Income Tax Refund V/S Owning tax

Income Tax Refund V/S Owning tax

Income Tax Refund V/S Owning tax

In these challenging times of financial distress caused due to the pandemic COVID-19, receipt of your tax refund is like a gift. If you are receiving a substantial amount as your tax return you can use it for various useful purposes during these difficult times. However, if you have still not received your tax refund and are wondering what could be the reason; it’s time to analyze the possibility i.e. the IRS seized your tax refund.

You might also wonder that “would you obtain your tax refund if you owe tax to the IRS?” So, let us understand the various aspects related to the scenario in which you apprehend the receipt of your tax

When will the IRS seize your tax refund?

If you owe taxes to the IRS, then you would not be able to get back your tax refund. The IRS has the power to garnish your refund to offset the tax debts you owe. Some of the major tax debts which can lead to the IRS’s seizure of your tax refunds are listed below.

a.Back Taxes

You are said to have back taxes when you have any taxes unpaid or partially paid at federal, state, or local level. If you have tax debts at any of these levels, then your tax refunds might be garnished by the IRS. In such cases, the IRS would send you warning notice about a part of the entire of your tax refund being used to offset your back taxes. Even if you have selected for options like the IRS installment agreement plan, the IRS can still take your tax refund back and pay your tax debts by using them.

If you are willing to relieve yourself from the tax debts, you can do so by filing for bankruptcy. If you are filing for bankruptcy, the IRS would provide you with three payment priorities.

 

  • Priority and non-dischargeable unsecured tax debtThese are those debts that cannot be discharged and must be cleared first before any other debt such as trust fund taxes, taxes that are assessable but have not been assessed, etc.
  • Non-priority and non-dischargeable unsecured tax debtThese taxes are not placed on the top priority and they cannot be discharged. These taxes include taxes on fraudulent returns, taxes filed late within two years of the date of filing, etc.
  • Non-priority and dischargeable unsecured tax debtThese taxes are unsecured, are not prioritized, and can be forgiven too.

b.Child and Spousal Support

In case you are a parent who is providing child support, the Child Support Agency of your state will inform the Treasury Department about your child support debt. The Treasury Department will send you a pre-offset notice which informs you about how much debt you owe the working of the offset program and the ways by which you can pay off your child support debts. This same procedure is applicable for spousal support as well for tax debt offset by the IRS.

c.Other additional debts

In addition to the Child and spousal support, back taxes there are some other debts also which can be garnished by the IRs through the seizure of your tax refunds. These can be your Student loan payments or your State Unemployment compensation.

If you have not paid your federally-insured student loans, the IRS can seize your tax refund for the payment of your outstanding debts related to a Student loan. Moreover, the US Education Department has the authority to let your employer garnish up to 15% of your income until all your loan debts are cleared.

The IRS can also seize your tax refunds in case of any unemployment compensation collected by you for which you were not eligible. The Unemployment program of your State can ask the IRS or the Treasury Department to offset your tax refunds.

How can you obtain your complete tax refund?

If you wish to obtain your entire tax refund without your refund being garnished for tax debt settlement, then you must pay your taxes on time and in full amount. In case, you have other debts like student loans or spousal support debt, etc. you can try to pay your debts as much as you can. This will help you in obtaining some more tax refunds.

 If you are facing tax issues, you must sincerely work towards the resolution of these issues by opting for professional assistance. In the year 2018, over 13 million Americans owed more than any amount of $128 billion to the IRS for taxes and penalties. You should try to find out about the various tax issue resolution services such as the Installment Agreement, Stair Step Agreement, Partial Pay Agreement, etc. for resolving your tax problems.

Conclusion

Hence, a tax refund is important for everyone, especially during these financially difficult times. You must file your tax returns on time and pay your taxes on time. You must accurately file your taxes to make the maximum utilization of your return obtained.

Do you owe taxes to the IRS?

Do you owe taxes to the IRS?

Do you owe taxes to the IRS?

There can be scenarios when you realize that you owe taxes to the IRS after you have finished your tax returns or you owe more than what you can afford at the moment. However, you should not panic in such circumstances and must try to find out options by which you can pay off your taxes.

In the first place, you must find out how much tax you owe to the IRS.

How much do I owe to the IRS?

You can use the tax refund calculators to find out about the tax you owe to the IRS. By the time you complete your tax refund, you would know exactly how much you owe to the IRS. You must check out all the deductions and credits carefully which you think you are qualified for.  Moreover, you can compare your tax returns of the previous year with that of this year and find out about the changes. However, if you are obtaining a mail from IRS about back taxes then you can further investigate it by checking with the IRS.

File an extension

You can file an extension to complete your tax return by submission of Form 4868 to the IRS. You can check out for any deductions you might have missed or any miscalculations which you might have made while filing your tax returns. It is advisable to take assistance from an experienced tax professional to find out any deduction or credit which you might have missed. You should try and submit your Form 4868 by the deadline based on whatever you think you owe. You must try to pay as much as you can otherwise you might accrue penalties and interest.

Options for payment

Your payment to the IRS can be done by the below-mentioned methods.

The Electronic Federal Tax Payment System – This system is being operated by the Treasury Department to process the federal tax payments. You must set up your account by using your bank account information and then make your payments. Payments can be made related to different tax obligations such as estimated tax, extension payments, tax balances for previous years, etc.

IRS Direct Pay – You can pay your tax bills directly from either a savings account or a checking account by using Direct Pay. By Direct Pay, taxpayers would be able to schedule tax payments up to 30 days in advance. Payment can be canceled or changed before two business days of the scheduled date.

Credit cards or Debit cards – You can make your tax payments by using credit or debit cards, phone, or by any mobile devices. These payments would be processed by a processor and convenience fees would be charged by the processor. You can download the official mobile app of the IRS i.e. IRS2Go and make your payments conveniently.

US Postal Services – This is the conventional means of making tax payments. You can send your money to the IRS in an old-fashioned manner by mailing the payment check.

Minimizing penalties and interest

Huge tax bills can be troublesome and if you have penalties/interest on top of the original amount, then it would add to your hardships. So, you can minimize these penalties and interest can be minimized in the below-mentioned ways:-

Exceptions to the underpayment of tax penalties – In case you have underpaid your tax this year but you owed substantially less tax the previous year, then you would not be paying penalty for the underpayment.

Abatement of penalties – You can write a letter to the IRS and explain your situation. This can lead the IRS to reduce your penalties or interest.

Pay quickly – If you owe to pay tax to the IRS, then you should not wait until the deadline to file your tax returns. You can send an estimated tax payment or file your tax returns early and pay as much as you can.

What can I do if I can’t pay my taxes?

In case, you are not able to pay your federal tax immediately, there are certain options provided by the IRS which you can use to make your tax payments systematically.

Installment Agreement – You can file Form 9465 which is known as the “Installment Agreement Request” to set up installment payments with the IRS. The installment agreement form can be completed online by using the Online Payment Agreement Tool.

  • If you owe $50,000 or less in the form of combined tax, penalties, and interest and have filed all required returns, you can apply for the Monthly installment agreement online.
  • Businesses can also apply for this online if they owe $25,000 or less in combined tax, penalties, and interest for the current year or the liabilities of the last year and have filed all required returns.

Offer in Compromise – This method should be used as an extreme last resort. IRS would negotiate back taxes by Offer in Compromise and your tax bills can be settled in less than what you owe.

Conclusion

Hence, these are some basic tips and steps which you must follow if you owe taxes to the IRS for easier and faster resolution of your tax-related issues.

References

How to start a business as an NRI in the US if you owe taxes?

How to start a business as an NRI in the US if you owe taxes?

How to start a business as an NRI in the US if you owe taxes?

As an NRI, if you are planning to launch your own business but you owe taxes and are not sure about how to proceed then you might find yourself in a confusing situation. In this scenario, it depends if your situation would be affecting your ability to start or launch a business. Your tax debt may not prevent you from starting a business; however, it can affect your goodwill and even your ability in obtaining loans for your business.

Possibilities of business incorporation

Even if you owe taxes to the IRS, you would still be able to incorporate your own business. Generally, corporations and the LLC business structures would allow you to separate and also protect your assets. If you are planning to launch your own business, you must have a very clear distinction between the business and yourself as an individual. By the process of incorporating or forming an LLC, it is implied that you are eligible to run your business without any fear of your personal assets being seized due to your business debts.

If you consider the scenario from a tax standpoint, it is much easier to pay off or rather manage taxes if your expenses for business re kept separated from your personal expenses. Corporations and LLCs can deduct eligible expenses like salaries and supplies; however, it would become more complicated if your personal expenses and business expenses are mixed up. You must work very closely with a tax advisor or tax professional to help you in the proper set up of your company.

Financing of your business when you owe taxes

  1. When you apply for the financing of your business, your business loan application could be affected by your personal credit. Usually, financers would evaluate in detail your personal credit and financial history before granting you a business loan.
  2. If you have a high amount of tax debt or you have not paid your taxes then your credit score might decrease steeply.
  3. If there is a tax lien against you then it would remain on your credit report for a long time even when you have paid the tax.

4. If you think your tax debt can create an issue for the financing options available for your business, you can consider the below-mentioned financing options.

Short term loansYou can obtain a short term loan if your business has a sustainable cash flow. This kind of loan places greater emphasis on the revenue of the company rather than on your credit score.

Term loans For term loans, you would need good personal credit. Moreover, these loans would give you a lump sum money which you would have to repay with a fixed interest rate.

Accounts Receivable FinancingIf you are waiting on your unpaid invoices to pay your business expenses, this type of loan is the best option for you.

SBA LoansSBA loans are highly sought as their lower interest rates are added up with longer repayment terms.

Resolve your unpaid taxes

If you owe back taxes to the IRS, then the IRS has the authority to collect the taxes by seizing your property through a tax levy. By a tax levy, the IRS is allowed to seize your bank account balances, your wages, real estate, automobiles, retirement accounts, and any other assets. However, you can still work and earn.

You will have to discuss your unpaid taxes with the IRS. If you have negotiated with the IRS and decided that you would be paying your debts using an installment agreement, then you would be able to start your own business. However, you must keep in mind that if you try to hide your assets from the IRS’s levy by using your business as a front then it is illegal.

Some other tax considerations

From the perspective of business structures, there are four types of business structures and each one would be having a different influence on business taxes.

a.Sole proprietorshipIf you are setting up your business as a sole proprietorship, your business would not be separate from you as an individual from a legal perspective. By this, your business would not have to pay business income tax as you would have to report your self-employment income only.

b.LLCLLC means Limited Liability Company and by this, your company would get its own identity and status different from your personal identity. You can receive more protection and financial benefits. Your LLC would not have to pay business income tax and you would only pay personal income tax.

c.S-CorpIt is also a business structure that is not liable for business income taxes and all the business earnings would pass through the owner.

d.C-CorporationC-Corporations might be a publicly-traded company or a small company, this business structure requires you to pay business income taxes.

Conclusion

Hence, even if you owe taxes to the IRS it does not mean that you will not be able to set up a business of your own. You should not ignore your tax obligations, connect with experienced tax professionals for tax resolution services, and get ready to pursue your dreams of starting your own business.

All you need to know about a delay in IRS Refunds in 2020

All you need to know about a delay in IRS Refunds in 2020

All you need to know about a delay in IRS Refunds in 2020

The US Treasury Department and the IRS had delayed the deadline for a federal tax return by three months to reduce the economic stress on the Americans caused due to the pandemic COVID-19. Due to the widespread impact of the novel coronavirus, the Federal Government has been urging the Americans to maintain social distancing. Due to the social distancing norms, the IRS had to close its offices around the country and operate with limited staff. Moreover, for around 2-3 months the IRS has been only performing the “Mission-Critical” functions which mainly included delivering Stimulus Checks to the Americans.

Many IRS officers have returned to offices last month to perform those tasks which cannot be performed from home. These tasks mainly include processing the federal income tax returns of the taxpayers and there is a huge backlog of work to be completed by the IRS officials.

How long does it take for the IRS to process tax refunds?

  • Generally, the IRS would issue a tax refund to the taxpayers within 21 days of accepting the tax return request.
  • If your return request has been filed electronically it would take the IRS maximum of 3 days to accept the request whereas if it is filed by the paper medium it would take additional 3 weeks to accept the request.
  • Due to the pandemic COVID-19, return requests filed by paper have not been processed and there has been a huge backlog. If you have mailed your tax returns by 15th July 2020 then you must be prepared for the huge delay. 

Major reasons for tax refund delay in 2020

Let us have a look at some of the major reasons for the delay in a tax refund for the year 2020.

Filing early or lateIf you have filed your returns earlier, you would wait eagerly to receive your returns. However, the early filers might even have to wait for long. The IRS is still making certain changes into its processes and has a lot of backlog work to finish up due to the pandemic. The changes in processes can include updated security measures or any other process tweaks.

Claiming certain creditsYour tax returns might be delayed if you filed them early but have claimed certain credits like Earned Income Tax Credit or Additional Child Tax Credit. You can keep checking the status of your return on the “Where’s my refund tool” of the IRS.

Filing done by paper returnsThis is one of the most common causes for your tax refunds being delayed. Tax returns filed by paper means would take a longer time for being processed and also for the issue of the refund too. Sending of checks through mail also opens up the possibilities of your check being lost or being sent to a wrong address. So, this would delay the entire refund process.

Outstanding debtsThe IRS can also garnish your refunds if you had defaulted on a federal student loan, if you owe money for back taxes, if you owe money for child support or if you filed a joint return and your spouse has outstanding debts. By garnishment, the IRS can withhold money from you to put it towards some other task.

Security measuresThe IRS maintains strict security measures to combat identity theft. There are some security measures due to which the IRS can increase its processing time. There might be a scenario where the IRS suspects that there has been a tax return filed for you by stealing your identity. This can delay your return and you might obtain it after the investigation has been completed by the IRS. Sometimes, the IRS may also feel that the bank account mentioned in the return is suspicious and does not belong to you; in this case, the IRS would send it to you as a paper check.

Incorrect bank informationYour account number and bank details should be correct while filing your tax returns. If you have entered the wrong information and the refund has not been sent by the IRS, you can call on the toll-free number and request to stop the processing. If the refund has already been sent by the IRS, then you can contact the financial institution to send the payment back to the IRS and the IRS would issue you the refund as a paper check. However, if the financial institution does not agree to send the refund back to the IRS you would have to file Form 3911.

Mistakes on your returnIn case, there are any mistakes in your return such as any mathematical errors or incorrect personal information then the IRS would take a long time in processing them. This would slow down the process of a potential refund. The IRS would contact you for any mistakes in your return and in some cases, it might amend your minor errors as well.

Conclusion

So, if you have not received your tax refunds yet you can call the IRS or check the status of your refund on “Where’s my refund?” in the www.irs.gov/refunds webpage.

References

  1. https://www.cbsnews.com/news/tax-refund-delay-irs-backlog/
  2. https://smartasset.com/taxes/tax-refund-delay
  3. https://www.cnbc.com/2020/06/22/heres-why-you-havent-received-your-tax-refund.html
  4. https://www.washingtonpost.com/business/2020/07/21/tax-refund-delay-irs/
  5. https://www.wsj.com/articles/your-tax-refund-may-be-late-this-year-heres-why-11594810800

 

 

 

 

7 things-to-do to stay #Financially Healthy during the pandemic

7 things-to-do to stay #Financially Healthy during the pandemic

7 things-to-do to stay #Financially Healthy during the pandemic

The pandemic COVID-19 has been affecting the entire world in a very adverse manner. Many of the people across the world are not only worried about their physical health, but also about their financial health. With many businesses closing down either permanently or temporarily and millions of people losing their livelihoods, anxiety, and stress-related to finances is a common scenario nowadays. 

However, despite the extremely tough situations all around us; we should not lose hope and must think about methods by which our finances would be in our control.

Let us check out some of the tips which can help remain financially healthy during the pandemic COVID-19.

Prioritize Saving

When we think about saving, it appears to be easier but it is difficult to implement. When the salaries are being cut-off, businesses are being shut down and there is panic all around it becomes even more difficult to save. However, with the Government emphasizing and urging people to remain indoors the scope for expenses has reduced to a certain extent. Since social distancing is being widely practiced and we are staying in our homes mainly so there is a reduction in expenditures. It seems that saving is feasible and whatever you save, you can keep it for any unprecedented expenditure in the future.

Refinancing your loans

 It would be a good idea if you look around your loan and do some research to find out on better deals. You should, however; keep in mind that during these times many financial institutions would be having quite strict lending conditions. There would be a few credit card companies which would 0% interest rate on balance transfers and you can perform research on this. In case, you are having a mortgage you can check with your provider about the full interest rate drop. You can consider changing to another provider if you have not been provided with this drop.

 Avoid neglecting your loans or bills

If you are not in a good financial condition and would be facing difficulties in paying your loans or bills, you should contact your loan providers immediately. In the current situation, these companies are pro-active in understanding the issues of their customers and helping them with other alternative payment options. Your loan providers might offer you alternatives like an extension of your loan repayment time or reduction in repayment for a short duration, etc. It is advisable to deal with financial problems earlier to avoid any long term impacts.

Check for employer support

Your employer must be having different policies for providing support to the employees during difficult times. You should ensure what policies are offered by your employer. You can connect with your HR directly or check out about the details of the policies on your employee portals. There can be assistance programs like salary advances, emergency funds, salary-linked loans, and other forms of employee assistance programs. These programs can help stabilize your financial condition to a certain extent during this pandemic.

Research on Government aids 

The Federal Government has been trying to alleviate the mental stress and anxiety caused to the Americans due to finances amidst COVID-19. By the Stimulus bill, Americans would be receiving checks of $1200 and $2400 for single individuals and married couples respectively. Apart from this, the Government has been continuously trying to bring up many new schemes for the common people. You must remain updated about these schemes and avail of the benefits.

 Consider taking up side jobs

You can think about taking up any side job whenever you have some time. This will help you in earning some extra money and better control over your finances. Currently, there are a lot of new opportunities available in supermarkets and the contactless delivery services as well. If you have free time or are not into any particular work at the moment, you can take up these side jobs. However, you must be careful and maintain the necessary precautions to avoid being affected by the COVID-19.

 Take assistance from a financial coach

You can seek help from financial coaches who practice financial social work. Free financial coaching is provided by many non-profit organizations. These coaches can assist with your immediate needs and can also provide an introduction with some other agencies which can help with food and finances. Also, they can help in the development of a financial preparedness plan for the future which would be beneficial to control your finances.

Conclusion

Hence, if you are worried and scared about finances in current times; it is quite obvious. You should avoid being panic and try to remain calm. You should review your spending, set goals, and try to save cash. Things will improve within sometime; meanwhile, you need to take care of your financial and mental health.