All you need to know about Stock Investments in your Income Tax report

by Mounica Kota | Mar 8, 2021 | Blog, indian investments, Tax Payers, Tax Professionals

All you need to know about Stock Investments in your Income Tax report

If you are investing in the Stock Market, then it is one of the best methods by which you would be able to increase your net growth. The money you have or in other words your money is being put to do work for you if you are investing in stocks. The money which you would be investing in can help you earn dividends and interest as well. So, by the stock investment, you are able to earn a lot of dollars in return.

However, stock investments can lead to certain complications in your tax situations as well. The investments into stocks must be reported on your federal tax returns. So, if you are earning any interest or dividends from your stock investments then you would have to pay taxes on those earnings. Mainly, there are two situations when your investments into stocks can affect your tax returns i.e. first are when you earn from your investments, and the second is if you are selling your investments for either a profit or loss.

So, let us check out the various scenarios that are associated with the tax rules associated with either the purchase or sale of stock investments.

Purchase or Sale of investment

In case, you have sold some of your investments in the tax year 2020 you would pay taxes on the capital gains you have obtained. Capital gains can be said to be the profits that are earned from investments.

The amount of taxes that would be owed to pay in case of the sale of investments would be depending on some factors. There would be two categories into which the capital gains would be divided i.e. short-term holdings and long-term holdings.

Short-term holding would be the one you had for a period which is less than a year and it can be taxed up to 37%. On the contrary, long-term holdings are those which you can hold for more than a year. Long-term investments are those which have been held for more than a year. These investments are taxed depending on your income earned and the tax rates can vary from 0%, 15%, or even 20%.

Interests and dividends

Even if you have not sold any of your investments in the year 2020, you would have to pay federal income tax on the dividends and interest.

In case, you are the owner of stocks or index funds you would be paid the dividends periodically. In a similar manner, if you are earning some interest on any bonds you have purchased it is necessary to report the interest earned in your tax returns. You would have to pay the respective taxes on the interest earned as well.

Reporting stock investments on your tax returns

Your investment in stocks would start complicating your tax returns. You will have to navigate several additional forms which you would need for reporting the investments made into stocks on your federal tax returns for the year 2020.

You can begin the procedure by gathering all the forms and documents which you have obtained. These additional forms would include 1099-DIV forms which would highlight how much had been paid to you by each company in the form of dividends. You might receive Form 1099-B which would be helpful in demonstrating any capital gains which you have obtained throughout the tax year. The Form 1099-B would help in the calculation of the capital gains or loss and post it on your Form 1040.

Moreover, if you are working with a tax professional or taking help from tax software you must ensure that you are completely organized and have all the tax forms in hand which you have received.

Conclusion

Hence, with this information, it would become quite easier for you to understand the tax implications if you have an investment portfolio.

All about the New Coronavirus relief package and a second stimulus check for the NRIs in the US

by Mounica Kota | Feb 25, 2021 | tax filing, Tax Payers, Tax Professionals, tax reduction

All about the New Coronavirus relief package and a second stimulus check for the NRIs in the US

On 27th December 2020, the US Government had signed the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 into law. According to this law, a relief package of $900 billion would be delivered to the Americans as a second round of economic stimulus due to the pandemic COVID-19. This bill would help in providing relief to the Americans through the various provisions which have already been put in place by the CARES Act.

Let us have a look at what this new Coronavirus relief package would include.

Stimulus Payments

Another wave of Stimulus payments for the Americans has begun. This Stimulus payment would be up to $600 for the eligible taxpayers, $1200 for those taxpayers who are filing their tax returns jointly, and also an additional amount of $600 for a dependent child who is below the age of 17 years. So, if there is a family with two children then they would receive a Stimulus payment of approximately $2400.

The NRIs in the US do not have to do anything special for being eligible to receive the Stimulus payment. The Stimulus payment would be done by the IRS by using the latest information which is present on the tax returns of the year 2019.

Who would be eligible to receive the Second Stimulus payment?

If you are filing your tax returns as a Single and having an AGI (Adjusted Gross Income) of up to $75,000 or if you are married and are filing your tax returns jointly with an AGI of up to $150,000 then you would be eligible for receiving the Stimulus Check.

For those NRIs who are filing their tax returns as single and have no qualifying dependents, the Stimulus Check payment would phase out at $87,000 and for married couples filing their tax returns jointly without any dependents the payment would phase out at $174,000.

There are possibilities of more households being eligible for obtaining the Second Stimulus payment as this bill would expand stimulus payment for those households which have a mixed-status i.e. different categories of immigration and citizenship statuses as well.

Also, those NRIs who were receiving Railroad Retirement, Social Security Retirement, or SSI income would receive the Stimulus payment without filing a tax return.

By when would you receive your Second Stimulus payment?

If you have not received your Second Stimulus payment yet, then you would be receiving it very soon. There have been some errors by the IRS due to which lots of Stimulus payments have been done to wrong accounts. However, according to the IRS updates the payment for those affected by this error has been done by 8th January and many Americans must have received them too by now.

Extended Unemployment

There has been an increase in the unemployment payments and this would be $300 each week now. These benefits would be extended until 14th March 2021 now. According to this new bill, there has also been an extension to the Pandemic Unemployment Assistance (PUA). This implies that the freelancers and self-employed NRIs in the US can continue to obtain Unemployment benefits.

Moreover, some NRI workers earn a minimum amount of $5,000 in a year but are not able to avail the benefits of the Pandemic Unemployment Assistance as they have an employer. But, now with this New Coronavirus relief package, these workers can even avail the benefit of receiving $100 extra in a week as Unemployment benefits.

The EITC and CTC

The New Coronavirus relief package would help the Americans having low income in using their income from the year 2019 for determination of their EITC (Earned Income Tax Credit) and even that part of the Child Tax Credit (CTC) which is refundable.

Expansion of the PPP

Under the New Coronavirus relief package, the NRIs can also receive a second round of payments under the PPP (Paycheck Protection Program). Due to the expansion in the Paycheck Protection Program; there has been an expansion in the category of business expenses which can be forgiven under those loans that have been taken for meeting the supplier costs.

Contractor Paid Leave

Those contractors who have not been able to work for a temporary period due to the restrictions like the closure of facilities would receive reimbursement for their paid leaves taken.

Eviction Moratorium and Rent Assistance

Furthermore, the New Coronavirus relief package provides an extension for the moratorium on evictions until 31st January 2021. Those families which are not able to pay their past rent or have problems related to future rent payments would be receiving financial assistance.

Extenders related to tax

Tax extenders would be providing tax relief to individuals as well as NRI families with the help of mortgage relief, relief on medical and education expenses as well.

Conclusion

So, the New Coronavirus relief package and the second stimulus payment would help in providing some amount of financial assistance to the Americans during these difficult times thus, reducing the financial stress.

How can a qualified tax professional help you e-file your taxes amidst the pandemic to maximize your refunds?

by Mounica Kota | Jul 14, 2020 | e file taxes, tax deductions, Tax Professionals, tax return

How can a qualified tax professional help you e-file your taxes amidst the pandemic to maximize your refunds?

By hiring qualified tax professionals for your tax preparation, you are free from the stress of preparing the tax returns alone. The expertise of qualified professionals would ensure that you obtain all the deductions and credits which you are eligible to receive. You can gain peace of mind, avoid making mistakes while filing tax returns, and also save your time by hiring qualified tax professionals.

Currently, the pandemic COVID-19 has created mayhem all around and has affected the economic condition of the entire country. Several businesses have been shut down and millions of Americans have lost their sources of livelihood. In such a deteriorating situation, obtaining a considerable amount of tax refund would be very helpful to ease the financial stress for some time.

If you are preparing your tax returns with the help of a qualified tax professional, your tax preparer would suggest you several methods to e-file by which you can obtain maximum tax refunds.

So, let us have a look at some of the methods to e-file suggested by your tax professionals for getting maximum tax refunds.

a.Claim all available tax deductions

Your tax preparer would suggest you to dig into all available tax deductions. There are many common deductions available such as charitable donations, medical costs, interest on mortgage and education expenses, etc. The deductions would be subtracted from your AGI (Adjusted Gross Income) thus, lowering your taxable income. As your taxable income would be low, you would have to pay fewer taxes and you can obtain higher refunds.

However, there are some deductions which you might not be aware of or are very easily overlooked such as State Sales Tax, Student loan interest, Out-of-the pocket charitable contributions, Certain jury duty fees, Child and dependent care, Reinvested dividends, State income tax paid on returns of last year, Earned Income Tax Credit (EITC), etc. You must keep good records of your deductions especially in case of charitable contributions. Moreover, your tax preparer would suggest you to ensure that you are claiming deductions for those organizations which have the status of “Tax-exempt” with the IRS.

b.Maximize your contributions made to IRA and HSA

Your tax preparer would suggest you maximize your contributions which you are making towards the IRA and the HSA. Traditional IRA contributions can help reduce your taxable income. The contributions made towards Roth IRA do not qualify for tax deductions but they can qualify for Saver’s credit if you can meet the income guidelines. In case, you are self-employed you can be able to contribute towards a certain self-employed retirement plan till 15th October 2020.

Your pre-tax contributions to an HSA can also help lower your taxable income. Your tax preparer would suggest you to contribute more towards your HSA before the timelines are closed. You should have enrolled in a health insurance plan which has high deductibles that either meet or exceed the required amounts of the IRS.

c.Use of best filing status

One of the major factors which can maximize your tax refunds is the choice of your filing status. You must inform your tax preparer about any of your major life changes before e-filing. Your relationship status on 31st December of a year determines your entire year’s filing status and you must use it while filing your tax returns. These options for filing status include Single, Married and filing jointly, Married and filing separately, Head of household or qualifying widower. If you could file your tax returns using two statuses such as “Single” and “Head of Household”, your tax preparer can calculate your taxes and find out which one would be beneficial for you in terms of more returns.

d.File your tax returns on time

Your tax professional would always suggest you to file your tax returns on time. This increases your chances of getting a maximum refund. The only exception to this is the case in which you have filed for an extension in the timeline to file your tax returns. The IRS charges penalties for not being able to file your income tax returns on time. Your penalty would be around 5% of your unpaid taxes for each month late up to 5 months from your tax filing deadline. Moreover, if you are not paying your taxes on time the IRS would charge penalties and interest on it. If there are penalties and interest levied by the IRS, then it is quite obvious for you to obtain low tax returns.

e.Report all your income

Many people do not report all income on their return. This can be intentional or unintentional but the IRS would charge penalties for this. If IRS uncovers your unreported income then it would charge penalties and interest on your unpaid taxes. Your tax professionals would suggest you to spend some extra time in reviewing your returns and make sure that you are not forgetting any source of income. Usually, the sources of income that are overlooked are the interest income, income from dividends, contract work, 529 contributions, charitable gifts, etc. You can maintain a spreadsheet and keep on updating your income sources every year to avoid mistakes while tax preparation.

Conclusion

Hence, with the help of these tips and methods, you are sure to maximize your refunds during these difficult times. If there is an error after filing your tax returns which would affect your refund amount, you can amend your return by filing Form 1040X.