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/

 

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. 

Who is considered to be an individual investor in the US?

Who is considered to be an individual investor in the US?

Who is considered to be an individual investor in the US?

In the US, the direct impact of investment falls on the taxes of individuals. If you are investing, it would have a different implication on your taxes. Nowadays, with the various taxes, related software filing up for tax as an investor is not too tedious and difficult in the US.

Let us find out the various ways by which an individual would be considered as an individual investor in the US.

Buying or selling of a security

One of the simplest methods by which it can be determined that you are an individual investor or not is either you have bought or sold any security throughout the year. Here security can mean stocks, bonds, index funds, cryptocurrencies or even mutual funds.

However, by simply buying some stocks the way you fill your taxes for the year is not going to change. The company whose stocks or bonds you have purchased must give you a dividend and you must be able to sell them, otherwise, there would be no impact on the way you fill your taxes. In case, the company whose stocks or bonds you have purchased gives you a dividend you need to report it as income. Now, again if you sell that particular stock either for a gain or a loss you will have to report about this particular transaction on your taxes.

By investing in mutual funds or index funds, you will obtain 1099-DIV and 1099-B which will cover all the activities they have generated. In case, you have made any investments with the help of a retirement plan such as 401(k) or a Roth IRA it is going to have a separate impact on the way you will fill your taxes.

Savings App           

On the purchase of stocks, you may not find it too relevant to consider yourself as an investor but there is numerous savings app available nowadays which help in saving more and turn you to be an investor. There is some savings app which will help in rounding up your purchases and thus save your money.

For instance, when you are purchasing by using the debit card of a particular company they will round up your transaction into the next dollar and your extra money would be invested on your behalf. Suppose, you have purchased food and beverages for a particular amount, it is rounded up and the extra amount is invested in a portfolio of exchange-traded funds. So, even if you are investing using these petty amounts you are an investor.

Type of investor

The type or category of investors you belong to is important when it comes to filing your tax for that particular year. A day trader or a pattern day trader is someone who can trade four times or even five times during a five-day period. The number of day trade is usually higher than 6% of the total trading activity taking place during that period. Moreover, a person can also be termed as a day trader if he is classified as a day trader by the broker and this happens in the case of distinct capital and margin requirements.

However, filing of taxes is going to be challenging even if you are a casual investor or a day trader. This is due to the heavy paperwork that is involved in the process of tax filing. But, if you have maintained your records then with electronic methods; tax filing should not pose as a threat for you.

Category of transactions                              

This is another simple method by which you can determine whether you are an individual investor or not. This is to think about the type of transactions you have done during the entire year.

For instance, you have sold some shares of stock and that will generate some gain or loss. This gain or loss will have to be reflected while filing the taxes. So, this clearly states you are an individual investor.

Hence, when you answer a few simple questions and analyze them it is easy for you to determine if you are an individual investor or not. While filing your taxes, you report about your transactions in Form 8949 whereas Schedule D covers the profits and losses.

What to do if you haven’t filed your taxes in the US?

What to do if you haven’t filed your taxes in the US?

What to do if you haven’t filed your taxes in the US?

There can be an array of reasons for taxpayers not to file their taxes in the US. For starters, an individual might not have filed their taxes because they cannot pay their taxes. Or the more common reason is that individuals get consumed with life and work and cannot get things aligned to be able to file their taxes on time.

Irrespective of what your reason maybe, it is essential that you file your taxes at the earliest. Simply because non-filing of taxes is a serious issue for the IRS. There are three straightforward outcomes when it comes to filing your taxes. Firstly, you do not owe any taxes to the government. Secondly, the government owes you tax refunds and thirdly, you owe taxes to the government.

While the first and second scenarios are still easy to live by, the third one can take a hefty toll on you. In the event that you owe taxes to the government, you are liable to pay fines and penalties on the top of the taxes that you are liable to pay. And things can get ugly, quite fast.

File your Tax Returns

For individuals who have not yet filed their taxes, they must start immediately. The first question that will come to your mind is, for how many years should I file my taxes. As per the IRS guidelines, you must file your taxes for at least 6 years to establish a good understanding with the IRS.

If there are any changes to the same, the IRS management will have to approve of the same. Depending on the situation, the IRS management can ask you for tax returns exceeding 6 years as well. Here are some of the common reasons for the same.

  • If there are relatively larger tax bills on your past filings. The absence of any withholdings for large wages, property taxes or Form 1099-Misc is red flags for the same.
  • The IRS would most probably do additional scrutiny if any businesses are involved since the possibility of non-compliance is higher.

Tips For Filing your Taxes

Citizens who have not filed their taxes and wish to do so, here are some tips that will help you get through.

  • It is essential to get a confirmation whether the IRS needs 6 years of taxes or beyond. You can either call the IRS to find out the same or reach out to a tax consultant for the same.
  • One more reason to file your taxes at the earliest is that the IRS will not pay older tax refunds. As per the IRS guidelines, it will pay refunds up to a maximum of 3 years from the date of filing. Thus, you might lose any refunds even if they are valid.
  • There is a good possibility that you might have to pay hefty fines on your taxes. The failure to pay and failure to file penalties can accrue up to 47.5% of your liable taxes.
  • The IRS usually starts a process called the substitute for return, if the due date exceeds three years. When you file your taxes, the IRS will compare your returns with the SFR (substitute for return). And this can be time consuming, sometimes these cases might take up to four months.
  • In the event you cannot pay your liable taxes, it is recommended that you reach out to the IRS and ask for an agreement. Depending on your needs, there are several typesof agreements that you can opt for.

Irrespective of your reasons, if you haven’t filed your returns, you must initiate the same at the earliest to minimize its impacts.

Reference:

https://www.hrblock.com/tax-center/irs/audits-and-tax-notices/get-back-track-irs-havent-filed-one-returns/

https://twocents.lifehacker.com/what-to-do-if-you-havent-filed-your-taxes-in-years-1803756859

https://www.irs.gov/taxtopics/tc153

How Much To Save Up For Your Retirement In The US?

How Much To Save Up For Your Retirement In The US?

How Much To Save Up For Your Retirement In The US?

A lot of us look up to retirement so that we can hang our boots and finally relax or take a break from all the running around. However, how well your retirement goes depends on a few important factors. The quintessential one being how much you save for your retirement.

Should you plan your retirement well in advance and align your savings and investments accordingly, the chances are high you will have a stress-free retirement phase. To aid you in the entire process of making your retirement a much happier place, here are some tips.

The amount that you need to put away for your retirement depends on the following factors.

  • Your age when you start investing for your retirement.
  • Your paycheck when you decide to save for your retirement.
  • The age at which you wish to retire.
  • The returns that you are expecting on your investments.

There is a simple correlation when it comes to saving for your retirement. When you start saving for your retirement early, you will end up setting aside a smaller chunk of the salary. And the reserve also holds good. The later you start, you must invest a larger chunk of your paycheck towards your retirement.

How Much Is Enough For Retirement?

Your lifestyle plays a crucial role in deciding the amount of money you would need for your retirement. If you wish to retire at 60 years and expect to live for another 30 years, you will need enough money to support you through that entire duration. You should consider the needs along with wants as well. A simple monthly budget will help you understand the amount. But unexpected medical expenses are something that you must also consider.

Estimating Your Requirements

There are several online calculators that you can use to estimate the amount you must set aside for retirement. As a general rule of thumb, when you are 35 years old, you would need to save about 1 to 4 times your annual income for your retirement. Similarly, when you are 50, the savings must be at 5 to 10 times your annual income. You can reach out to a trusted financial advisor if you need details on specifics.

Optimize Your Income Taxes

There are different ways to fund your retirement. Once you start optimizing your income taxes, you will find additional room for savings for retirement. Here are a couple of ways to do the same.

  • Withholdings

A lot of taxpayers withhold a lower amount from their taxes while declaring their W-4 Form. Eventually, the IRS refunds the amount at the end of the tax season. Should you opt to withhold exactly as much taxes as you owe, you will end up with some savings. You can then invest this additional amount into a tax-deferred retirement plan. Thus, do not forget to update your W-4 if there is any change in your filing status, income, employment, etc.

  • Refunds

And should you decide not to alter your withholdings, you can expect a refund from the IRS at the end of the tax season. You can use this refunded amount to fund your retirement. Depending on the amount that you receive, you can either put the entire amount into a tax-deferred investment account or a portion of it. If the refund is a considerable amount, you can opt to use only a portion of it.

Start saving for your retirement at the earliest and you will have to put away a smaller amount every month. This will give you a head start and the possibility of saving a higher amount as well.

Reference:

https://www.taxslayer.com/blog/how-much-do-i-need-to-save-to-retire/

New W-4: Adjusting Your Tax Withholding Just Changed

New W-4: Adjusting Your Tax Withholding Just Changed

New W-4: Adjusting Your Tax Withholding Just Changed

The IRS has recently introduced a new Form W-4. Due to this new Form, adjusting your withheld taxes from your paycheck would take a bit longer than usual. The only group that will not be affected by this form is taxpayers who are married and filing jointly.

Form W-4‘s format is long and essentially gets rids of a few allowances that the IRS earlier allowed for you and your family members. The form now asks for even more accurate information, which might even force you to take a look at the previous year’s tax return. It is in line with the Tax Laws that President Trump brought into effect in 2018.

As a taxpayer, it is essential that you get your withheld taxes correct. If you withhold a bit too much, you will impact liquidity or the salary that you take home. And if it is a bit too less, you will owe taxes to the IRS by the end of the year.

Who Needs The W-4?

The new form does not apply to workers unless there is a change in their tax status form the previous year. If your tax status remains the samefrom the last year, you don’t have to file the new W-4 Form. However, new employees and the ones who have had experienced a major life event such as getting married or giving birth to a child must file Form W-4.

The form is also applicable for taxpayers who aren’t too happy about their 2019 taxes. Whether you owe taxes of Uncle Sam or got smaller than expected refund, you must file W-4. Though it might seem a bit complicated, it actually simplifies the process that existed earlier.

 Benefits For Married Couples

Married couples are one of the demographics, that benefit the most from the newly introduced form. As long as both the individuals follow some instructions, the new Form is relatively easier for married couples.Married couples now merely must check a box in the returns. This box indicates that both of them are working and the amount of withheld taxes will be calculated based on that. This process is way simpler than the earlier one, where one had to follow a lengthy worksheet with nine steps to determine how much taxes should a couple withhold from their paychecks.

Though this process is simpler, there is a catch in Steps 3 and 4. Should a couple select the working box, the higher earning spouse must fill out Steps 3 and 4. These ask the taxpayers details about dependents, deductions, any additional withholdings and an additional source of income.The previous step is essential in more than a few ways. Since it plays a crucial role in deciding the taxes that are withheld. If both individually fill additional income Step 4, the amount of taxes withheld from the paychecks will be considerably higher. Similarly, a couple decides to fill in details for dependents or deductions individually, the taxes withheld will be lower. Though it might sound attractive at first, you might end up with a hefty tax bill at the end of the tax season.

Ensure No Surprises

Since it is a new Form, filing it up diligently will ensure that you don’t have to encounter any surprises. One of the easiest ways is to keep the details of the previous year handy. Details such as other sources of income, deductions that you had claimed and tax credits that you received for dependents.

Spending a few minutes to understand and fill the form will ensure that you are neither overdoing or underdoing your withheld taxes.