All you need to know about an expected delay in tax refunds in 2020 due to COVID-19 pandemic

All you need to know about an expected delay in tax refunds in 2020 due to COVID-19 pandemic

All you need to know about an expected delay in tax refunds in 2020 due to COVID-19 pandemic

In response to the outbreak of the pandemic COVID-19, the Federal Government had delayed the deadline for filing Federal tax returns and for tax payment as well. However, it was advised that if you had to receive a refund from the IRS then it would be wise to file the tax returns soon. Due to the coronavirus and the social distancing norms, it was not only difficult for the taxpayers to prepare and file the returns but also for the IRS staff to process the refunds.

In these difficult times, it is always good to have some additional cash and everyone needs this additional amount but the tax refunds for 2020 would be delayed. 

IRS Operations with a reduced workforce

The IRS offices were closed across the entire country and it was operating with limited staff and resources. The most important task which the IRS has been doing in the past two months was the issuing of Coronavirus Stimulus Payment to around 150 million Americans which can be termed as a “mission-critical” function.

Due to the outbreak of the pandemic COVID-19, the IRS had limited the services it was rendering. The live phone help has been suspended and even the Taxpayer Assistance Centers were closed. Still, the official webpage of the IRS says that they have been carrying out the critical functions pro-actively. Specifically, the IRS has been processing Federal tax returns and issuing refunds to the Americans even with limited staff. From 1st June 2020, many IRS staff members would have returned to their offices for performing those tasks which cannot be done from home. These staff members on resuming work would begin with the backlog of work they have which would mainly consist of processing tax returns and issuing refunds to the people.

Method of tax return filing – Reason for delay

According to the IRS, the fastest method by which you can receive your tax returns on time is by filing your tax returns electronically. Most of the taxpayers who would use the e-filing method and would choose Direct Deposit would receive their tax refunds within 21 days of the filing. However, there would be delays in obtaining tax refunds by those taxpayers who would opt for the paper return method.

More than 10% of the American population still uses the paper method for filing their tax returns. The closure of the IRS offices means that IRS would not be able to process those returns which have been mailed in. So, when the processing of returns would be delayed then obtaining a refund would also be delayed.  Currently, it is unclear as to by when the IRS would be resuming the processing of those returns which have been filed by paper.

According to several reports, by 1st May 2020, the IRS had received around 125 million Federal Tax returns and it had processed 113 million tax returns approximately. There has been a 7.2% drop in the refund processing rate of the IRS due to the pandemic COVID-19.  However, the average tax refund this year is $2973 and the IRS says that it does not expect any delay in issuing the outstanding refund requests as well.

Tax Refund Status

Usually, the tax refunds are issued to the taxpayers within less than 21 days of filing the tax returns. You would be able to track the status of your Federal Tax refund on the official website of the IRS after 24 hours of filing the tax returns.

The three important things needed for checking your Federal Tax refund status are

  1. Social Security Number or Taxpayer Identification Number
  2. The exact amount that would be refunded
  3. Your filing status

Other causes for tax refund delays

Apart from the coronavirus, there can be some other reasons which would cause a delay in the process of obtaining tax refunds. In case, you have filed your tax returns too early and have claimed the Earned Income Tax Credit or the Additional Child Tax Credit then you will have to wait longer there might also be a delay if you have filed your federal tax returns either faster or later.Moreover, other causes for delay in obtaining your tax returns could be due to wrong Social Security Number, incorrect bank account number, misspelling of your name, wrong calculations or you have outstanding debts such as back taxes, child support, or Federal Student Loan, etc.

You can keep a tab on your Income-tax refunds by checking your Tax Refund Status regularly and understanding the details associated with tax refunds.

People First Initiative: Everything you should know about this IRS initiative during the COVID-19 outbreak

People First Initiative: Everything you should know about this IRS initiative during the COVID-19 outbreak

People First Initiative: Everything you should know about this IRS initiative during the COVID-19 outbreak

The number of people affected by COVID-19 is going on increasing very rapidly and so are the challenges, issues faced by the common masses. In such a situation, the Internal Revenue Services (IRS) has announced a series of steps and guidelines which would help common people in providing some relief related to tax payment compliance. The IRS is highly concerned about the well-being and the working together of people.

The People First Initiative of the IRS has the main objective of helping those people who are facing economic issues and uncertainty in payment of taxes. This program implements temporary changes to the various IRS activities beginning on 1st April 2020 through 15th July 2020. These changes in the tax processes have been made temporarily by the IRS to help people and business entities during these difficult times.

  • The new changes made by IRS include several issues which are ranging from the postponement of specific payments that are related to the Installment Agreements and Offers in compromise to the limiting of some enforcement activities.
  • While some of the activities have been suspended temporarily other activities would move in the modified manner up to a maximum extent.
  • Moreover, the IRS also would avoid any in-person contacts during this period.

Major areas highlighted under the People First Initiative

The major areas which have been mainly given importance under the People First Initiative are 

A.Installment Agreement and Offers in Compromise payments

The IRS has offered expanded payment relief for the existing Installment Agreements and accepted the applications related to Offers in Compromise (OIC) until 15th July 2020. But, taxpayers must also be aware that any unpaid balances will get interest accrued on it as per the law.

For those installment agreements which already exist, the payments that are due between 1st April 2020 and 15th July 2020 are suspended. The IRS would not charge any default installment payment during this time. Those taxpayers who might find compliance with the Installment payment agreement and also with the Direct Debit Installment Agreement can suspend their payments during this time.

However, if a taxpayer is making the tax payments by mailing it or by visiting the IRS website then it is quite simple to stop the procedure. But, in case of direct debit payment, it might be difficult to suspend the process. Taxpayers will have to log in to the IRS website and change the payment information associated with the Direct Debit option.

B.Offers in compromise (OIC)

The various stages of OICs in which the IRS is helping the common people to resolve their issues are summarized below.

Pending OIC ApplicationsThe IRS will not be closing any pending OIC requests before 15th July 2020 without obtaining consent from the taxpayers. 

OIC PaymentsTaxpayers will have the option by which they can suspend all the payments until 15th July 2020 on those OICs which have been accepted.

Delinquent return filingsAny delinquent return filings are pending for 2018 then the taxpayers must complete them by 15th July 2020.

New OIC ApplicationsThose taxpayers who have liabilities more than their net worth then the OIC process can be designed by using “Fresh Start” to resolve the issues of outstanding liabilities. 

C.Compliance Actions

It has not been made clear from when the IRS would start the operations listed below.  However, the IRS will not pursue any compliance actions unless those actions are necessary for the protection of the Government’s interest.

  • New automatic system liens and levies would be suspended during this duration.
  • Liens and levies which have been initiated by field revenue officers would be suspended during his time.  However, the field revenue officers will keep on continuing high-income non-filers and would perform other such types of similar activities.
  • For seriously delinquent taxpayers, IRS would suspend new certifications to the Department of State during this period. This certification will prevent the taxpayers from receipt or renewal of passports.
  • If there are new delinquent accounts, then they will not be forwarded by the IRS to private collection agencies for performing the work during this period.
  • New audits will not be carried off by the IRS during this period.
  • The current audits might continue in some capacity but all those that happens in-person meetings are suspended. 

D.Independent office of appeals

The Appeals office will continue their work on their cases. Appeals would not currently hold an in-person conference with the taxpayers. The conferences can be held over the phone through videoconferencing.  Taxpayers can respond to any outstanding information request for all the cases in the Independent office of appeals.

E.Statute of Limitations

The IRS would take necessary steps for the protection of all applicable statutes of limitations. There can be instances where the statute expirations may be jeopardized during this period and taxpayers are encouraged to co-operate in the extension of such statutes.

 

Conclusion

Hence, the People First Initiative is mainly dedicated to helping the common people in having better lives during this period of crisis. The IRS team is committed to helping common people to get through this stressful situation. The IRS would keep on reviewing the “People First Initiative” and would make necessary changes whenever required. The taxpayers must extend their support and co-operation to the IRS as well to win over this tough situation together.

References 

https://www.irs.gov/newsroom/irs-unveils-new-people-first-initiative-covid-19-effort-temporarily-adjusts-suspends-key-compliance-program

https://www.eisneramper.com/people-first-covid-0320/

https://www.taxwarriors.com/blog/irs-unveils-people-first-initiative

https://rsmus.com/what-we-do/services/tax/federal-tax/tax-controversy/irs-announces-its-people-first-initiative-ir-20-59.html

https://www.foxrothschild.com/publications/irs-people-first-initiative-changes-collections-procedures/

 

Extended Timeline For US Tax Filing

Extended Timeline For US Tax Filing

Extended Timeline For US Tax Filing

While the entire world is struggling to combat the effects of the dreadful COVID-19, the US Government has come up with new initiatives to provide some relief to the public who are paying the taxes. The Treasury Department in the US and the IRS have jointly announced last week that the US Government is extending the tax –filing deadline to 15th July 2020. This decision has been taken by the US Government to give the taxpayers extra time to handle their taxes amidst the outbreak of COVID-19.

The COVID-19 outbreak was declared as a National emergency last week by the President of the US. Also, the President had invoked the Stafford Act which gives him the power to mobilize the federal resources. The taxpayers would get an additional period of 90 days for filing their taxes and the IRS will not charge any interest or penalty for this time extension. However, for those taxpayers of the country who have already filed their taxes this year would not be affected in any means by these changes made.

File Tax Sooner If A Refund Is Due

Even though the US Government has extended the timeline, those taxpayers who don’t owe any money to the IRS can consider filing their tax by the original deadline of 15th April 2020. This would be wiser as the taxpayers would be able to collect their refunds sooner. This would be very helpful for those citizens who have already started seeing their economic condition and earnings being affected by the outbreak of the pandemic COVID-19. 

Moreover, it is just that the Federal Government has provided this extension in tax filing but different states in the country have formulated different guidelines concerning the tax filing extension. It is advisable for those taxpayers who are planning to delay their federal taxes to understand in detail about the tax filing extension that their State Governments are offering as well.

The Due Date For Tax Filing In Case Of An Extension

There might be some taxpayers who may be concerned about their ability to pay the taxes even by 15th July 2020 due to the loss of a job or other financial issues related to the outbreak of COVID-19. These taxpayers can contact the IRS and discuss their options. The IRS has short-term and long-term payment plans which would help the taxpayers to pay their taxes conveniently. Short-term plans would give taxpayers around 120 days to pay the taxes whereas long-term plans taxes can be paid in installments over several months.

 Earlier, when the tax filing deadline was 15th April and a taxpayer who would get an extension will not have to file his tax returns till October. However, now with the IRS pushing the tax filings date to 15th July 2020, it is quite not sure how long the taxpayers would be able to get if he is filing for an extension. But with the various options made available by the IRS, it is quite sure that taxpayers would have some relief.

Deadline For Quarterly Estimated Tax Payments 

Many people are required to make quarterly estimated tax payments to the IRS in case of their income not being subject to the taxes of payroll withholding. This estimated tax payment is made by the division of the year into four payment periods with each period having its payment due date. Now, since IRS has extended the timeline for filing the taxes to 15th July 2020 it is quite uncertain that what would be the impacts upon the deadline of quarterly estimated tax payments. 

Some Important Steps To Consider Before The Previous Deadline  

Filing of 2017 tax return 

 If there is a refund due of the year 2017 for a taxpayer and the tax return has not been filed, then it must be filed by 15th April through the Form 1040 or Form 1040-SR to claim the money failing which IRS would keep the money.

 Max out 401(k) by 31st December 2020 

The contributions made towards the traditional 401(K) help in reducing the total taxable income of an individual. Many employers also contribute to the savings made by an individual; so, if there is enough contribution made then there are opportunities to obtain some money as well.

Contribution towards IRA and HSA

 The contributions which are made to an IRA and HSA are eligible for a tax deduction. This contribution must be done by the April deadline every year. Now, even though the tax filing deadline has been extended to 15th July 2020 there have been no announcements made on the deadline for IRA or HSA contributions. So, it is advisable to accomplish this task by the April deadline to avoid any further hassles.

 

Conclusion

Hence, with the global economy coming to a standstill and numerous lives being affected due to the pandemic COVID-19, this action by the US Government is applauding. This would reduce a lot of pressure on those expecting to owe money to the US Government. However, if there is a refund expected then it must be claimed immediately so that the cash can be utilized during this period of emergency.

References

https://www.fool.com/taxes/2020/03/24/the-tax-deadline-has-been-extended-should-you-wait.aspx

https://www.cpapracticeadvisor.com/tax-compliance/news/21130318/irs-extends-2020-income-tax-filing-deadline-to-july-15

https://www.usatoday.com/story/money/2020/03/20/taxes-2020-irs-delay-april-15-tax-filing-deadline-july-15/2883840001/

https://www.cpapracticeadvisor.com/tax-compliance/news/21129714/when-is-the-new-irs-tax-filing-deadline-for-2020-coronavirus-delay

https://turbotax.intuit.com/tax-tips/tax-planning-and-checklists/important-tax-deadlines-dates/L7Rn92V1d

https://www.nerdwallet.com/blog/taxes/april-deadline-taxes/

 

 

 

 

 

Does the new tax deadline by IRS mean a new deadline for your IRA contribution?

Does the new tax deadline by IRS mean a new deadline for your IRA contribution?

Does the new tax deadline by IRS mean a new deadline

for your IRA contribution?

The IRS Tax Deadline, The federal tax filing deadline in the US has been extended up to 15th July 2020 to combat the effects of economic hazards caused due to the outbreak of COVID-19. This extension would also mean that you can make contributions to the IRA up to 15th July 2020.

IRA and how it works?

In the US, IRA or Individual Retirement Account helps you in saving money for retirement in a tax-advantaged way. The money which you would invest in this account can grow in a tax-deferred manner until you are ready to retire. Usually, traditional IRAs and Roth IRAs are opened by individuals whereas SEP IRAs and SIMPLE IRAs are meant for small business owners and self-employed individuals. 

All the IRAs offer tax benefits which can be considered as a reward for saving. With the help of an IRA, you can even invest in stocks, bonds, and other assets. By making contributions to a traditional IRA, your tax bill would be reduced for the year in which you are contributing and you would not have owed income tax on the money until you withdraw it on your retirement. However, in a Roth IRA investments can grow in a tax-free manner but the contributions are not eligible for tax deductions. The withdrawal of the money can be done on retirement in a tax-free manner by investing in a Roth IRA as well.

The major benefits of an IRA can be listed below.

  1. Saving tool for retirement
  2. Cutting of tax bill
  3. The wider option of investments available
  4. Savior in any unexpected situation

By the IRA withdrawal rules, you can withdraw your money anytime from the IRA but by paying a penalty of 10% and a tax bill if your money has been withdrawn before the age of 59-1/2 years unless there is an exception.

Extension in IRA

contribution deadline

In case you have not been able to save much for your retirement in the last year, you can do that now as the IRA contribution deadline has also been extended. The IRS has extended this for 90 days without charging any penalties or interest for this.

You can contribute a maximum of $6000 towards the IRA. If you are above the age of 50 years then you can contribute an additional $1000 as a catch-up contribution. For making further contributions to your IRA you must contact the brokerage where your IRA has been held so that any additional funds that are added by you into the IRA are correctly filed.

Extension in the deadline for tax

owed on the income from IRA 

If you have taken an early distribution from your IRA or any other work-based retirement plan then you will owe an additional tax. This will be a 10% additional tax on the amount that can be included in 

gross income obtained from the early distribution. The deadline for reporting and payment of this additional tax has also got an extension up to 15th July 2020.

The major cause behind this is that this additional 10% tax is calculated and even paid at the same time as the income tax owed on the gross income. In case you are filing before 15th July 2020, then this extra 10% tax would be calculated at the time of filing itself.

Remove excessive

deferrals

In case, excessive deferrals have been made by you to your work-based retirement plans then those deferrals must be removed from the plan. This removal must be done by 15th April 2020 as those distributions need to be removed from the income and there has been no extension in this deadline. 

Tax relief measures for small businesses during the coronavirus pandemic

Tax relief measures for small businesses during the coronavirus pandemic

Tax relief measures for small businesses

during the coronavirus pandemic

The entire nation has been affected by the dreadful coronavirus. The rapid spread of the COVID-19 across the country has affected the economy on a very massive scale. The business operation across the country has come to a standstill especially in the case of small businesses that are tax relief measures. Social distancing and quarantining have led to a decrease in the number of customers coming to purchasing impacting sales. Numbers of employees are also not going on work as everyone is forced to stay inside for preventing further spread of the disease. In such adverse situations where there are huge economic disruptions, the Government is working towards passing legislation that would help in providing financial relief to the businesses and taxpayers.

The Families First Coronavirus Response Act

On March 13th, 2020, President Trump had declared a situation of national emergency along with open access of States and Territories to $50 billion for the shared fight against the disease. Again on 18th March 2020, the Senate had passed the Families First Coronavirus Response Act. This bill was signed by the President on that day which included the below-mentioned highlighted points.

1.Federally mandated paid leave benefits and paid sick leave are to be provided to the eligible employees. The paid sick leave must be provided to the impacted employees for 14 days at the regular rate of pay i.e. max $511 per day. Moreover, employers should also provide the benefits of paid leave to the eligible employees for three months.

2.The availability of tax credits for both employers and self-employed taxpayers have been mandated to reduce the burden of employers arising due to the paid leave

 

Extension in tax payment and tax return filing deadline

The US Treasury Department and the IRS had announced that the deadlines for filing tax returns and tax payments that are due on 15th April 2020 are extended up to 15th July 2020. This extension is applicable for making filing tax returns for 2019, Income Tax payments for 2019 and the estimated income tax payments for 2020.

If there is a tax refund due, then the Income tax returns must be filed as soon as possible so that the refund can be obtained immediately and put to use in this time of crisis.

 

Low-interest loans guaranteed by the SBA

 

When there is a tremendous drop in sales, it becomes quite difficult to manage business expenses, employee wages, bills, etc. In such a situation, a business loan can be taken but then it will have a very high rate of interest. So, to ease down these worries the President has announced that the Government would provide more funds in the federal disaster loans which are backed by the Small Business Administration (SBA).  The loans provided by the SBA are known as the Economic Injury Disaster Loan.These loans would help in providing relief for the qualifying businesses in the below-mentioned forms.

 

  1. Loans at low-interest rates i.e. 3.75% for businesses and 2.75% for non-profit organizations.
  2. Repayment plans are long term in nature i.e. up to a maximum period of 30 years.

If a small business is facing financial issues and is not able to afford bills related to the payroll expenses, fixed debts and accounts payable then it can apply for an “Economic Injury Disaster Loan”.

 

Moreover, the federal and state financial regulators have been encouraging the financial institutions to work in a co-operative manner with those borrowers who belong to the affected communities.

Cash Payment by the Government

Another measure taken by the Government to provide relief to the small businesses is by providing the Stimulus package. Under this package, stimulus checks would be provided to US adults. On 27th March 2020, President Trump signed the CARES Act into law.

By this Act, cash payments would be provided to adult taxpayers up to $1200 for a single person and up to $2400 for couples. If there is a child, then the amount of the stimulus cheque will include an additional $500.

Those individuals who have earned $75,000 in the adjusted gross income (AGI) on the Income-tax returns of 2018 will be receiving a lower amount. Also, those individuals who do not have a federal tax liability will receive $600 under this proposal.       

 

Deferment of

any amount

The IRS has also announced any amount can be deferred related to the Federal tax.  In the Notice 2020-18, the IRS had stated that “there is no limitation on the amount of payment that may be postponed”. Previously, there was a dollar limit on the tax that can be deferred but later on 21st March 2020 this limit has been withdrawn.

This deferment or the postponement of tax payment has only been announced for the federal taxes and is not applicable for any other tax like excise taxes and payroll taxes.

Conclusion

Hence, the various legislations and implementations of new tax laws would be helpful for small business owners to avoid sleepless nights due to tax payments in times of low sales and disrupted business.

References

https://ssfllp.com/coronavirus-covid-19-tax-relief-for-small-businesses/

https://www.patriotsoftware.com/blog/payroll/small-business-relief-coronavirus-pandemic/

 

Should capital gains taxation affect me?

Should capital gains taxation affect me?

Should capital gains taxation affect me?

Capital gains taxation a lot of things that we own for either personal use or for investment purpose usually qualifies as a capital asset. Some common examples of capital assets include house, property, bonds, and stocks held as an investment, home furnishings, etc.

When you sell any of these capital assets and make some profit on them, the capital gains taxation come into the picture. The basis of capital gains taxes is that when you sell or exchange your capital assets, you do so at a higher price than you had bought them. Similarly, if you sell a capital asset at a lower price than you paid to buy the same, it would be tagged as a capital loss.

Classification

Capital gains are either classified as long term capital gains or short term capital gains. Here are some details about each category.

  • Long Term Capital Gains

If you hold on to a capital asset for a minimum of 1 year and then decide to sell or exchange it, any gains that you make would be long term capital gains. And the applicable taxes also vary depending on the type of capital gain. For long term capital gains, most individuals would end up paying no more than 15% as taxes.

There is a possibility that some or all your capital gains might be even taxed at 0% if your income is less than $78,750. The standard rate of 15% is applicable if your income ranges between $78,750 and $434,500 for single taxpayers and between $78,750 and $488,850for taxpayers who are married and filing jointly.

Citizens with annual income exceeding the above, the capital gains tax works out to be 20%. Certain capital assets such as collectibles, selling stocks of small businessses, etc. are taxed at a maximum of 28%.

  • Short Term Capital Gains

Any assets that you sell or exchange within a year of buying or acquiring it qualifies as sort term capital gain. In the case of any short term gains, the gain is added to your annual income and taxed accordingly.

One of the major benefits of categorizing these gains is that you are entitled to lower taxes. If the same amount were to be taxed like your income, you would end up paying higher taxes. However, with short term and long term capital gains, you can reduce the tax liability by a considerable margin.

As a rule of thumb, short term capital gain taxes tend to be on the higher side. Since it is dependent on the annual income, the maximum taxes can go up to 37%. On the other hand, long term capital gains can be up to a maximum of 20%.

On the other hand, if you sold a capital asset at a lower price than what you acquired it for, you would incur a capital loss. And it is important to know that you can use those losses to offset any of your capital gains. They can offset gains up to $3,000 with the help of capital losses.

If you stay in the house that you are putting up for sale for a minimum of two years, capital gains up to $250,000 for individuals and $500,000 for married couples is tax free. Thus being aware of the taxes can save the day for you.

If you own any of the capital assets mentioned above, you are entitled to pay capital gains taxes on the selling of these assets. The presence of capital gains taxes impacts you in more ways than you realize. For starters, unless it is short term capital gains, you will end up paying fewer taxes.

Reference:

https://www.taxpolicycenter.org/briefing-book/how-are-capital-gains-taxed

https://taxfoundation.org/capital-gains-taxes/

https://www.irs.gov/taxtopics/tc409