Demystifying the ITIN Process: A Step-by-Step Guide to Applying for an Individual Taxpayer Identification Number

by | Mar 3, 2023 | Uncategorized

Individual Taxpayer Identification Number (ITIN) is a unique identification number issued by the Internal Revenue Service (IRS) to taxpayers who are not eligible for a Social Security Number. This number is used for tax purposes only and does not provide work authorization. The process of obtaining an ITIN can be a bit overwhelming, but AOTAX is here to guide you through the process.

Here is a stepwise process of ITIN application in the USA:

Step 1: Prepare the necessary tax documents

To start the ITIN application process, you will need to prepare the Individual Tax Return document (Form 1040) and any other relevant documents required to prepare your tax return.

Step 2: Obtain the W-7 application form

The W-7 is the application form for an ITIN. You can obtain this form from the IRS website or by contacting your tax professional.

Step 3: Fill out the W-7 form

Fill out the W-7 form with the necessary details, including your name, mailing address, birthdate, and citizenship status. You will also need to include your reason for needing an ITIN.

Step 4: Gather supporting documents

You will need to gather the necessary supporting documents, which include a copy of your passport, visa, or other official identification issued by the government. If you are applying for an ITIN for dependents, you will also need to provide documentation to prove their identity and relationship to you.

Step 5: Submit your application

Once you have completed the W-7 form and gathered the necessary supporting documents, you can submit your application to the IRS. You can do this by CAA process or in person visit at an Taxpayer Assistance Center.

Step 6: Wait for your ITIN to be processed

The processing time for ITIN applications is generally 10-16 weeks. During this time, the IRS will review your application and supporting documents to determine if you are eligible for an ITIN.

Step 7: Receive your ITIN

If your application is approved, the IRS will issue you an ITIN. You will receive a letter from the IRS with your assigned ITIN. This number will be used to file your future tax returns and other tax-related documents.

In summary, the process of obtaining an ITIN in the USA involves preparing the necessary tax documents, filling out the W-7 form, gathering supporting documents, submitting your application, waiting for your ITIN to be processed, and receiving your ITIN.

If you need assistance with obtaining an ITIN, AOTAX is here to help. Contact us today to get started.

Tax Benefits that can be availed for a Newborn

by | Mar 21, 2021 | 2021 Tax Returns, Blog, Tax Planning, Tax Preparation, Uncategorized

Tax Benefits that can be availed for a Newborn

Tax Benefits that can be availed for a Newborn

Parenting can be expensive with a lot of new expenses getting added up to your list. Baby supplies, baby bottles, diapers, baby clothing, etc. can turn out to be quite expensive. However, if you are a parent to a newborn child then you can be able to avail certain tax advantages. These can help reduce the financial burden up to a certain extent.

Let us check out the tax benefits that can be availed for your newborn kid.

Child Tax Credit

If your child is below the age of 17 years then you would be able to claim him as a dependent and take the benefit of Child Tax Credit (CTC). For each qualifying child, the Child Tax Credit which can be claimed is up to $2,000.

If you are a single parent, the CTC value would be reduced by 5% of the AGI which would be over $200, 00 whereas it would be reduced by 5% of the AGI over $400, 00 if you are married and filing your taxes jointly.

CTC is refunded partially i.e. in case of the credit value ending up being more than the total amount of taxes that you owe to pay you would be able to receive a tax refund which would be up to $1400 of the amount remaining. This part of the credit would be known as Additional Tax Credit. 

 Adoption Tax Credit

If you have adopted a child in the year 2020, you would be eligible for the Adoption Tax Credit. This credit can be up to an amount of $14,300 for each child. But, the Adoption Tax Credit is non-refundable and can only be claimed if there is a federal tax bill.

The eligibility to obtain the Adoption Tax Credit would depend upon the below-mentioned criteria.

  1. To claim the Adoption Tax Credit, you should have adopted the child in the 2020 tax year. The adopted child should be below the age of 18 years and must be either mentally or physically unfit for taking care of his responsibilities.
  2. Your income should be within the limits that are needed to avail of this credit. In the year 2020, if your family has an AGI which would be less than $214,520 then the family would be able to claim the full Adoption Tax Credit. In case, the family has an AGI which lies between $214,520 and $254,520 then the family would be eligible for only Partial Credit. If a family has an AGI that would be above $254,520 then the Adoption Tax Credit cannot be claimed by the family.

 Child and Dependent Care Credit

The Child and Dependent Care Credit are somewhat different from the Child Tax Credit. These are two different credits that are available for the parents of kids. This credit would help reduce your financial liabilities while you are searching for a job.  This credit is around 25-35% of your expenses that are qualified. The amount which you would obtain as credit would mainly be based upon your level of income and how much has been spent on your child and dependent care. You are eligible to claim $3000 for each qualifying dependent or $6000 if there are two or more dependents.

Earned Income Tax Credit

The amount which you are eligible to receive as Earned Income Tax Credit (EITC) would depend on the number of children you are having, your tax filing status, and also your income. For the tax year 2020, the Earned Income Tax Credit can be ranging from $538 to $6660 whereas it would be ranging from $538 to $6728 for the tax year 2021.

You are eligible to calculate your EITC by using your income for the year 2019 or 2020 whichever would help in a bigger credit calculation.

529 plan

The 529 plan would be helpful in saving money for your children’s education. The 529 plan would help provide tax benefits in case you are saving money for your children’s education. 529 Plan can be categorized into two categories i.e. College Savings Plan and Prepaid Tuition Plans. A College Savings Plan would act as a Roth 401(k) or Roth IRA plan in which you are investing your after-tax contribution into mutual funds. In Prepaid Tuition Plan you would prepay complete or a part of your child’s in-state education in a public college.

Funds which are saved under the 529 Plan are tax-free and are not taxed even when the amount is withdrawn for education expenses.

Adjustment with tax withholding

When you have a newborn baby, you can be able to adjust your total tax withholdings on your Form W-4. By adjusting into your withholding, you would be able to make sure that the right amount is being withheld from the amount that you would receive as your paycheck, and in turn, you have to pay fewer taxes at the time of filing your returns.

Conclusion

Hence, these are some of the major tax benefits which you can avail of if you are a parent.

 

How to calculate Income Tax Benefits for your dependents?

by | Mar 18, 2021 | Blog, Tax Planning, Tax Preparation, Uncategorized

How to calculate Income Tax Benefits for your dependents

How to calculate Income Tax Benefits for your dependents?

Supporting dependents i.e. kids or even other dependents both can have an impact on your finances. However, having dependents can help you in availing certain tax advantages which can help increase your tax refunds.

We can list down some of the major things which you must know about tax benefits if you have dependents.

  • Related and unrelated dependents

You would be spending thousands of money on food, house, and education of your kids, taking care of other dependents, etc. The IRS helps you with provisions for tax breaks for your both related and unrelated dependents. These tax credits and deductions can help you in saving a considerable amount of money from a tax perspective.

  • Several tax credits and deductions for your kids

There is no doubt about the fact that raising your kids would be expensive but you must know about the tax credits and deductions which you can avail yourself if you have kids. You would qualify for availing credits such as Child Tax Credit, Child, and Dependent Care Credit, Earned Income Tax Credit, and other Education Credits as well.

  • Social Security Numbers

If you have become a new parent, then you must ensure that you have applied for the Social Security Number of your newborn baby. When you have this Social Security Number you would be able to claim the tax credits and deductions easily. Moreover, if you have any other dependent family member or relative then they must have their Social Security Number for being able to avail the tax credits.

  • Tax Credits and deductions for relatives and non-relatives

Tax credits and deductions can be extended for relatives such as your parents, your grandparents, your grandchildren, or any other blood relatives who do not need to stay with you. However, if you are availing any tax credit or deductions for your non-relatives such as boyfriend/girlfriend then they must have stayed with you for the whole year.

Now, let us have a look at some of the major tax credits which are related to your kids and other dependents.

  • Child Tax Credit

The Child Tax Credit would help reduce your tax liability dollar-for-dollar. Earlier in the year 2017, the Child Tax Credit available, if you had a dependent child below the age of 17 years, was $1000. However, with Tax reform, this Child Tax Credit has now increased to $2000 for a dependent child who is below the age of 17 years. If you are filing your tax return as a Single, then the income threshold at which you would be able to avail of the Child Tax Credit is $200,000 whereas it is $400,000 if you are married and filing jointly.

  • Child and Dependent Care Credit

You would be eligible to claim Child and Dependent Care Credit if your dependent child is below the age of 13 years and you are working or looking for work. There is no age limit for the dependent child if he is disabled. This credit would usually range from 20% to 35% of the childcare expenses that have been incurred based on your level of income. Expenses incurred in Nursery and Kindergarten schools, daycare, after-school programs would qualify for this credit.

  • Other Dependent Credit

In case you are supporting a relative or your dependent kid is above the age of 17 years, you can still be able to claim tax credits. This credit is the Other Dependent Credit which is up to $500for each qualifying individual. However, this credit would phase out if you are filing taxes as a Single with an AGI greater than $200,000 or if you are married and filing taxes jointly with an AGI more than $400,000.

  • Earned Income Tax Credit (EITC)

The Earned Income Tax Credit is mainly useful for those Americans who are self-employed and have income below a certain level. The amount you can receive as a credit in Earned Income Tax Credit would mainly be based on your filing status, your level of income, the number of qualifying kids you have, etc. The EITC is refundable and in case your credit is more than your tax liability you can easily obtain a refund. For the year 2020, you can receive EITC ranging from a maximum value of $6660 if you have three or more than that qualifying children to $538 in case if you have no children.

Conclusion

Hence, your children and other dependents can help you in obtaining these tax credits and thus pay lower federal income taxes.

 

2nd Generation Indians in the US: Did you know that you can avail Family Tax Deductions and Credits?

by | Mar 1, 2021 | 2020 Tax Returns, 2021 Tax Returns, Blog, Tax Planning, Tax Preparation, Uncategorized

2nd Generation Indians in the US: Did you know that you can avail Family Tax Deductions and Credits

2nd Generation Indians in the US: Did you know that you can avail Family Tax Deductions and Credits?

In the US, due to various practical and cultural causes, many families reside in their multi-generational homes. Over more than 60 million Americans tend to live with their families due to the various benefits this can offer. Sometimes, living together with families can be the reason for certain chaos; however, the advantages would always be more than chaos.

If you are an Indian staying with your family in the US, then while filing your tax returns there are certain benefits related to family which you must be aware of. You must ensure that you are taking the advantage of these tax deductions and credits while you file your tax returns.

Tax deductions on home

If you are the owner of a house, then you would be eligible to claim certain tax deductions. Let us check out some of these deductions.

  1. Points

In case, you have origination fees or points being paid for your new house to obtain a particular rate from your lender then that fee is deductible from your taxes. Moreover, if you had paid points when your house was purchased then you would be able to deduct those points in the year you had paid them.  In the case of refinancing your home, you would have to do a points deduction over the loan life.

  1. Interest

In case of a home purchase with the help of a home loan then you must have paid the mortgage interest. You are eligible to make a deduction for the mortgage interest that has been paid during the current tax year and has been reported on Form 1098.

  1. Taxes on property

Taxes paid on property are very expensive and can be deductible from your taxes if you have paid them. For the tax year 2020, your taxes on property or State Income tax withholding should not be more than $10,000 in total.

Tax Benefits on Family

As a parent, you would be able to avail various tax benefits while filing your tax returns.

  1. If your child is below the age of 13 years and was using daycare facilities in the last year then you would be eligible to claim the Child and Dependent Credit. For one dependent child, you can claim up to 35% of the $3000 that has been incurred in the daycare. For two or more than two dependent children, you would be able to claim up to 35% of the $6000 incurred in the child-care expenses.
  2. If you are working, then another tax benefit that would be advantageous for you is the Earned Income Tax Credit. If your family has three kids, then you can claim a tax deduction of up to $6,660. Last year around 25 million taxpayers were able to receive the Earned Income Tax Credit and the average Earned Income Tax Credit for each taxpayer would be around $2,476.
  3. Under the tax reforms, the dependent exemption was eliminated. But by the Child Tax Credit, you would be able to claim up to $2000 for each child who is below the age of 17 years and is a dependent. In case of your children being above the age of 17 years, you can claim the credit for non-child dependents which would be $500.
  4. You can also be eligible to avail of the American Opportunity Tax Credit (AOTC) if your kids are dependents and are studying in college. The American Opportunity Tax Credit is a refundable tax credit that would be up to $2500 for each student for the first four years of their college.
  5. In case, you are not qualifying for the American Opportunity Tax Credit, you can avail the option of Lifetime Learning Credit. The limit for this credit is up to $2000 for each tax return and you can claim it even if your dependent has attended one class in the college.

Financial support for elderly family members

If you have been providing monetary support for your parents or grandparents, then it is feasible to claim them as dependents while filing your tax returns.

  1. You can be a qualified relative to claim dependents only when you have provided more than half of the financial support for your parents/grandparents in the year 2020.
  2. In the year 2020, the taxable income of your dependents must have been less than $4300.

Conclusion

Hence, you might be staying in a nuclear family or a joint family setup; you must be aware of the tax deductions which you can claim for your dependents and family members.

Why file your taxes early through e-File?

by | Feb 8, 2021 | 2021 Tax Returns, Tax Planning, Tax Preparation, Taxtips, Uncategorized

Why file your taxes early through e-File?

Why file your taxes early through e-File?

 

On 12th February 2021, the IRS opened up the tax season for the year 2020 and now the process of e-filing is going on.  It is a common scenario where taxpayers wait till the end of the tax season for filing their tax returns. But, there is no significant reason as to which one should wait till the end for filing their tax returns.

Undoubtedly, tax refunds would have an impact on your finances and if you have a refund due from the IRS then it is even wiser to file your returns soon.

Let us have a look at the main reasons to file your tax returns early

1.To obtain the refunds soon

The pandemic COVID-19 has been the main reason for affecting the finances of millions of Americans. Many have become unemployed and many have been furloughed. In such adverse financial situations, tax refunds would be helpful and you would like to have your refunds as soon as possible. According to the IRS, every 9 taxpayers out of the 10 taxpayers filing their tax returns would receive their tax refunds within 21 days of e-filing or even faster than that. Moreover, there are a large number of tax deductions and credits available which would make your refund amount a bigger one. So, why not file for your tax returns early and get your refunds soon.

2.More time to pay your taxes   

Even if you have taxes to be paid to the IRS, you still can file your tax returns early. In case you file your tax returns early there would not be the necessity to pay your taxes due by the mid of April which is the deadline for tax payment. If you are filing your tax returns early, you will have ample time to understand and figure out how to pay your taxes. Moreover, you would also have the option to make contributions to the IRA in 2020 and can even avail the benefits of additional tax deduction.

3.Avoiding tax extension

If you are filing your taxes early, then you are going to avoid the chances of filing for a tax extension. Tax extensions are mainly not due to financial needs but due to disorder or disarrangement. Many people who are waiting until the last minute to file their tax returns are in the need of extra time to find out about the deductions or find out the receipts. 

If you are filing for a tax extension and you are not able to pay whatever you owe, you will be charged with interest and penalties on your outstanding debts. If you are preparing your tax returns early, you can be able to avoid this situation.

4.Financial Information

In case, you are in a phase where you are expecting that you will be purchasing a house, you would be starting your studies again, etc. then you must start filing your tax returns early. By this, you can get the essential information soon. College-going students would be able to use the information provided in Form 1040 for financial aid and if you are a home buyer then you can also show your completed tax return as your household income’s proof. When your tax returns are done early, then the paperwork for these processes can begin early.

5.Preventing tax refund fraud

By filing your tax returns early, you may not be able to eliminate the threat of identity theft. However, it will help protect your tax refund. It might happen that before you file your tax return, someone else has already filed a tax return using your Social Security number (SSN). This is tax refund fraud or scam and usually, it occurs early in the tax season before most taxpayers have filed their returns. So, you should try to keep your SSN a secret and make an attempt to file your taxes early. 

6.Less competition 

It is quite tough to get good and expert tax professionals that would help you in your tax return preparations. If you have not taken an appointment, it is difficult to get one now. Some tax professionals would even charge more when the tax filing deadline approaches closer.  So, the best way is to avoid all troubles by filing your tax returns early.

7.Avoid tax deadline stress

Most of the taxpayers are always stressed about filing their tax returns. It is a complicated task and it is better to get rid of the difficult things soon. Once, your tax return filing is done you can just sit back, relax and wait to receive the refund.

Conclusion

Hence, it is good to file your tax returns early to utilize the various advantages of early filing offers. So, if you have not filed your tax returns you must plan to do it soon.