting

Should you own any stocks that are at a loss, you can sell them and deduct up to $3,000 on the federal taxes that you owe. The only thing that you need to be careful about is that you do not violate the wash-sale rule. According to the rule, you cannot purchase the exact same stock or something substantially similar within 30 days of selling the stocks.

4.Opportunity Funds

You have the option to defer paying capital gains tax if you choose to reinvest in Qualified Opportunity Funds. The Tax Cuts and Jobs Act of 2017 brought the Opportunity Funds into existence. The fund aims at creating jobs and opportunities in communities that are distressed.

5.Charity

On reaching the age of 70 ½ years, senior citizens must take minimum distribution if they have 401(k) or IRA. If you do not need the amount for living, you can send it to a charity. Essentially it is a check issued by the IRA to the charity.

6.Traditional To Roth IRA

Any amount that you withdraw on retirement from a traditional IRAs taxable but any distribution from Roth IRA is fax-free. Roth IRAs also do not have minimum requirements, which can be beneficial to reduce your taxes. You can convert your traditional IRA to Roth IRA, but you need to be cognizant of the fact that the converted amount can be taxed.

7.Opt For Capital Gains Tax

If you belong to the 10% or 12% tax bracket, you can consider selling your stocks that are in green. You can sell stocks that have seen significant appreciation as you do not have to pay any capital gain taxes for the mentioned brackets.

8.Charity

You can club your charitable contributions together for more effective tax planning. You can club your contributions for two years and file in a single year. This will allow you to claim itemized deductions for alternate years.

9.Flexible Spending Account

You cannot carry forward any balance that is in a flexible spending account. It might be a good idea to put the amount to use before it expires.

10.Tax Advisor Services

To maximize your tax refunds, reaching out to tax advisor might be a good idea. And the earlier you meet, the better chances you have of getting a good advisor and good refunds.

Knowing the basics of taxation and ways to reduce liability is helpful in the long run and something that all tax payers must be aware of.

Reference:

https://money.usnews.com/money/personal-finance/taxes/articles/10-year-end-tax-tips

 

 

How to claim your TDS refund for the NRI’s residing in the US

How to claim your TDS refund for the NRI’s residing in the US

by | Apr 22, 2019 | Blog, income tax credit, IRS, NRI, Tax Payers, Tax Planning, Tax Refund, tax savings, TDS

How to claim your TDS refund for the NRI’s residing in the US

TDS refund For an NRI residing in the US, income tax is applicable for the income that is earned in India. Be it salary earned in India or for services rendered to India or on earnings from investments and assets, NRI is liable to pay income tax if the total income for the financial year is more than Rs. 2.5 lakhs.

In India, It’s not very simple when it comes to income tax rules for NRIs.As per tax rules, any payment to non-resident Indians (NRIs) is required to be made after deduction of tax deducted at source (TDS) even if the income of that person is less than Rs. 2.5 lakhs. However, NRIs are allowed to claim refund of TDS deducted at the time of income tax filing if he/she falls below the minimum taxable income i.e. 2.5 lakhs.

Here are some of the major income types on which TDS is deducted for NRIs.

  • Payments received for services rendered in India
  • Interest income earned on bank savings and deposit accounts – NRO accounts
  • Rental income from property owned in India
  • Sale of bonds, mutual funds and shares
  • Sale of property in India owned by an NRI

TDS refund can be claimed by NRIs residing in the US by filing the income tax return in India. Income tax filing is quite a simple process. As the new financial year begins, it’s also important for NRIs to know the time limit to file the income tax for claiming refund.

NRIs are required to file income tax return before 31st July of the new financial year. Any delay would attract penalty. For example, for the financial year 2018-19, income tax filing needs to be done by 31st July 2019 for claiming TDS refund.

Here are the few easy steps for NRIs to file income tax return in India

Reconcile your incomes and taxes with Form 26AS

After determining the residential status for the financial year, NRI‘s need to reconcile their TDS credit or advance taxes paid with the data reflected in Form 26AS.

Keep the necessary documents ready

Keep important documents such as PAN card, bank details, investment details, TDS certificates, passport and Form 26AS ready as these documents give you relevant information required for income tax filing.

File your income tax return through income tax e-filing portal

  • Log on to income tax e-filing portal with your e-filing account user ID and password. Download ITR2 or ITR3 form depending on your type of income.
  • If you earn any income from business in India, ITR3 would be applicable. ITR2 would be applicable if you are not earning any business income (excludes capital gain on sale of assets/property) in India.
  • Fill in all the relevant details and calculate your tax liability.
  • Once all the details are filled validate your form by entering one time password (OTP) sent to you on your registered number.
  • Save the validated XML file on your system and then upload the saved file with adding your digital signature to it.

Verify your income tax return

Once you are done with uploading your tax return file on income tax portal, ITR-V will be generated which needs to be submitted to IT department. On receipt of this, your income tax return will be processed.

It’s important to note that, refunding of TDS will take about 6 months’ time or more. However, the refund is issued with interest of 6% p.a which is applicable from the end of financial year.

NRIs residing in US can save on TDS through DTAA (Double Taxation Avoidance Agreement) as both the countries have signed tax treaties. In this case, as an NRI taxpayer you can avoid paying tax twice for the same income. DTAA either eliminates or reduces your tax implication on the income earned and taxable in India.

Conclusion

As an NRI, adhering to two different tax laws at once can be quite challenging. Knowing and understanding the process involved in the taxation can help you save tax liabilities. Keep yourself updated and seek a professional help whenever needed.

Haven’t filed taxes in the last 10 years? Start today

Haven’t filed taxes in the last 10 years? Start today

by | Mar 14, 2019 | tax filing, Tax Payers, Tax Planning, Tax Preparation, tax return

Haven’t filed taxes in the last 10 years? Start today

There can be a myriad of reasons why one hasn’t filed taxes. One could have forgotten to file their taxes, there was a death in the family which caused the delay, or you were seriously ill. Irrespective of what the reasons were, it is never too late.

In fact, every year about 7 million taxpayers fail to file their income taxes returns. Yet, there are more than 146 million Americans who do file their returns year on year. In other words, about 5% of the total population fails to file their returns.

If you haven’t filed your taxes, it is high time that you start doing the same immediately. The consequences of going for several years without paying taxes can be hazardous to your finances. It gives the IRS enough reasons to flex their muscles.

What if you haven’t filed taxes in the last 10 years? Well, there is a statement in the IRS policy. According to the statement, the IRS usually looks for tax records dating to six years in the past. However, if you haven’t paid taxes in about 10 years and want to start now, here are some tips to help you through.

  • Unfiled Years

You can either directly reach out to the IRS or take the help of a tax agent to find out the number of years for which you need to file taxes. The unfiled years is the first crucial step.

  • Old Refunds

This is one of the first steps where you start losing money. The IRS will only honour refunds dating back to three years from the current return filed date. If you had any returns prior to this period, the amount is lost.

  • Transcripts

While filing your taxes or even returns, it is important that the number matches with that of the IRS. You can take the help of transcripts from the IRS to trace your income history as accurately as possible.

The next logical step would be to file the taxes for the income mentioned in the transcripts. Any mismatch would allow IRS to dig deeper into your filing.

  • Penalties

In the event that you haven’t filed or paid taxes in quite some time, be ready to cough out hefty fines. Penalties such as failure to pay taxes and failure to file taxes can amount up to 47.5% of the total taxes that you are liable to pay.

Thus, if you haven’t filed your taxes yet, the sooner you start, the better it is.

  • Penalty Reduction

While back filing your taxes and returns, you have an option to ask the IRS not to charge you on the failure to pay or failure to file charges. If you qualify for the first-time abatement, use it for the first year.

Or else, you can use the reasonable cause argument and seek discounts or reduction of the pending taxes.

  • SFR

If you fail to file your returns within three years of the due date, the IRS might start a process called SFR or substitute for return. And should you file to return or replace the SFR, the IRS will look into it closely and compare with their SFR. And it is this close scrutiny which leads to a much longer turn around time. At times, it might even take more than 4 months.

  • Settlement

If you feel that you cannot pay the pending taxes, it is advisable to reach out to the IRS and strike a settlement with them. Depending on your needs, there are several types of settlements that you can choose from.

But it is important to settle if you cannot pay. The simple reason being, the second wave of enforcement and fines will follow.

Should you delay the filing process, you have more to lose than gain. With the help of the above tips, you can start your tax filing.

5 Tax Benefits you should claim if you use ENERGY SAVING EQUIPMENT

5 Tax Benefits you should claim if you use ENERGY SAVING EQUIPMENT

by | Mar 14, 2019 | tax filing, Tax Payers, Tax Planning, Tax Preparation, Taxation

5 Tax Benefits you should claim if you use ENERGY SAVING EQUIPMENT

U.S 5 Tax benefits for the second largest single consumer of energy in the world and about half of the total energy consumed in the U.S is used by the residential sectors which include apartments, independent houses, dormitories etc.

Under the Energy Star program since 1996, the U.S. Government provides tax credits to owners who install energy-saving equipment in their houses. This energy saving equipment help in energy conservation resulting in lowering the dependence of the country on foreign oil reduces national expenditure & also provides a healthy environment.

By using these tax credits, taxpayers can file for deductions in the annual tax returns which in turn reduces the federal taxes to be paid.

Equipment which qualifies for Energy Tax credits are:-

Central air conditioning

Energy Star qualified geothermal heat pumps.

Solar panels or solar water heaters.

Biomass stoves.

Non-solar water heaters operating on gas, propane or electricity.

Small Wind turbines.

HVAC Air Circulating Fan.

Electric Heat Pump water heater.

Gas Furnaces.

The major 5 tax benefits you can claim if you are using Energy saving equipment are given below:-

1(A)For Central Air Conditioning systems

  1. A tax credit of $300 is given for split systems with SEER >= 16 and EER>=13.
  2. For Packaged air conditioning products, the qualifying efficiency levels are SEER >=14 and EER>=12.

(B) For HVAC Air CirculatingFans – a Tax credit of $50 is applicable for the fans that use less than 2% of the furnace’s energy.

2(A) For Energy Star qualified geothermal heat pumps

1.A tax credit of 30% of the cost of the product is available for geothermal heat pumps.

2.These geothermal heat pumps use the natural heat from the ground to provide heating &cooling effects and especially hot water.

3.All the Energy Star qualified geothermal heat pumps are eligible for tax credits.

(B) For Solar Panels or Solar Water Heaters

  1. Deduction of up to 10% of the cost i.e. up to $500 is applicable on Solar Water Heaters
  2. These panels absorb the energy from the sun and convert it to electricity whereas the solar water heaters also use solar energy to heat up water.

For Electric Heat Pump Water Heaters: – A tax credit of $300 is available for water heaters with Energy Factor>=2.

3(A) Biomass Stoves

1.A tax credit of $300 is available on biomass stoves.

2.These stoves burn the fuels derived from plants and are used for water heating purpose basically.

(B) Non-Solar water heaters

A tax credit of $300 is available for non-solar water heaters.

These water heaters operate on gas, propane or electricity and should have an energy factor of at least2 to be eligible for tax credit.

4(A) Roofs

1.Energy efficient roofs are eligible for a tax credit of up to 10% of the cost i.e. $500.

2.Energy Star certified roofs are eligible for these tax credits.

(B) Windows, Doors & Skylights

1.Energy efficient windows, doors and skylights, when used in homes, can maintain the cooling effect of the house during summers & will prevent heat loss during winters.

2.They are eligible for a cumulative tax credit of $500 i.e. a tax credit of up to 10% on the cost.

5(A) Insulation

1.Tax credits of up to 10% on the cost of the products used for insulation.

2.Those products which reduce air leaks can be used for insulation.

3.There are various insulation products like batts, spray foam insulations etc. which can be used as energy efficient insulating appliances.

However, all these tax credits can be availed if a copy of the manufacturer’s certification statement is present with the tax-payers and also the equipment satisfies the specifications & qualifying criteria.

5 Tax Benefits that you should claim when you are HOMEOWNER?

5 Tax Benefits that you should claim when you are HOMEOWNER?

by | Mar 12, 2019 | Tax benefits, Tax Payers, Tax Planning, Tax Preparation

5 Tax Benefits that you should claim when you are HOMEOWNER?

Paying taxes is usually a cumbersome process for taxpayers. The simple reason being, the numerous clauses and conditions that one has to keep in mind. However, we have 5 tax benefits these variations at times come to your rescue as well.

If you are a taxpayer who is also a homeowner, there are more than a few ways by which you can save taxes. The following is a list of some tax benefits that you can avail. The combination of deductions and credits will help you save considerably.

Home Improvement Loan

Should you decide to take a loan to improve or enhance your home, there are tax benefits associated with it. Here are a few things that you should be aware of.

  • Interest on home loan improvement loan is completely deductible up to $100,000.
  • Any interest paid on HELOC or home equity line of credit is also eligible for tax credit.
  • People who own a second home, the mortgage is deductible if you have spent at least 14 days or about 10% of rental days in the home.

Property Tax

According to a Congressional Research Service, homeowners in America claimed more than $173 Billion in the year 2001. The amount was close to $30 Billion in 2015 and expectations are the number will go up. Here are some important pointers regarding property tax.

  • The taxes that you pay for your properties are almost always deductible.
  • About 54% of Americans who own a house use this deduction.
  • Clergy and military service members can write off home mortgage interest and estate taxes despite receiving housing allowances.
  • You cannot take off any of the following expenses or charges.
    • Appraisal fees
    • Attorney fees
    • Transfer taxes
    • Cost for a credit report

Renewable Energy Credit

With a wider range of equipment and devices available, you have more options to install renewable energy-based equipment. Here is how you can benefit from it.

  • Installing any renewable energy-based equipment makes you eligible for Renewable Energy Efficiency Property Credit.
  • You can claim as much as a staggering 30% of the total equipment cost and even installation charges through the credit.
  • According to the Solar Energy Industries Association, more than 700,000 homemakers have installed equipment since 2010.

Ground Rent

In certain rare cases in the USA, you can own a house but the land might still belong to the original owner. In such cases, you would rent the ground from the owner so as to use your property on the ground. The IRS understands this and offers the following.

  • You can deduce the “ground rent” from your tax filing.
  • You should be paying rent to the ground owner either monthly or annually.
  • And the lease should be at least for 15 years for you to avail this deduction.
  • But, if you wish to capitalize on the ground rent and make payments so as to buy the lessor’s interests, this clause is not applicable.

Reverse Mortgage

If you are aware of the concept of a reverse mortgage, the IRS has something interesting that might catch your attention. Here is all that you need to know.

  • The IRS does not consider reverse mortgages as income, rather loan advance.
  • The amount that you receive as the reverse mortgage is non-taxable.
  • The interest that is accrued on a reverse mortgage is taxable unless the loan amount is completely paid.
  • Unlike a traditional mortgage, where you can claim interest paid for each year, the same is not applicable in a reverse mortgage.

In the year 2016, as many as 150,272,157 taxpayers filed returns out of which 131,618,295 are estimated to have done them electronically. If you are one of them, the above should help you lower the taxes.