Tax Deductions Available for Cancer patients

Tax Deductions Available for Cancer patients A life-threatening disease like cancer can lead to a lot of mental unrest along with a lot of financial responsibilities. If you have a health insurance plan, then it would be helpful in providing cover for some amount of the medical expenses incurred. If you are undergoing any cancer related medical treatment then your health insurance would help in providing cover for the bills incurred. But, in the medical treatment related to these life-threatening diseases there would be some additional expenses which have to be paid by you. Also, cancer patients can avail the benefit of tax breaks on their taxes by the help of their out-of-pocket expenses. Eligibility for tax deductions which are cancer-related If you are able to itemize your tax deductions instead of making claim for Standard Deduction, then you can easily deduct those medical expenses which are related to regular care, medication, diagnosis, hospital stays, etc. if the expenses that have been incurred are more than 7.5% of the Adjusted Gross Income (AGI). Medical-related travels can also be claimed as deduction such as the mileage related to driving to the appointment at the rate of 20 cents per mile as well as travel-related to any seminars. Those taxpayers who are self-employed do not need to itemize their tax deductions for deduction of their health insurance premium. Self-employed taxpayers are eligible to deduct their health insurance premium as a deduction to their income. What would be done? Medical expenses that can be deductible are defined according to the IRS code as those costs which are related to the diagnosis, treatment or mitigation of diseases and are mainly for the purpose of affecting any major body part or function.  Various treatments related to cancer such as the chemotherapy and radiation surgery are too expensive and the arrangement of your health insurance plans will have a major impact on the coverage of these expenses. There are several categories of cancer and in case of any rare type of cancers such as mesothelioma which would need specialized care; travel is an important part of the treatment procedure. The cost involved in the travel during cancer treatment medical procedures might be tax-deductible. There is a comprehensive list of costs which would qualify for a tax deduction and this list would include health insurance premiums which are not paid in pre-tax dollars. You might pay for the medical care you have received by your credit card, cash or personal checks during the period of the tax year in which the tax deduction was being considered. During the time of tax return filing, itemized tax deductions such as the expenses related to medical bills, mortgage interest, State and Property taxes and charitable contributions will exceed the increased Standard Deduction that has been permissible by the IRS. The permissible Standard Deduction for the US citizens is $12,000 for those who are filing using Single status and is $24,000 for those citizens who are married and are filing their returns jointly. In case of your tax deductions being itemized, the medical costs incurred should be more than 7.5% of your Adjusted Gross Income (AGI) for the year 2019. Also, this figure was different for the tax year 2018 in which someone who has an AGI of $50,000 would deduct the expenses which are out-of-pocket if they are more than $3750. Conclusion Hence, in case of any life-threatening diseases such as cancer tax deductions and claiming of credits is feasible but you must be well-aware about the tax rules and regulations.

New to the US – Here’s what you need to know about filing your taxes as an NRI in the US

New to the US – Here’s what you need to know about filing your taxes as an NRI in the US If you are a US resident or a US citizen i.e. an NRI, PIO or OCI you must have to pay taxes to the US Government on the global income which you have earned.  A person would be defined as a US resident only if he is able to meet either of the below-mentioned tests.
  • Green Card Test
If during any period of a particular calendar year, according to the laws of immigration you were a permanent resident of the United States and this status has not been abandoned by the law then you would be considered to have passed the Green Card Test.
  • Substantial Presence Test 
The Substantial Presence Test states that you should have been present in the United States physically for a period of at least 31 days during a particular year and 183 days during the three year period which would include the current tax year and the 2 years immediately before the current year.   If you have a green card, then you would be considered to be a US resident for the purpose of tax irrespective of the place where you are living. In case, you are a Visa holder then there are more complicated rules associated with the Universal Taxing Jurisdiction. If a taxpayer is having income or receiving a salary from India, then that has to be reported by filing Form 1040. Also, the taxpayer would fill up form1116 if he is claiming the tax credit. By the Double Tax Avoidance Agreements (DTAA) NRIs would be eligible to receive credits for the tax that has been paid in India. This would help in providing protection from paying taxes in both nations.   FBAR Information The FBAR Form can be considered as a reporting form for those US citizens who hold $10,000 or even more in a foreign financial account. Moreover, it is necessary for you to include the instruments like mutual funds, life insurance plans, accounts where you are considered as the signatory authority only.  FATCA Reporting – Form 8938 Certain taxpayers from the US who are holding some specific foreign financial assets with an aggregate value that exceeds $50,000 must report information about the assets on the Form 8938. This form must be attached to the annual income tax return of the taxpayers. Those US taxpayers who are residing abroad or who file a joint tax return can have the privilege of a higher asset threshold. Foreign Tax Credits Foreign Tax Credit is a non-refundable tax credit for the income tax which has been paid to the foreign Government due to the foreign income tax withholdings. This credit is mainly available for a taxpayer if he has either worked in a foreign nation or has some income from investments into foreign sources. There are some qualifying factors which would help in understanding if a taxpayer would be eligible to obtain a tax credit or not.  Foreign Earned Income Exclusion There is a concept of Foreign Earned Income Exclusion by which those citizens who are working outside can avail the advantage of the reduction in their taxable income. Taxpayers can also get the benefit of excluding their house expenses; however, this can be availed with the limit. There are certain rules as to who would qualify for this tax exclusion. Conclusion So, now with these important facts related to the taxation associated with the NRIs, it would be easier to have a clear understanding of the tax norms for the NRIs.

The top 10 myths busted for taxpayers in the US-2020.

The top 10 myths busted for taxpayers

in the US-2020.

It is quite obvious that there are some common misconceptions among the taxpayers related to various facts related to taxes. Some taxpayers feel paying taxes is not necessary and can be avoided whereas certain tax deductions have been labeled as loopholes. Some taxpayers even follow the bad tax advice from others blindly and land up in troubles. 

So, let us understand some of the major myths associated with the taxes in the US and debunk those myths to be better taxpayers.

 

Myth 1:- Filing of taxes is a voluntary activity.

Even if this can be considered as falsehood, there are a large number of people who believe in this. These people think that due to the Form 1040 instruction book, the tax system is voluntary and people are not legally liable to pay taxes.

Here the term voluntary means that every individual would find out how much tax they owe, but has no relations if the filling of taxes is done on time or not. Unless there is a legal dispute, it is a bad idea to think about such theories to contest with the IRS.

 

Myth 2:- Illegal activity is not taxable.

Even if performing illegal activities is wrong, it cannot be considered non-taxable. The income obtained from illegal activities is taxable. If the entire scenario is being considered from a tax perspective, then the IRS does not care whether income obtained is by robbing banks or by defrauding investors. When an individual is making money, the Government is entitled to receive its share. The person can be very good at covering the tracks but, if illegal income is made and on top of that tax cheating is done it is sure to be exposed.

 

Myth 3:- Pets can be claimed as dependents.

A person might love his pets up to any extent, but he cannot claim them as dependents. Pets indeed obtain half of their financial support from the masters; but, they are not humans. If a dependent is being claimed falsely, then it would be counted as a fraud and must be avoided.

 

Myth 4:- Students do not need to pay taxes.

It can be said that this myth is partially true. If a student is being claimed as a dependent of someone else who has an income less than $12,200, then he would not have to pay taxes. But, the students should file their taxes. If the student would have an employer who would be withholding money due to some purposes then the student can receive a refund.

 

Myth 5:- Online income is free of taxes.

This type of rumor might have started as those who are doing business online do not fill the Form W-9 and report their income to the IRS. But, the IRS does not consider income earned from online different from that of the income earned offline. Irrespective of the medium, if you are earning more than $400 you will have to declare the income on your tax returns.

 

Myth 6:- The IRS would file a tax return for you.

IRS can verify your tax returns but waiting for your returns to be filed by the IRS would be quite disappointing. Your tax returns have to be filed by you only and you cannot depend on the IRS for that.

 

Myth 7:- Home office deductions are equal to instant audit.

There was a time when this myth was almost considered to be the truth. But, with home offices becoming quite prevalent this fact has become a myth now. Claiming a home office would increase the scrutiny but they are quite common and reduce the fear of claiming a legitimate deduction.

 

Myth 8:- Lack of time to do taxes.

Since we have already covered the fact that taxes are not voluntary lack of time for not filing your taxes does not form a considerable factor anymore. There are several options available for making tax filing easier and lack of time cannot be considered anymore.

 

Myth 9:- Your tax mistakes are your accountant’s liabilities.

Even if you are hiring an accountant, the mistakes made in tax filing are your responsibilities ultimately. You should not assume that your accountant must have taken care of all details; rather you must double-check the details before the returns are filed.

 

Myth 10:- I don’t have enough money for being audited.

You might think that if your income is less you will not be audited by the IRS. However, your income has less connection with you being audited. Many other factors play an important role in your audits rather than your income. Even though the probability of being audited is more for those individuals who fall under the income bracket of $100k, still those falling below this bracket can also get audited. You must maintain a detailed record of any income which can be considered as questionable.

 

Conclusion.

So, these myths are the mysteries which many taxpayers in the US believe. However, these myths are far away from reality and taxpayers should avoid getting confused with these myths.

Step-by-step guideline on what to do if you cannot afford to pay your taxes

Step-by-step guideline on what to do if you cannot afford to pay your taxes

Step-by-step guideline on what to do if you cannot afford to pay your taxes

 

 The IRS had extended the tax return filing and payment deadline until 15th July 2020 for the Americans to alleviate the financial crisis faced by millions of Americans due to the pandemic COVID-19. However, the pandemic has led to the unemployment of millions and millions of Americans. So, even with the extension in the return filing and tax payment deadlines, it is quite difficult for some Americans to pay their taxes on time.

The IRS has a simple reminder for the taxpayers who cannot pay their entire amount of federal taxes which they owe. They should file their tax returns on time and pay as much as possible. By this, the interest and penalties of taxpayers would reduce and there would not be much accumulation of interest to pay back.

If a taxpayer plans to pay his taxes as much as he can afford, then the IRS has some convenient methods to do this i.e. by IRS Direct Pay Method, Electronic Federal Tax Payment System (EFTPS), Electronic Funds Withdrawal, Debit or Credit card, or by Check/Money Order, etc.

However, for those taxpayers who feel payment of taxes are unaffordable at the moment; they can follow a detailed plan.

Step1 – File by the new 15th July deadline even if it feels difficult to afford the payment on time

As said earlier, due to the pandemic COVID-19 the deadline to pay the Federal taxes has been pushed to 15th July 2020. However, with this extra time, taxpayers should not wait much more to file their taxes. Taxpayers must consult tax professionals for filling the forms. By this, the credits and deductions to lower the bill can be found out easily.

Many taxpayers might consider the option of the deadline extension. However, the extension would provide more time for filing the tax returns but not for 

paying the taxes. Even if there is an extension, the tax payment must be done on time. So, an extension should only be filed by the taxpayers if due to some reason the taxpayer is not able to file the tax returns on time.

 Step2 – Pay as much as possible by the tax deadline

This is also recommended by the IRS that the taxpayers should wait till the deadline, try to arrange for the tax amount, and pay off as much as possible. Some taxpayers even prefer discarding some of their unwanted materials in exchange for cash which can be utilized in payment of their taxes which are due.

Taxpayers can contact the IRS on the toll-free number to discuss alternate payment options. IRS might help the defaulter taxpayers with other payment options like a short-term extension to pay the taxes, an

agreement for installment, an offer in compromise, or by temporary delay in the collection by reporting that the taxpayer’s account is currently not collectible until the taxpayers can afford to make the payment.

Step3 – Keep paying the taxes you owe even after filing

Even after Tax Day, taxpayers would have a period of around 1 month or 2 months before the IRS would contact them about the rest of the tax payment. During this available time of 1month or 2 months, taxpayers should try to pay out as much as possible to reduce the balance left out.

In case the taxpayers are not able to make their complete payment by this time, the IRS would suggest options for making the rest of the payments in monthly installments.

 

Step4 – Rectify the problem

You should approach a tax professional and try to work with him or his team to ensure that you are not stuck with the problem of unaffordability related to tax payments. This can be feasible either by setting aside profits from a side business or by the adjustment of withholdings from your paychecks.

Your issues can be best identified and rectified by the tax professionals so that these issues are avoided in the future.

Conclusion

Hence, you can follow these steps and try to pay off as much tax as you can. Avoiding the aggregation of penalties is important to avoid any further financial and economic hardships.

How can a qualified tax professional help you e-file your taxes amidst the pandemic to maximize your refunds?

How can a qualified tax professional help you e-file your taxes amidst the pandemic to maximize your refunds?

How can a qualified tax professional help you e-file your taxes amidst the pandemic to maximize your refunds?

By hiring qualified tax professionals for your tax preparation, you are free from the stress of preparing the tax returns alone. The expertise of qualified professionals would ensure that you obtain all the deductions and credits which you are eligible to receive. You can gain peace of mind, avoid making mistakes while filing tax returns, and also save your time by hiring qualified tax professionals. 

Currently, the pandemic COVID-19 has created mayhem all around and has affected the economic condition of the entire country. Several businesses have been shut down and millions of Americans have lost their sources of livelihood. In such a deteriorating situation, obtaining a considerable amount of tax refund would be very helpful to ease the financial stress for some time.

If you are preparing your tax returns with the help of a qualified tax professional, your tax preparer would suggest you several methods to e-file by which you can obtain maximum tax refunds.

So, let us have a look at some of the methods to e-file suggested by your tax professionals for getting maximum tax refunds.

a.Claim all available tax deductions

Your tax preparer would suggest you to dig into all available tax deductions. There are many common deductions available such as charitable donations, medical costs, interest on mortgage and education expenses, etc. The deductions would be subtracted from your AGI (Adjusted Gross Income) thus, lowering your taxable income.  As your taxable income would be low, you would have to pay fewer taxes and you can obtain higher refunds.

However, there are some deductions which you might not be aware of or are very easily overlooked such as State Sales Tax, Student loan interest, Out-of-the pocket charitable contributions, Certain jury duty fees, Child and dependent care, Reinvested dividends, State income tax paid on returns of last year, Earned Income Tax Credit (EITC), etc.  You must keep good records of your deductions especially in case of charitable contributions. Moreover, your tax preparer would suggest you to ensure that you are claiming deductions for those organizations which have the status of “Tax-exempt” with the IRS.

b.Maximize your contributions made to IRA and HSA

Your tax preparer would suggest you maximize your contributions which you are making towards the IRA and the HSA. Traditional IRA contributions can help reduce your taxable income. The contributions made towards Roth IRA do not qualify for tax deductions but they can qualify for Saver’s credit if you can meet the income guidelines. In case, you are self-employed you can be able to contribute towards a certain self-employed retirement plan till 15th October 2020. 

Your pre-tax contributions to an HSA can also help lower your taxable income. Your tax preparer would suggest you to contribute more towards your HSA before the timelines are closed. You should have enrolled in a health insurance plan which has high deductibles that either meet or exceed the required amounts of the IRS. 

c.Use of best filing status

One of the major factors which can maximize your tax refunds is the choice of your filing status. You must inform your tax preparer about any of your major life changes before e-filing. Your relationship status on 31st December of a year determines your entire year’s filing status and you must use it while filing your tax returns. These options for filing status include Single, Married and filing jointly, Married and filing separately, Head of household or qualifying widower. If you could file your tax returns using two statuses such as “Single” and “Head of Household”, your tax preparer can calculate your taxes and find out which one would be beneficial for you in terms of more returns.

 

d.File your tax returns on time

Your tax professional would always suggest you to file your tax returns on time. This increases your chances of getting a maximum refund. The only exception to this is the case in which you have filed for an extension in the timeline to file your tax returns. The IRS charges penalties for not being able to file your income tax returns on time. Your penalty would be around 5% of your unpaid taxes for each month late up to 5 months from your tax filing deadline. Moreover, if you are not paying your taxes on time the IRS would charge penalties and interest on it. If there are penalties and interest levied by the IRS, then it is quite obvious for you to obtain low tax returns.

e.Report all your income

Many people do not report all income on their return. This can be intentional or unintentional but the IRS would charge penalties for this. If IRS uncovers your unreported income then it would charge penalties and interest on your unpaid taxes. Your tax professionals would suggest you to spend some extra time in reviewing your returns and make sure that you are not forgetting any source of income. Usually, the sources of income that are overlooked are the interest income, income from dividends, contract work, 529 contributions, charitable gifts, etc. You can maintain a spreadsheet and keep on updating your income sources every year to avoid mistakes while tax preparation.

Conclusion

Hence, with the help of these tips and methods, you are sure to maximize your refunds during these difficult times. If there is an error after filing your tax returns which would affect your refund amount, you can amend your return by filing Form 1040X.

Top #10 things to know about IRS and its working amidst the pandemic

Top #10 things to know about IRS and its working amidst the pandemic

Top #10 things to know about IRS and its working amidst the pandemic

The outbreak of the pandemic COVID-19 has brought a tough time for everyone. With the economic lives of people being hugely affected due to the coronavirus, the US Government has taken various steps for providing relief to the Americans.The Coronavirus Stimulus Package under the CARES Act is one such major step taken by the Federal Government which would be of certain help to the Americans for dealing with financial issues arising due to the pandemic.

The Internal Revenue Service (IRS) has been playing a major role in the implementation of the various tax laws which have been passed recently by the Federal Government. Along with the normal course of operational activities of the IRS associated with filing of tax returns and their processing, it is also working tirelessly towards the determination and distribution of the Stimulus payments to the eligible taxpayers.

Let us have a look at the major 10 things which we should know about the operations and working of the IRS during the outbreak of COVID-19.

a.Information Center for all queries

The official website of the IRS i.e. IRS.gov/coronavirus is the first place where the taxpayers can find answers to all of their queries related to tax returns and stimulus payments.All updates associated with tax returns processing and stimulus package would be posted by the IRS therein this website. The taxpayers should avoid calling up the IRS and check out the IRS.gov/coronavirus website for tax updates amidst the pandemic. 

b.Limited live assistance from IRS

The phone lines of the IRS and the Assistance Centers for taxpayers are to be non-functional for an infinite period.The IRS hotlines including service as well as compliance hotlines such as automated under reporter, collection functions, etc. are not operational for long. Moreover, the IRS has suspended all compliance activities related to tax such as audit and collection till 15th July 2020.So, taxpayers and tax professionals should not worry about missing the tax deadlines. The Local Taxpayer Assistance Centers are also not operational currently. 

c.All audits to be put on hold

The IRS has announced that all new audits have been suspended and would resume only after 15th July 2020. But, it is quite obvious for the taxpayers to expect that the IRS must utilize the audit power it has to prevent the erroneous tax refunds.The IRS would be filing filters that would help in stopping suspicious refunds such as Earned Income Tax Credit Returns, suspected identity theft returns, etc. till the taxpayers would be able to verify the returns.So, this freezing of the refund audits will continue and would be troublesome for taxpayers as they will not be receiving any prompt response from the IRS.Moreover, taxpayers can take advice from the local Taxpayer Advocate Service Office in case of facing any queries due to the withholding of audits and refunds.

d.Temporary respite if a taxpayer owes tax

The IRS has halted the enforcement of any tax collection till 15th July 2020. Moreover, all the pending collection alternatives by the IRS and any offers related to compromises in tax laws are also on hold till 15th July 2020. According to the provisions of the People First Initiative, liens, levies, and any restrictions on passport have also been put on hold.

e.Difficulty in reaching out to the IRS even after COVID-19 is over

The IRS would even have its phone lines and hotlines non-functional after the pandemic is over.After the normal operations start, the resources of the IRS would be occupied with the backlog of tax filing issues and people trying to contact the IRS for other tax filing assistance. However, the IRS would be providing other means such as email or e-fax by which taxpayers would submit their documents.

f.Tax returns are still being processed by the IRS

The stimulus payments are being processed by using the information related to the tax returns of 2019 or 2018. If an individual has not filed his tax returns for 2019 or 2018, then this is the right time to do it now. The returns can be e-filed easily and can get accepted in a day without any inconvenience.

 

g.No requirement of monthly installment agreement payment

 Under the provisions of the “People First Initiative”, the IRS has announced that taxpayers can skip their monthly installment payment during the period of 1st April 2020 to 15th July 2020. This would not be considered as a tax payment default by the IRS.

 

h.Account-related queries can be sorted by IRS transcripts

Taxpayers can obtain their transcripts by creating an IRS account online, review these transcripts and get solutions to any queries related to issues like previous AGI, amount of penalty, amount of estimated tax payments, etc.

i.Any hardship-TAS can be reached

Any taxpayer facing financial hardships and having a hold on their tax refunds can contact their local advocate for suggestions. However, the central TAS hotline would remain closed.

j.Stimulus payment will not be used by IRS tax collectors

The IRS has made it clear that it would not use the stimulus payment of any individual for paying off of any tax debt owed by the individual taxpayer.Hence, the IRS is playing a commendable role in helping the common people in improving their economic lives during this difficult time.

References

https://www.accountingtoday.com/list/10-things-to-know-about-irs-operations-during-the-coronavirus-pandemic

https://taxfoundation.org/coronavirus-tax-tracker-covid19/