- Green Card Test
- Substantial Presence Test
Planning for your taxes is very important and proper planning would help you in avoiding any further interest payment to the IRS due to missing tax deadlines.
With the annual fresh start which comes along with the New Year is approaching very rapidly, this is one of the best opportunities for the NRIs in the US to make certain resolutions. These resolutions can be related to finances and taxes as well. Tax Resolutions for a year can also be helpful in planning for the achievement of financial goals during a particular year.
If you are an NRI in the US, then it’s time for you to make your New Year Tax Resolution. Let us check out the major points which must be considered while making your New Year Tax Resolution for the year 2021.
Since you are a taxpayer in the country, you must gather the below-mentioned documents immediately before the tax season arrives.
You must be aware of these adjustments as they can help in the reduction of your taxable income. You must make these adjustments thus increasing your tax refund.
There are some tax credits or deductions which would be helpful in reducing the tax burden. If you have made a good tax plan then you must track this throughout the entire year.
If you are availing of the below-mentioned tax credits and deductions then you must have the related documents as well.
You can be able to claim the Recovery Rebate Credit if the below-mentioned criteria are met.
Before mid-February, the IRS will not issue any refunds if you are claiming the Earned Income Tax credit or Additional Child Tax Credit. The IRS has instructed the employer to hold the entire refund amount if a portion is not being associated with the EITC or ACTC. Most of the people would receive their EITC or ACTC related funds by the first week of March if there are no further issues related to the tax return.
So, as an NR in the US, you must be aware of these factors and make New Year resolutions that would be helpful in obtaining the tax returns conveniently.
The Paycheck Protection Program is a type of loan which has been created for helping businesses in the maintenance of their workforces during these adverse pandemic times. All types of loans taken by the business would be forgiven by the US Small Business Association (SBA) if the major criteria of retention of employees are met and the funds are being utilized for those business expenses which are eligible.
The Paycheck Protection Program (PPP) was a program of $350 billion whose major intent is to provide the small businesses in America with cash flow assistance of 8 weeks through 100% federal loans. In late April 2020, the Paycheck Protection Program was expanded by an addition of $310 billion into the funding of this program. The deadline for applying for the Paycheck Protection Program has expired since 8th August 2020 but there can be an extension if there is another relief bill that is signed into law.
Small businesses that have around 500 employees or even fewer employees, other independent contractors, sole proprietors, or those NRIs who are self-employed are eligible for availing the benefits of the Paycheck Protection Program.
The Paycheck Protection Program loan would be completely forgiven if the fund from the loan would be utilized for interest on mortgages, payroll costs, utilities, and rent as well. There is no necessity for making the loan payment until the forgiveness application of the NRI has been processed or 10 months after the covered period of the loan ends.
The loan period is for 8 weeks from the date of loan origination. This is the actual date on which the NRI borrower would receive the loan amount in actual. The interest payments on the Paycheck Protection Program loan will be deferred by around six months. This loan is due in two years and no penalty is charged for pre-paying the charges. However, the loan period has been extended to around 24 weeks.
By loan forgiveness, the loan can be turned into a non-taxable grant. The entire loan or a part of the loan which would be received by small businesses under the Paycheck Protection Program can be forgiven if the owner would keep all the full-time employees on their payroll or if you are re-hiring your employees again within 24 weeks of receipt of the loan.
For the loan amount to be forgiven a minimum of 60% of your loan should be utilized in funding the business payroll and the employee benefit costs as well. Only 40% of the amount that has been forgiven could be used for the non-payroll expenses like the payments of mortgage interest, payments of rents, utilities, etc. Forgiveness will not occur until the end of the 24-week employment period occurs after the loan amount has been received. Businesses must ensure that they must keep proper records and have proper bookkeeping as proof of the business expenses that have been incurred during the loan tenure.
So, the Paycheck Protection Program would be of great help for those who have incurred losses in business due to the pandemic and these coronavirus relief plans are evolving at a constant pace.
Tax scams can lead to huge loss of money as well as personal information. The tax scammers usually make use of mails or telephones for creating scams that can involve individuals and businesses also. Tax scam alert for NRIs is a common occurrence in the US now. NRIs should always keep in mind that the IRS would not contact the taxpayers by mails, text messages, or through social media channels. IRS impersonators can also intimidate the common people by preparing fabricated bills for tax.
Tax scammers remain active throughout the year and the IRS urges the NRI taxpayers to be very careful about phishing emails and scams. The IRS would usually initiate contact with the taxpayers with the help of regular mail which can be delivered by the United States Postal Service. There would be special circumstances when the IRS would contact an individual or a business such as an overdue tax bill for the security of a delinquent tax return. Taxpayers would usually receive communication from the IRS in the form of notices or letters.
NRI taxpayers must keep in mind that the IRS would not do the following activities:-
The IRS would resort to the below-mentioned methods to obtain the tax payments if any due for the NRI taxpayers.
The employees of IRS might come to your home or your workplace without any prior announcement for the collection of the tax due. However, the IRS employees will not make a demand for immediate payment of the taxes to any source other than the U.S. Treasury. The IRS would also assign private debt collectors for some of the taxpayers. The Private Collection Agencies would never ask the NRI taxpayers for payment through a gift card or a prepaid debit card.
The IRS can conduct audits and would also call NRI taxpayers for setting up appointments. The IRS can also call the taxpayers to discuss items related to the taxes. However, this would happen only when the IRS has attempted to provide notification to the taxpayers through mails. After the mailing, the IRS auditor would call the taxpayers for setting up discussion calls.
Criminal investigations can be carried out by the IRS for tax purposes and this can lead to investigators visiting the taxpayer’s house or business. But, these investigators are agents for law enforcement and would not be asking for any payment from the taxpayers.
If an NRI taxpayer suspects a tax scam or feels that he is being harassed by some impersonator, then he must take the below-mentioned actions.
So, with the number of tax scams and frauds increasing very speedily taxpayers must remain alert and inform about anything suspicious to the IRS.
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.
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.
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 loans – You 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 Financing – If you are waiting on your unpaid invoices to pay your business expenses, this type of loan is the best option for you.
SBA Loans – SBA loans are highly sought as their lower interest rates are added up with longer repayment terms.
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.
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 proprietorship – If 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.LLC – LLC 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-Corp – It 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-Corporation – C-Corporations might be a publicly-traded company or a small company, this business structure requires you to pay business income taxes.
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.