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/

 

 

 

Filed your 2019 Tax Returns with the IRS? Here’s all you need to know

Filed your 2019 Tax Returns with the IRS? Here’s all you need to know

Filed your 2019 Tax Returns with the IRS? Here’s all you need to know

Under the provisions of the CARES Act, the Americans have been provided with Stimulus payment for certain relief from the economic distress caused due to the pandemic COVID-19. The amount you would receive as Stimulus payment or as the Economic Impact Payment (EIP) is being calculated by the IRS based on the information provided while filing tax returns for the year 2019.  

However, there can be instances in which even if the tax returns for 2019 have been filed but the amount received as Economic Impact Payment (EIP) is quite different from the amount expected.

 Economic Impact Payment (EIP) is quite different from the amount expected

a.If the 2019 tax returns have not been filed or the processing of the 2019 tax returns have not been completed by the IRS

The calculation for the amount you would receive as Economic Impact Payment is done based on their data of 2019. In case you have not filed his tax returns for the year 2019, then in such a case, the IRS would consider the information of the tax returns for the year 2018.

Moreover, suppose you have already filed your tax returns for the year 2019 but the returns have not been processed by the IRS. In such a case, the IRS would use your information of the year 2018 and calculate your EIP. This might lead to receipt of a different amount as the various life events which might have occurred in 2019 would not have been included during the calculation.

b.If the qualifying criteria for the additional $500 are not clear

You would receive an additional $500 if you have claimed your children for the Child Tax Credit during filing your tax returns. To claim a child for the Child Tax Credit, you must be related to the child, lived with him for more than half of a year, and must be bearing half of his expenses.  The child must be below the age of 17 years at the end of the year for which you have filed the tax returns. 

You can also claim your foster/adopted children, your siblings, your nieces, or nephews if they satisfy the qualifying criteria. If the claimed child has an individual taxpayer identification number (ITIN), then he would not be considered for an additional payment of $500 in the EIP. You would receive an additional $500 only if the claimed dependent has a valid Social Security Number (SSN) or an Adoption Taxpayer Identification Number (ATIN).

 

 

c.If you have claimed a dependent who is a college student

 According to the CARES Act, if you have claimed your child or dependent who is a college student then you would not be eligible for receiving the additional $500. Suppose, you have claimed your dependent who is a college student in your 2019 federal income tax returns. However, your dependent is more than 17 years of age and would not be eligible for getting you the additional $500 in the EIP.

d.If claimed dependents are above the age of 17 years or are your parents/relatives

In case during your tax return filing, you have claimed your parent or any other relative who is of the age 17 years or older, then that dependent will not be eligible to receive a $1,200 Stimulus payment. Also, you will not be eligible to receive an additional $500 in your EIP because your parent or other relative is not satisfying the qualifying criteria i.e. being above the age of 17 years.

However, if you are not claiming your parent or relative as a dependent and neither anyone else is doing so for their tax return of 2020, then your parent or relative would be eligible to obtain the $1200 stimulus payment on the tax return filed for 2020 next year.

e.If past-due support to a child is deducted from the EIP

Your past-due child support can be a reason for the offset of your EIP. In such a case, if an offset occurs you would receive a notice from the Bureau of the Fiscal Service. In case you are married and have filed your tax returns jointly, along with filing an injured spouse claim during your tax returns of 2019 or 2018(in case the tax returns for 2019 have not been filed) the payment would be equally divided and sent to you and your spouse. Your EIP or your spouse’s EIP would be offset depending on who owes the past-due child support. 

 

 

If you received an incorrect EIP

  • You need to be very clear about the eligibility criteria, know the eligibility requirements of your family, and ensure that you meet the qualifying criteria.
  • You might have received a lesser amount of EIP than that you expected. However, you might be eligible to receive an extra amount of EIP next year while filing your tax returns for 2020.
  • If you are eligible, you can claim additional credits on your tax returns for the year 2020 while filing for the tax returns.
  • You must keep the letter you receive by mail after obtaining your EIP as records for future use.
All you need to know about the relaxed e-filing rules amidst COVID-19 pandemic

All you need to know about the relaxed e-filing rules amidst COVID-19 pandemic

All you need to know about the relaxed e-filing rules amidst COVID-19 pandemic

With the impact of the pandemic COVID-19 becoming worse for the Americans, the Government has imposed lockdowns and has been asking people to stay indoors. In such situations, the IRS has also taken certain effective measures to alleviate the distress of the common people. One of the major initiatives taken by the IRS for providing some relief to the people is by the extension of the tax return filing and the tax payment deadline due to 15th April 2020 up to 15th July 2020.

Another important step taken by the IRS amidst the outbreak of the COVID-19 is the relaxation in the rules related to e-filing. The IRS has allowed its employees to accept the documents related to tax by email which can be accompanied by the images of signatures.

IRS announces relaxed e-filing rules 

IRS announces relaxed e-filing rules 

On 27th March 2020, the Treasury Department had announced that the IRS has made temporary provisions for allowing its employees to accept images of signatures and digital signatures in case of determination/collection of taxes. Earlier, the IRS employees were not allowed for accepting any tax-related documents from taxpayers by email; however, the IRS has granted permission for accepting documents and also transmitting documents to taxpayers by email/secure messaging system. This has made it easier for both IRS employees and the taxpayers also to process their requests without any physical contact.

Major security threats due to relaxed e-filing rules

Major security threats due to relaxed e-filing rules

Many tax experts have highlighted their worries about a wide range of security threats that can arise due to the relaxed e-filing rules introduced by the IRS.

  1. Transmitting sensitive data via e-mails has been considered as non-complaint according to several industry standards. If this relaxation by the IRS is considered as normal, then it would lead to an increase in the number of cyber-crimes.
  2. When a taxpayer sends an attachment through the email, the attachment gets saved on the servers of the IRS and is not encrypted. As a result of this, anyone who has access to the emails can get hold of the information easily. This poses to be a big security risk.

 However, in these difficult times when it is not advisable to come to offices, it is necessary to have some type of concessions which would make it easier for tax professionals to do their work from home.  The IRS has made it necessary for the taxpayers to attach a cover letter which would be considered as a form of consent from the taxpayer. This will act as an acknowledgment that the taxpayer knows about sharing his data, the consequences and the responsibility of any liability are upon him.  

Sending data securely to the IRS

1.To have knowledge about where the data is and is being handled by whom

Taxpayers should try and acquire some knowledge about where and how their sensitive data is being stored. They must check with their accountant on where their data is being stored, who has access to their data, and what kind of backup is being utilized for their data.

2.To know about encryption

Encryption is the primary method by which data can be kept secure. Two major types of encryption would be used by the accountant or IRS for keeping data safe i.e. 256-bit AES and SSL/TLS. The 256-bit AES is used in banks whereas the SSL/TLS form of encryption is used by standard internet. Taxpayers must ensure that their tax preparers are using those applications which make use of these two encryption techniques.

3.Utilization of multifactor authentication

Mostly, secure systems use multiple levels of authentication so that malicious parties would not be able to get hold of the data. For instance, if the malicious party gets the password they will not be able to get the data as there would be another level of authentication such as fingerprint authentication. So, the system by which taxpayers are sharing their data must have different levels of authentication such as passwords and then code generated on phone or by the taxpayer’s fingerprint.

4.Avoid sharing sensitive data over emails

Tax experts advise that even though sending data by email is the most common method and have some level of encryption, it cannot be trusted completely. Rather, by encrypted file-sharing system secure connections can be created between the machine and the server where the data is being stored. By using these encrypted file-sharing systems, sensitive data transfer can be done without any threat by a taxpayer and his accountant.

Hence, relaxed e-filing rules by the IRS have made the tax return filing process convenient for both IRS employees and the taxpayers. However, the implementation of secure methods for data transfer would prevent the occurrence of scams and losses.

References

https://www.cnbc.com/2020/04/07/irs-relaxed-e-filing-rules-during-covid-19-poses-big-security-risks.html

 

 

All you need to know about State-specific Tax deadlines and COVID-19

All you need to know about State-specific Tax deadlines and COVID-19

All you need to know about State-specific Tax deadlines and COVID-19

The pandemic COVID-19 has affected the economic lives of the Americans in a very adverse manner. The Federal Government and the State Government have taken initiatives to reduce the stress of the Americans by bringing up numerous changes in the tax laws.

The Federal Government has extended the deadline for filing tax returns and also payment of taxes to 15th July 2020. There are some states which have aligned to the changes in the Federal tax laws and have extended their deadlines as well. However, there are some other states which are still charging interest on the non-payment of taxes on time.

 

Let us know about the changes in some of the State-specific tax deadlines made due to the outbreak of COVID-19.

a.Alabama

1.Alabama has postponed the tax returns filing and payment date from 15th April 2020 to 15th July 2020 for the below-mentioned categories of taxes.

  • Individual Income Tax
  • Excise Tax for financial institutions
  • Corporate Income Tax
  • Business privilege Tax

2.These tax reforms include relief on the payment of tax on self-employment income and the estimated income tax for the year 2020.

3.Penalties for the late payment of Sales and Use tax have been waived for small businesses. 

 

b.Alaska

  •  The Alaska Legislation has extended all tax returns and payments administered by the Alaska Revenue Tax Division due for 15th April 2020 until 15th July 2020.
  • No penalties or interest would be charged for the late payment of the taxes during this period.

c.Arizona

  • In Arizona, the deadline for the filing of tax returns and payment of State Income Tax due on 15th April 2020 has been extended to 15th July 2020.
  • This extension in the deadline is applicable for individuals, corporations, and fiduciaries.

d.Hawaii

  •  In Hawaii, the taxpayers who are due to file their State Income Tax returns or pay the State taxes from 20th April 2020 to 20th June 2020 can do that by 20th July 2020.
  • This extension is applicable only for the Hawaii income tax return filing and payment; and not applicable for estimated income tax payment, franchise tax, withholding tax, general excise tax or public service company tax.

 

e.Georgia

  •  The Governor of Georgia has announced that there would be an extension in the deadline for filing of Georgia’s income tax returns.
  • The new deadline has been determined as 15th July 2020 which is per that of the federal deadline.

f.Idaho

  •  The deadline for filing Idaho’s Income Tax returns has been extended till 15th June 2020.
  • In this case, it is advisable to complete both Federal and State tax return filing by 15th June 2020 so that the returns can also be obtained on time.

 

g.North Carolina

  • In North Carolina, the deadline for filing state tax return has been extended to 15th July 2020.
  • But, interest would be charged on any tax payment which is made after 15th April 2020. So, taxpayers should pay their tax soon to avoid being charged with interest. 

 

h.Virginia

  •  The Virginian State Government has extended the State Income Tax return filing date to 1st May 2020. 
  • However, interest would be levied on any late payment of State Income Tax which is due within 1st April to 1st June 2020. It is advisable to file the returns and even pay the taxes soon.

 

i.New Jersey

  • In New Jersey, the timeline to file and pay the individual gross income tax, corporation business tax, and partnership tax for the year 2019 has been extended until 15th July 2020.
  • This extension of the deadline is also applicable for the 1st quarter estimated tax payments.

However, all other payments of tax and filing of returns remain de on their original date which also includes the 2nd quarter estimated tax payments.

j.New Hampshire

  • According to the New Hampshire Department of Revenue Administration, there would be no changes in the deadlines for payment and returns of business profits tax, business enterprise tax or any other tax which is administered by the Department.
  • The interests on non-payment of taxes would be charged from 15th April 2020 onwards.

 

 

k.Montana

  • Montana has made an extension in the deadline for the filing of tax returns and for the payment of individual State income tax to 15th July 2020.
  • There has also been an extension in the deadline for making the payment of the 1st quarter estimated tax payments to 15th July 2020.

Hence, these are some of the States which have made certain changes in their tax laws for bringing some relief to the Americans. However, for detailed information on the State tax law changes the State tax Consultant must be consulted.