Financial Goals change with change in Income and Taxes as Well

by | Jan 13, 2021 | Financial and Mental Health, income tax, Tax Planning, Tax Preparation, Tax Refund, Taxpayers

Financial Goals change with change in Income and Taxes as Well If there are any minor changes into your Income such as a pay rise or a decrease in the duration of work hours, then it is quite easy to change your financial goals. However, if there are bigger changes in your income then it becomes quite difficult to change your financial goals.  It may be a case of a promotion, a pay hike or a pay cut during adverse times like pandemic. In both of these scenarios, it is quite difficult to manage your financial goals and objectives. Let us have a look at how to manage or rather change your financial goals as your income changes. A huge decrease in your income In case, there is a huge decrease in your income then the most important thing to consider is the impact of the decrease in your life on a daily basis. Suppose, you have lost your job and you are filing for unemployment then, in that case, your expenses would be more than your income. In such cases, the best idea is to look out for those areas where you can cut your expenses to get closer to positive cash flow. If such adverse situations occur, then it is best to put your long-term financial goals on hold for a temporary period.  There might be a need for goal adjustment and it can be started by reducing your contributions to align with the decrease in income. In these adverse times when the deadly coronavirus has taken a toll on the lives and the livelihoods of people, if there is a 50% reduction in your income then your contributions towards investments and other financial avenues must be reduced by half. With the economic situation worsening every single day due to the pandemic, it is wiser to remain careful about such situations and strategies to handle such scenarios.  A huge increase in your income If you are getting a pay raise or switching jobs, you must plan towards increasing your contributions for your financial goals. You should avoid spending more and stick to a particular budget for your expenses. The bottom line is that you must try to resist the temptation to spend in a limitless manner. It is quite obvious that you are accustomed to a particular lifestyle and when your income increases you can be able to save some more by maintaining the same lifestyle. There can be a temptation in your mind to accelerate your financial goals and you can use several financial tools which can help you in accelerating your goals and increasing your savings. In case you are saving more, you would be able to achieve your financial goals easily and on time so it would be quite sensible to adjust your timelines. If financial goals are not dependent on the stock market or any other factors you can adjust them as they fit into your financial plans.  One of the best examples explaining this is your retirement. The retirement accounts which you have would definitely be invested into the stock market and if there is a rise in your income it indicates that you can retire earlier with your financial plan reflecting this. It is imperative for you to adjust your allocation of assets with an updated time frame of retirement along with your projections.  In general, a big change in your income indicates a very big change in your goals associated with savings. You should not forget to adjust your savings goals with any unexpected increase or decrease in your income. Conclusion Hence, an increase or decrease in your income can have a great impact on your financial goals. You must determine your financial goals clearly whenever there are any changes in your income and work accordingly to achieve those goals.

IRS assists the elderly for tax counseling in the US.

by | Nov 24, 2020 | IRS, taxes, Taxpayers

IRS assists the elderly for tax counseling in the US.

The IRS (Internal Revenue Service) had very recently awarded more than $36 million for the Elderly and Volunteer Income Tax Assistance Grants for those organizations which help in providing senior citizens of the country with federal tax return preparation. Usually, taxes are difficult for everyone; tax returns, tax credit, property tax, social security tax, etc. make the entire concept of taxes even more confusing. With increasing age, the process of tax preparation and tax return seems to be even more difficult.

 The complex tax rules, changing technology and the lack of proper funds for hiring a professional tax preparer can make the tax preparation and file even much more difficult. So, if you are ageing and finding it difficult to prepare your federal taxes yourself then you can approach the IRS for assistance.

 The IRS offers two great tax preparation programs which the seniors in the country can use:- 

  1. Volunteer Income Tax Assistance (VITA) Program
  2. Tax Counseling for the Elderly (TCE) Program

 Throughout the US, VITA and TCE support centers and programs are located which would be helpful for the seniors. When you visit the IRS website, you would be able to search based on your location that would help you in finding the nearest VITA or TCE program. The IRS would partner with several organizations throughout the US for developing the VITA and TCE programs. These community partners can include faith-based organizations, community centers, non-profit agencies, large employers, etc.  Proper training on tax laws and certifications are provided by the IRS to these community partners for enabling them to prepare correct tax returns.

 Volunteer Income Tax Assistance (VITA) Program.

 The volunteers at VITA are the IRS certified professionals who help old people or disabled people in their tax preparation. The VITA program by the IRS is most suitable for those seniors who have a particular income which can be subject to income tax. Moreover, the VITA Program is also helpful for those seniors who do not have very fluent English skills, earn a higher income, and need professional assistance for tax preparation. The VITA Program was created in the year 1969 and would help the under-deserved communities like low –income and moderate-income individuals in tax preparation.

 The tax professionals at VITA work very hard and help in providing good quality services for the seniors who have low income and would need professional help for the preparation of their tax returns. VITA volunteers would also help in providing counseling on the tax credits that are applicable for reducing the income tax burden. But, there are certain limits on what the VITA volunteers can prepare and cannot prepare. The IRS would suggest that difficult federal tax situations must be handled by paid tax professionals.

 Tax Counseling for the Elderly (TCE) Program.

 Those senior citizens who are not very sure about which tax assistance program they must use can use the TCE Program. The TCE Program was started in 1978 and its volunteers receive proper tax training and technical assistance. According to the laws in 2017, a senior citizen must be 60 years old to qualify for using the TCE Program for tax assistance.  Many seniors in the US have a living which is based on a fixed income and they should use the TCE Program rather than the VITA Program. 

 TCE Program is operated by the IRS certified tax professionals and provides free services to the senior citizens. TCE volunteers make it more convenient for senior citizens by traveling to locations where the seniors can meet them easily such as libraries or community centers, etc.  Several non-profit organizations would administer the TCE Program that functions on the grants given by the IRS.

 Conclusion

So, senior citizens can avail themselves of professional tax aid programs and also be aware of the tax scams that are a common occurrence these days.

Understanding the tax bracket in 2020.

by | Oct 14, 2020 | tax savings, taxes, Taxpayers

Understanding the tax bracket in 2020.

 

In November 2019, the IRS has announced the annual inflation adjustments for the year 2020. These adjustments would include tax rate schedules and other tax changes. The adjustments of the tax year 2020 would be used while filing the tax returns in 2021. If you are planning for earning more money in 2020 or for changing your circumstances this year, then you should adjust your withholdings or plan for tweaking your payments made for estimated taxes.

 

Tax Brackets and Tax Rates.

The tax items for the year 2020 which would be maximum interest for the taxpayers are:-

  • The rates for Standard deduction for those taxpayers who are married and are filing their taxes jointly are $24,800 for the year 2020. There has been a rise of $400 from the previous year. For those taxpayers who are single and those are married but filing their returns separately, the standard deduction rates have risen to $12,400 this year. For those who are filing their tax returns as ‘Heads of households’, the rate of Standard deduction will be $18,650 which is an increase of up to $300 in 2020. 
  • For the tax year 2020, the personal exemptions allowed are zero which remains the same as that of the year 2019. This elimination was a provision present in the Tax Cuts and Jobs Act. 
  • For the year 2020, for individual taxpayers, the top tax rates are 37% for the individual taxpayers whose income is more than $518,400 ($622,050 for the married couples who are filing returns jointly). The other rates can be listed below as:-
  1. 35% for those incomes which are over $207,350($414,700 for the couples who are filing their returns jointly)
  2. 32% for those incomes which are over $163,300($326,600 for the couples who are filing their tax returns jointly)
  3. 24% for those incomes which are over $85,525($171,050 for those couples who are filing their tax returns jointly)
  4. 22% for those incomes which are over $40,125($80,250 for those couples who are filing their tax returns jointly)
  5. 12% for those incomes which are over $9,875($19,750 for those couples who are filing their tax returns jointly 
  • The limitations on the itemized deductions for the tax year 2020 have been eliminated under the provisions of the Tax Cuts and Jobs Act. 
  • For the tax year 2020, the Alternative Minimum Tax Exemption amount is $72,900 and begins to phase out at $518,400. The exemption amount was $71,700 for the year 2019 which began to phase out at 510,300.   
  • For the tax year 2020, the maximum Earned Income Credit Amount for the taxpayers who have three or more than three qualifying children is $6,660. 
  • The limitation in a month for qualified transportation fringe benefits is $270 for the tax year 2020. 
  • For the tax year 2020, the limitations for the salary reductions of employees to make contributions to health spending arrangements is $2750 which is an increase of $50 from the limit of the last year. 
  • For those participants who have self-only coverage in a Medical Savings Account, for the tax year 2020 there must be an annual deductible that is more than $2,350 which remains the same for the tax year 2019 but must be less than $3,550, which is a rise of $50 from the previous year. In the tax year 2020, for the self-only coverage, the maximum out-of-pocket expense amount is $4,750. For the tax year 2020, the taxpayers who have family coverage, the annual deductible is $4,750 which has increased from $4,650 in 2019; but, this deductible must be less than$7,100, which is an increase of $100 from the limit that has been fixed for the tax year 2019. For family coverage, the limit for the out-of-pocket expenses is $8,650 which has increased by $100 from the tax year 2019. 
  • The Adjusted Gross Income (AGI) amount which is being used by the joint filers for determination in the reduction of the Lifetime Learning credit is $118,000for the year 2020. 
  • For the tax year 2020, the annual exclusion for gifts as determined by the IRS is $15,000. 
  • The Foreign Earned Income Exclusion is $107,600 for the tax year 2020. 
  • The estates of those decedents who die during the tax year 2020 will have an exclusion amount of $11,580,000 which is greater than the exclusion amount of $11,400,000 for the estates of decedents who died in the tax year 2019. 
  • For the tax year 2020, the maximum credit which is permissible for adoptions is the number of qualified adoption expenses up to $14,300.

 

Conclusion.

So, these are the major tax rules which have been changed in the tax year 2020 which must be understood by the taxpayers.

 

Unclaimed refund lying with IRS. Here is how to get your unclaimed refund?

Unclaimed refund lying with IRS. Here is how to get your unclaimed refund?

by | Jul 28, 2020 | IRS, refund due, Taxpayers

Unclaimed refund lying with IRS. Here is how to get your unclaimed refund?

Since 2016, there is more than $1.5 billion as outstanding refunds with the IRS which remains unclaimed.  This implies there might have been more than around one million taxpayers who may be qualifying to obtain tax refunds but did not file their income tax return.

In case, you are due for a tax refund you must file a federal income tax return to obtain your money.

A three-year window

According to the IRS, you have a window of three years within which you can file your tax return and would be able to claim any tax refund which is due. This window of three years begins on the original date when your return was due or the extended due date in case if you had filed for an extension. For the current year, this due date is 15th July 2020 or it is 15th October 2020 if an extension was filed by you.

In case, you miss out on this three-year window you would not be able to get back the money. The money will then belong to the US Treasury and you would have no right to claim the money anymore.

Why you might be having a refund due?

  • If in 2016, you were filing your federal tax return as a single taxpayer who was below the age of 65 years and had an income less than $6300 then you didn’t need to file the tax returns. You can consider that income tax has been deducted by your employer throughout the year and the IRS owes to return you that. Since you were not needed to file the federal tax return you had not filed which would have been of great interest to you.
  • Your income level in 2016 might be eligible to obtain a tax credit which can only be availed by filing a tax return. Due to your low or moderate-income level for the year 2016, it would be feasible that you might be eligible to obtain the EITC (Earned Income Tax Credit).

Below-mentioned are the income thresholds for 2016 and if your income for 2016 was below these limits, you would be eligible to obtain ETIC and can be done by filing tax returns by the 15th of July 2020. 

  1. For single individuals and having three or more qualifying children-$47955 whereas it is $53,505 for a married couple and filing the tax return jointly.
  2. For single individuals who are having two or more qualifying children-$44648 whereas it is $50,198 for a married couple and filing the tax return jointly. 
  3. For single individuals who are having one or more qualifying children-$39,296 whereas it is $44,846 for a married couple who are filing the tax return jointly.
  4. For single individuals having no qualifying children-$14,880 whereas it is $20,430 for a married couple who are filing the tax return jointly.
  • There are some other tax credits as well which you might be qualifying to claim for 2016 such as Adoption credit, Additional child tax credit, health coverage tax credit, American opportunity credit, etc.
  • You would be able to obtain tax credits and other tax breaks only when you file your federal income tax return. No penalty is charged for failing to file the tax return when you already have a penalty due. 

How will you get back your refund?

To get back your refund, you will need the forms W-2, 1098, 1099 or Form 5498 from the year 2016. In case, you do not have these old forms you can place requests for copies of these forms with your employer, bank, or other payers. You can also the IRS tool i.e. Get Transcript Online tool on the website of the IRS where you would be able to obtain your free wage and income transcript. You might need a copy of the Form 1040, Form 1040A or Form 1040EZ from the year 2016. You can easily obtain these forms and necessary instructions on the IRS.gov Forms and Publications page.

If you have money to be paid back for student loans, any back taxes, or child support then the refund amount would be offset for the tax amount you owe to pay. Moreover, if you have not filed your tax returns for the year 2017 or 2018 then it is quite probable that the IRS would hold back your tax refund.

Conclusion

Hence, this is your chance to claim your refunds back and you should not miss this opportunity failing which the money would belong to the IRS forever.

Top #10 things to keep in mind to avoid falling prey to tax scams

Top #10 things to keep in mind to avoid falling prey to tax scams

by | Jul 24, 2020 | coronavirus Tax scammers, Frauds and Scams, Social Security Number, Tax Scams, Taxpayers

Top #10 things to keep in mind to avoid falling prey to tax scams

Tax scams are common happening throughout the year. However, with distressful times caused all around by the novel coronavirus tax scammers are finding this as an ideal time for catching up new prey. Usually, it is seen that young Americans are most likely to fall prey to the tax fraudsters and scammers.

The IRS has been continuously creating awareness amongst the Americans against the increased tax scams, frauds, and cons. The IRS has informed the common people about the various in which tax scams can occur may it be in the form of abusive tax schemes, telephone scams, or even in the form of phishing schemes. The IRS urges the Americans to be alert and prevent being a victim to any scams or any such schemes which might be offering instant money or exemption from filing tax returns or paying taxes as the citizen of the United States. Any such schemes or offers can land up common people into big troubles like prosecution and imprisonment as well.

Let us have look at the most important things which need to be kept in mind by the Americans to avoid falling prey to tax scams.

a.Abusive or fraudulent tax preparers

The majority of the tax preparers are quite honest and do the tax preparation legitimately, but some can be fraudulent. Fraudulent tax preparers can file returns by the use of false information to boost the refund. Some taxpayers might even attempt to steal personal information that is present in your tax documents. Taxpayers must be very careful while selecting their tax preparers and must remember that the ultimate responsibility for information used in a tax return is theirs.

b.Telephone scams

This can happen when criminals pose to be IRS agents and call the taxpayers to threaten for paying overdue tax bills. These imposters use fake names and phony IRS identification badge numbers. Taxpayers should always remember that the IRS would never adopt threatening as a strategy to deal with common people. Moreover, the IRS would also never call up taxpayers for immediate payment using a debit card or any other medium. It would usually send you mail in case of any payment due or any other issues. 

c.Tax identity thefts

Tax identity thefts occur when a tax fraudster tend to use taxpayer’s information and obtain income tax returns from the IRS. This might occur even before income tax returns have been filed by the taxpayers. Fraudsters can steal taxpayer’s Social Security number and file returns early in the season. Usually, fraudsters try to use this strategy for deceased persons to obtain the benefits.

 

d.Phishing 

Phishing occurs by unsolicited emails or websites posing as legitimate sites that can lure the victims to share their personal and financial information. The intent of the fraudsters here is not to use the taxpayer’s information only for tax-related scams but also to store the information for use in other frauds in the future. 

 

e.Security of Social Security Number

A taxpayer can lose his Social Security number easily and the entire fraud procedure begins when the Social Security Number is available. Taxpayers should avoid carrying Social Security Number outside and must also ensure that their smartphones are locked to avoid Social Security Number theft.

f.Early filing of tax returns

The taxpayers should file their tax returns at the earliest so that they can beat the criminals. Usually, fraudsters aim at filing the tax returns by using the stolen information at the earliest and even obtain the returns before the IRS is aware of it. However, taxpayers can rule out this possibility by filing their tax returns as soon as possible.

g.Choose bona fide tax preparers

Taxpayers must always opt to work with a reputed company and trustworthy tax preparers. Qualified tax preparers would have Tax Preparer Identification Number and taxpayers can check on this from the IRS website. Moreover, taxpayers can check the reviews of the tax preparation companies before deciding to work with them.

 h.Alert about data breaches

Data breaches help the fraudsters in obtaining the information which is needed to execute the tax identity thefts.  Sometimes, tax scammers might be having very little information and they can use phishing emails to gain further information. It is very necessary for taxpayers to be aware of data breaches and secure their information in case of any breach.

i.Secure tax return filing

If taxpayers are filing tax returns using Wi-Fi, they must do it by the use of the secure connection. The filing of tax returns by using public Wi-Fi should be avoided by taxpayers. Moreover, if taxpayers are filing their tax returns by using mail they must do it directly from the post office. 

j.Report about frauds and scams

Taxpayers are encouraged to report any fraudulent practice, impersonation scam, phishing scam, etc. to the IRS by using the various tools of the IRS such as IRS Impersonation Scam Reporting, FTC complaint assistant or by sending mail to phishing@irs.gov.

Conclusion

Hence, taxpayers must be very alert about the different types of tax scams that are happening very frequently and must report to the IRS about such scams.