What Indians in the States Should Know About Filing as a Sole Proprietor

What Indians in the States Should Know About Filing as a Sole Proprietor

Of course, being your boss comes with its perks: Flexible working hours, flexible deadlines, control over your career trajectory, etc. However, those aren’t the only perks of a sole proprietorship. Running a one-person show has more advantages than you would expect.  

For starters, it’s straightforward to set up. Low startup costs and no need for a formal structure make it simple to set up such a business entity. In addition, most individuals who have their own business don’t even know that they are considered sole proprietors by the IRS. 

Secondly, if well-understood, tax preparation, and filing become much more straightforward when filing as a sole proprietor. For instance, in a sole proprietorship, there is no distinction drawn between your business and yourself. 

In simple terms, you are considered both business and individual for tax purposes. In technical terms, this is known as a ‘pass-through’ entity—all business income passes through to the business owner. 

Of course, this is taxable and must be declared in the individual’s tax return.

Who Is Likely to Be a Sole Proprietor?

Sole proprietorships generally do not require much in terms of brick-and-mortar start. Therefore, becoming an individual business owner can be easy. 

Sole proprietorships are dominated by professionals who can work remotely or travel to customers. Common professions under this type of business formation include:

  • Freelancers (photographers, web developers, copywriters, editors)
  • Business consultants or public speakers
  • Professional cleaners and organizers
  • Home healthcare service providers (physiotherapists, personal trainers, at-home radiology services)
  • Landscapers, etc. 

What Sort of Taxes Do Sole Proprietors Need to Pay?

What-Sort-of-Taxes-Do-Sole-Proprietors-Need-to-Pay

As a one-person team, sole proprietors are both bosses and employees. This means, when filing as a sole proprietor, there are a few additional taxes that you need to pay over and above your income taxes.

Sole proprietors are responsible for paying:

  • Federal and state income taxes

All sole proprietors must declare their business’ profits and losses, as well as any other personal income. The IRS will decide tax brackets and tax bills based on the combination of these two factors.

  • Self-employment taxes

If you were to work for an employer, you would have to withhold a certain amount of your pay, which is meant for FICA taxes (Social Service and Medicare). However, being your own boss means that you can make these contributions while paying your taxes. 

  • Federal and state estimated taxes

When employed in an organization, employers withhold taxes from your paycheck for you. On the contrary, as a self-employed individual, you must budget for estimated taxes owed for your business and pay them throughout the year. Ideally, you should estimate the total tax bill for the year, and make quarterly payments as required by the IRS. 

Which Deductions Do Sole Proprietors Qualify For?

Like any other organization, business expenses are deductible and can reduce your tax bill. Therefore, keeping separate checkbooks for business and personal expenditures is a good habit to follow. 

As long as you have accurate and detailed records of the money spent for profit, you can claim deductions for the following:

  • Automobile and transport expenses

If you depend on your vehicle to keep your business running, you can deduct some of the expenditures you make to commute. You could choose to claim deductibles using either the Actual Expense Method or the Standard Mileage Rate

  • Start-up costs

Once your business is functional, there are many operational costs that business owners must incur to keep doors open: repairs, advertising, office supply purchases, and utilities

These expenses can be deducted from your taxable income up to a limit of $5,000 for the first year you’re in business. After that, any remainders can be removed over the next 15 years.

  • Professional and legal fees

Seeking professional help from lawyers, accountants, and consultants comes with hefty fees. Luckily, such services are deductible as long as you can provide a receipt and proof of service done for your business.

  • Insurance

You can deduct any premiums paid toward insurance for health, property damage, loss from theft, etc., from your taxable income. This falls under the ambit of a business operating expense.

  • Courses for continuous professional developmen

You may need to upskill from time to time to continue running your business. Therefore, any educational fees paid toward courses that enhance professional abilities are tax-deductible.

Also read: 14 Tax Breaks for Filing as Self-Employed NRI in the US

Which Forms You Must Submit for Your Tax Return?

Being a sole proprietor has different taxation rules, and AOTAX is here to help Indian professionals who dream of being their boss.

Apart from the documents required for your tax filing, the following are required:

  • Form 1040, Schedule C

You must fill the Schedule C, Profit or Loss from Business (Sole Proprietor) of Form 1040. The Schedule consists of five parts: 

Part I: Income, 

Part II: Expenses, 

Part III: Costs of Goods Sold, 

Part IV: Information on your Vehicle, 

Part V: Other Expenses. 

Business owners should keep the following handy:

  1. Business Income Statement
  2. Mileage records (if you plan on claiming deductions for the use of your vehicle to do business)
  3. Inventory count and valuation (if you sell any sort of product)
  4. Records and receipts of all expenses 
  • Schedule SE

If your business earned more than $400 worth of revenue in the year, as a sole proprietor, you must report and pay your FICA taxes (Social Security and Medicare).

Consulting a Tax Professional

Financial advisors can help you set goals according to your business needs while maximizing your tax savings. For instance, you may want to consult a professional to help you prepare for filing as a sole proprietor—-and AOTAX is the best out there for Indian professionals. 

With close to 20 years of experience, we at AOTAX are well-versed in US taxation laws and how they apply to Indians working in the US. Therefore, we can help you optimize your tax strategy in the best way possible. Sign up for free today!

14 Tax Breaks for Filing as Self-Employed NRI in the US

14 Tax Breaks for Filing as Self-Employed NRI in the US

Of course, being your boss comes with its own set of perks and perils: you can wear your pajamas to your home office or take a day off anytime you like. However, these advantages look bleak when you sit down to file your taxes, don’t they?  

Moreover, tax filing as self-employed gets complicated if you are a self-employed non-resident Indian (NRI) in the US. So, we’ve put together a guide to help NRIs claim their tax breaks and reap the benefits.

Recommended: Tax Tips for the Self Employed NR Indians in the US

What are the Tax Implications for Self-Employed NRIs in the US?

What-are-the-tax-implications-for-self-employed-NRIs-in-the-US

There are over 3.1 million NRIs in the United States, and most of them are self-employed. The Tax Cuts and Jobs Act (TCJA) of 2017 provides a 20% tax deduction on qualified business income (QBI). 

NRIs and US residents can claim this deduction on their QBI. Thus, any income you earned while in the US is eligible for this deduction which expires in December 2025. In addition, there are 28 other deductions you can claim during tax filing as self-employed. Below we list out 14 such deductions: 

14 Deductions and Benefits of Tax Filing as Self-Employed Individuals in the US

14-deductions-and-benefits-for-filing-taxes-as-self-employed-individuals

Freelancers and small business owners often worry about paying a significant chunk of their earnings to the IRS as taxes. However, they can avail of 28 other deductions and reduce their tax burden while filing as self-employed

In addition, they can reinvest the saved money to grow their businesses. 

Let’s take a look at some of these deductions:

1) Self-employment tax deduction

Self-employed individuals must pay 15.3% of their income as self-employment tax. The 12.4% goes to social security and 2.9% to Medicare. 

This tax is paid by employees and employers jointly. However, you have to pay the entire amount as a self-employed individual. The good news is that you can deduct half of it from your taxes while filing as self-employed.

2)  Home office deduction

If you work from home, you can claim a tax deduction for it. However, there are two formulas for calculating the amount: standard and simplified. For the standard option, you must keep track of all expenses such as electricity bills, repairs, and so on.

There is a pre-determined IRS rate for the simplified formula that changes each year. The current rate is $5 per square foot, and your home office should be no more than 300 square feet.

The best way is to calculate which formula provides the most benefit for you and apply it accordingly. For example, you can debit mortgage interest and depreciation if you own the home.

3) Deduction for internet and phone bills

Nowadays, almost all businesses are online and have a website. In this tax benefit, you can claim the costs of running the website, including internet connectivity. 

Moreover, if you work from home and have a single phone line, you can deduct 100% of long-distance business phone calls. Nevertheless, if you have a second line for work only, you can claim back the entire phone bill from your taxes.

4) Health insurance premium

If your spouse’s healthcare plan does not cover you, deduct your healthcare premiums from your tax bills. However, if your plan covers your spouse, dependents, and children under the age of 27, you will gain extra benefits.

5) Meal deduction 

The burger you ordered for work lunch is not tax-deductible. However, meals ordered during business travel or to entertain a client falls into this category. 

The cost of entertainment, on the other hand, is not covered. Only food and beverages purchased from a restaurant qualify for this deduction. Currently, a full deduction is allowed, but it will expire after December 20, 2022.

6) Travel deduction

This deduction is available for business trips to meet new clients or learn new skills. While it covers the entire cost of transportation, only 50% of meals are covered. Moreover, the travel should be away from one’s work city and purely for business reasons.

7) Vehicle use deduction

If you are a baker, you can deduct the cost of driving your car to deliver your sweet treats. Instead, you can opt for the standard rate of 58.5 cents per mile. 

Alternatively, you can opt for actual expenses that require you to record the times you drove your car for work. You can also claim tax incentives on vehicle repairs, insurance, and depreciation. Choose the formula which gives you the most benefit.

8) Interest deduction

The interest you pay on your business loan may be credited back to you through tax refunds. Nevertheless, you should use it for business purposes. For example, if you use the money for a quick trip to Hawaii, you will not receive tax benefits.

9) Education deduction 

Being a student for life not only keeps you young but also generates tax benefits. As a result, taking courses to improve your current business skills will earn you a tax deduction. However, if you are a travel agent, a drawing course on Craftsy is not tax refundable.

10) Deduction for business insurance

Insurance is taken to protect your business, office space, and equipment, such as fire insurance, car insurance, and credit insurance, which is also tax-deductible.

11) Rent deduction

Renting office space, office equipment, or canceling a business lease is tax-deductible. However, you cannot deduct the rent if you own the space.

12) Deduction for startup costs 

Startups can claim a maximum of $5000 for a business. In addition, startups can deduct their market research costs, travel expenses, attorney and accountant fees, and advertising costs in this segment. If their startup is an LLC or corporation, they can deduct an additional $5000 in organizational costs.

13) Advertisement deduction

Money spent on Facebook and Google ads, as well as on billboards, are tax-deductible.

14) Deduction for retirement plan contributions

This deduction is an investment in your future security. When you purchase a Simplified Employee Pension plan, the premium is tax-deductible.

Recommended: Here’s all you need to know about SEP IRAs for the self-employed. – AOTAX.COM

These and other deductions are detailed in Schedule C of Form 1040, downloadable from the IRS website. Take advantage of it now and reap the rewards later. First, however, keep all records, receipts, and documents for the mentioned expenses if you are filing as self-employed. If the IRS conducts an audit, these will be used to support your claims.If you are a self-employed NRI in the United States and are unsure how to file your taxes, contact AOTAX. With over 15 years of experience in US taxation laws, we have helped over 2 million tax compliant. Our tax experts will assist you in tax filing as self-employed.

Expert Tips on How to Save BIG on Income Tax Filing

Expert Tips on How to Save BIG on Income Tax Filing

To file a yearly tax return is unavoidable for millions of people in the United States. However, the IRS granted everyone until July to file their tax returns last year because of the COVID-19 pandemic. Since no such extension has been offered this year, you will have until April 15 to submit your forms. 

However, just because you have the option of filing later does not mean you should. To file early this year, you must do it in February. In February, the IRS will accept returns for the 2021 tax year.

Early filing can result in a more accurate return, more time to pay a tax payment, and a lower risk of identity theft related to taxes. In addition, there is no reason to wait for individuals with simple tax returns.

This article will see why claiming tax returns early on is beneficial and how can AOTAX help Indians working in the US. 

Why File Taxes Early?

Although many taxpayers file their tax returns on or before April 15 each year, there is no need to put it off until the last minute. Indeed, submitting your tax return early can make sense for several reasons, including obtaining your refund faster and reducing your risk of identity theft.

Even if you don’t file early, there are compelling reasons to start your tax planning as soon as possible. For example, it offers you the time you need to gather the documents and information you’ll need to claim all of your deductions—avoiding the stress of rushing for receipts at the last minute.

The Benefits of Filing Taxes Early

There are several advantages to filing tax returns early instead of waiting until Tax Day:

1. File early for a faster refund

You may prevent procrastination, get peace of mind, and cross this critical item off your new year’s to-do list by filing early. So, why not submit yours once the IRS announces that it will begin processing returns?

The IRS issued refunds to 129.8 million filers for the 2020 filing season, averaging $2,815 per refund. There’s no reason to let the government keep your money for any longer than necessary if you have money flowing to you. In addition, because the IRS will not be as busy early in the tax season as it would be in April, filing sooner means a faster refund.

Some people rely on their tax refunds to cover significant expenses. If you file early, you’ll get the money sooner and avoid having to take out an expensive short-term loan to meet those charges, which is especially important if you’re still paying off your holiday obligations.

2. File early to avoid identity theft

File-early-to-avoid-identity-theft

The sooner you file, the less time a fraudster has to file in your name and steal your money. This can cause havoc, especially if the fraudster claims bogus deductions, fails to declare income, or otherwise taints a tax return filed in your name. 

It might take months to clean up a mess like this. Unfortunately, you may not realize you’ve been a victim of identity theft until the IRS alerts you to a potential problem with your tax return. The IRS warns that you should be on the lookout for tax-related identity theft if:

  • According to IRS records, you have to pay money for an employer you did not work for.
  • Due to a duplicate Social Security number, you cannot e-file your tax return.
  • When you haven’t taken any action, you receive an IRS notice that your current online account has been accessed or disabled.
  • You get a notice from the IRS that an online account in your name has been created (and you did not make it.
  • You receive a letter from the Internal Revenue Service (IRS) inquiring about an unfiled tax return that appears suspicious.
  • You get a tax transcript in the mail even though you didn’t ask for it.
  • You receive notification from the IRS that you owe extra tax or that your refund has been offset, or that measures have been taken against you for a year in which you did not file a tax return.
  • You were given an Employer Identification Number (EIN) even though you didn’t ask for one.

3. File early to avoid the tax-season rush

Filing early allows you to fully comprehend any changes in tax legislation and deal with life situations that may affect your filing status. Last-minute mistakes can result in audits, resulting in penalties and interest. This premise is more essential than ever, given the Tax Cuts and Jobs Act (TCJA).

Your certified public accountant (CPA) or other tax preparers will be less busy than in April in January and February. Early access implies your CPA will have more time to properly analyze your case and assist you with your tax return.

You will need information from your most recent tax return, whether you’re purchasing a house or going back to school (and applying for financial aid). You will have the most up-to-date information if you prepare your taxes early.

4. Avoiding amended returns

You’ll have more time to file a correct return if you start early. An incorrect return will most certainly be rectified. Audits are more likely to occur when returns are amended. 

Here are some things to keep in mind as you strive for precision:

  • Official documents contain errors. W-2s, 1099s, interest statements, and anything else used to substantiate a deduction should all be checked. In addition, mistakes are made by businesses, banks, and financial organizations. Before you file, ensure you correct any such errors.
  • Early filing may result in the loss of essential documents, such as a 1099 or K-1 that arrives late. Therefore, double-check that you have all the necessary documents before clicking “submit” or dropping your return in the mail.
  • Amendments that are not complete. If you have to change your return, don’t just fix the parts that benefit you. Anything incorrect should be corrected.
  • Changes to tax forms. Form 1040 has changed due to the Tax Cut and Jobs Act (TCJA) of 2017. If you previously filed Forms 1040-EZ or 1040-A, you will no longer be able to do so. If you’re above the age of 65, you can now use the new 1040-SR “U.S. Tax Return for Seniors”.
  • Legislation enacted before April 15 may not be implemented into paper tax forms or outdated tax software. So keep an eye on the news. Also, keep an eye out for any alterations that may have gone unnoticed. You can file an updated return if necessary.

5. Time to save

time-to-save

If you owe the IRS money, filing early provides you more time to save. However, even if you owe the IRS money, there may be a compelling reason to file your tax return right away. 

You don’t have to pay any taxes you owe until the filing deadline if you file your return in the middle of January. However, if you prepare your Form 1040 ahead of time, you will have more time to coordinate your payment. 

In addition, those that need to calculate out how much they will owe the IRS will benefit from the extra time.

Waiting to find out you owe more than you anticipated could put a strain on your finances. So, to avoid an unexpected tax bill, the IRS recommends monitoring your withholding and tax payments in the fourth quarter of the year.

6. Avoiding a tax extension

If you file your tax return early, you may not need to file an extension. Rather than being a financial need, time extensions are frequently required owing to disorganization. 

Some people who wait until the last minute to file their taxes simply need more time to hunt for more deductions or gather receipts.

If you rush the process too close to the deadline, you’ll almost certainly need the assistance of a tax professional to help you organize your finances and file your return.

Even worse, if you file an extension but don’t pay what you owe if there is a balance owing, the IRS will charge you interest and penalties on the unpaid tax bill until it is paid in full.

What Happens If You File Your Taxes Late?

Most people have until April 15 to file their federal income tax returns and pay any taxes they owe. However, the IRS is authorized by law to impose penalties on taxpayers who fail to file a tax return or pay taxes owed by the due date. In the absence of reasonable cause, a failure to file a penalty is assessed on returns filed after the deadline or extended deadline.

What are the consequences of filing taxes late?

Is a penalty imposed by the Internal Revenue Service for not filing taxes on time? Yes, there is: 

  • For each month or part of a month that your return is late, the combined penalty is 5% (4.5% late filing and 0.5% late payment), up to a maximum of 25%.
  • The late filing penalty is imposed on taxes that are not paid by the due date. Therefore, the total tax displayed on your return fewer amounts paid through withholding, estimated tax payments, and allowable refundable credits equals unpaid tax.
  • If you still haven’t paid after five months, the failure to file a penalty will be increased to 25%; however, the failure to pay fine will remain in effect until the tax is paid.
  • Failure to file and pay results in a total penalty of 47.5% of the tax (22.5% late filing and 25% late payment).
  • If your return is more than 60-days late, the minimum penalty is the lesser of $435 or 100% of the tax that must be declared on the return.

The Bottom Line

Many people wait until the last possible moment to file their federal income tax returns every year. Despite this tendency, there are several reasons to file your taxes as soon as feasible. 

You should file your return as quickly as possible if you are eligible for a refund. There are additional benefits to filing early for individuals who owe a balance.

Are you looking at filing your taxes early? Then, AOTAX can relieve you of this burden by filing your Tax Returns for you.

We are Registered Tax Agents with vast hands-on expertise, and we take great pride in assisting our clients in achieving their objectives. Thanks to a team of highly skilled and experienced Tax Accountants, we do everything we can to reduce your tax liability while making the overall taxation process as efficient, simple, and cost-effective as possible.

You can get 25% off on filing taxes before 28th February 2022. In addition, you can earn a $10 referral bonus if you refer your family members or friends to our tax services. 

The person you refer and who pays taxes through our services is also eligible for this referral bonus. This bonus amount can be used to deliver their tax services or exchanged for an Amazon gift card.Contact us if you are an IT professional working in the USA and looking at filing tax in the USA.

How to File US Taxes as an Indian H1B Visa Holder?

How to File US Taxes as an Indian H1B Visa Holder?

After a heady new year celebration, it’s time for US residents to put their nose to the grind and file their taxes. If you are an H1B visa holder, you are also required to follow suit, provided you qualify for the substantial presence test.

The tax filing for Indian H1B visa holders process may get tricky as do not enjoy the same benefits as US residents. Here we give you a lowdown on how to go about filing your federal taxes.

Tax Filing for Indians in the US: Who is an H1B Visa Holder?

Tax-Filing-for-Indians-in-the-US-Who-is-an-H1B-Visa-Holder

An Indian who works in the US as a skilled professional in areas like Information technology (IT), architecture, mathematics, science, medicine, accounts, and finance qualifies for an H1B visa. And their stay is sponsored in the US by their employer for three years minimum.

Eligibility 

An Indian skilled professional who has spent a minimum of 31 days in the current year and 183 days in three consecutive years is eligible under the substantial presence test (SPT). Under federal laws, they are a tax resident and are required to file federal taxes with form 1040NR.

SPT is arrived at with this simple calculation:

The total number of days present in the US in the current year + 1/3 of days present in the previous year of filing taxes + 1/6 of the number of days present two years before that. 

This total should equal 183 days or more. 

Source: Substantial Presence Test | Internal Revenue Service (irs.gov)

Types of taxes

Before we dive deep into the tax filing process for Indian H1B visa holders, let’s understand the type of taxes. The salary of an H1B visa holder is subject to Federal, state, and local taxes. They have to pay anywhere between 20% to 40% as taxes depending on their income level and deductions. Plus, they also have to pay property tax, sales tax, gas tax, capital gains tax, inheritance tax, etc. 

A tax resident is liable to pay the same kind of taxes but does not enjoy certain deductions like permanent and US residents. If you become a US resident, you do get these benefits, but then your worldwide income is also taxed.

Tax Breakup for Indian H1B Visa Holders 

FICA 

Under FICA (Federal Insurance Contributions Act), the tax resident has to pay around 8% of his gross salary. Around 1.45% of this deduction goes for medicare while 6.2% is for social security. An equal amount is contributed by his employer. They enjoy the benefits accrued from these deductions post-retirement.

State tax

The H1B visa holder has to pay 0-10% of their salary as state tax depending on the state they live in. For instance, Alaska, Nevada, Wyoming, Washington, Florida, South Dakota do not levy a separate state income tax. And Tennessee and New Hampshire only charge taxes on interests and dividends earned by him. While California asks employers to deduct 7% of the gross salary as state tax.

Moreover, in certain states, the amount deducted as social security is returned to the employee once they leave the country. This depends on the agreement that the state has with the federal government.  

Local taxes

The ex-pats from India also have to pay local taxes on their gross income which amounts to around 4%.

Recommended: Tax Filing for Indian H1B Visa Holders: All You Need to Know – AOTAX.COM

Checklist:

Once you have scored positive in the SPT, you require the following documents to file your tax returns:

  1. Photo identity card
  2. Social security number
  3. Wage documents and salary statements from the employer
  4. Investment income statement
  5. Other income statements
  6. Forms W-2 and 1099 series
  7. Receipts to back up deduction claims
  8. Documents related to the name change, dependency, in case of marriage of married individuals.
  9. If you have a dependent, you have to use the 1040 NR form to claim deductions.

Who is a Dependent?

Who-is-a-Dependent

Any person – parents, relative, children – who live with the H1B visa holder is termed as a dependent. They have to apply for an H4 visa and cannot take up employment.  But are allowed to study in the US.  A spouse with an H4 visa is not counted as a dependent. 

This person also has to file taxes which they can either do jointly or together with the ex-pat. If it’s a joint application, then the H1B visa holder gets to enjoy a greater amount of deduction.

Deductions, exemptions, and tax credits

The tax structure is different for single and married individuals in the US. Married people also get to enjoy certain deductions, exemptions, and tax credits which saves them money. They have to provide receipts to avail of these benefits. Now let us look at this one by one.

1) Deductions: The H1B visa holder has to file under Schedule A of form 1040 to claim certain deductions like US residents. They get to avail deductions on state and local taxes, interest on a home mortgage, dental and health expenses, losses on account of theft, casualty, and others. They need to itemize these in the claim form.

2) Exemption: Unlike US residents, the visa holder does not get exemption on dependents. However, they can request certain exemptions for themselves and their spouse if they are filing taxes separately.

3) Additional tax credits: The H1B visa holder gets limited deductions and exemptions but has respite in the form of tax credits.  Some of these include child tax credit, dependent credit, adoption tax, education credit, earned income credit, etc.

Recommended: All You Need to Know About How to File Tax Returns Online – AOTAX.COM

Refund process:

After filing your taxes you have to wait for six to eight weeks to get your tax refunds. The IRS (Internal Revenue Services) clears the refund within 21 days of accepting the e-file of tax returns.

If you have adhered to the above points, filing your taxes in the US will be a smooth process. Filing taxes can be cumbersome if you are unaware of the US taxation laws.  If you are an H1B visa holder working in the US, contact us to help you file your e-tax returns on time. With over 15 years of experience in this field, backed by efficient accountants, we have helped over 2 lac Indians file their taxes to date.

IRS Tax Filing Dates for 2022 You Need to Know About

IRS Tax Filing Dates for 2022 You Need to Know About

A rampant virus, skeleton staff, ongoing legislative changes, and flailing funding all make for a decidedly bumpy tax season ahead. The Internal Revenue Service (IRS) is battling backlogs with a grossly understaffed team (20,000 fewer employees than in 2010) and the delays and complexities engendered by stimulus check deliveries and advances in Child Tax Credits. 

President Biden’s Build Back Better plan faces gridlock in the Senate, only making matters worse. As a result, taxpayers are in for a world of frustration, and the IRS urges attentiveness in cases of tax-related documents. 

More specifically, the department counsels are looking out for W-2, 1099 forms, and additional letters regarding Child Tax Credits and Economic Impact Payments for those who received benefits last year. 

Read on to know more about precisely what you can expect during the upcoming tax season: key dates, important information, and tips to help you prepare better.

Important IRS Dates for 2022 to Keep a Tab On

Important-IRS-Dates-for-2022-to-Keep-a-Tab-On

February 15—deadline for eligible employees to submit W-4 forms (tax exemption) to employers.

April 1—Deadline for Required Minimum Distribution (RMD) payments from retirement accounts for senior citizens who turned 72 in 2021.

April 18Deadline for tax filing for most Americans.

April 19—Tax filing deadline for taxpayers in Maine and Massachusetts due to Patriots’ Day falls on April 18 in those states.

May 16—Deadline for tax filing submissions for victims of the Colorado wildfires and Midwest Tornados. 

June 15—Tax filing deadline for those applying for extensions, military members, and Americans living overseas. 

October 17—Deadline for taxpayers who requested an extension for tax filing submissions. 

December 31RMD contribution deadlines for those 73 and older. 

Typically, the deadline to file and pay taxes is April 15; however, the dates have been adjusted due to the public holidays. With Emancipation Day falling on the 15th, the deadline has been extended to April 18. A similar occurrence is visible in Maine and Massachusetts due to Patriots’ Day on April 18.

Things to Keep in Mind While Filing Tax in 2022

As you prepare to file taxes for 2022, we recommend keeping the following in mind: 

Smaller refunds

The lower refunds that have been forecasted are due to shifts in policy and shrinking resources. While the Biden administration has diverted an additional 2 billion USD to the agency via the American Rescue Plan, funding remains an issue. 

On a grassroots level, individuals may owe more to the government and receive less if they did not opt-out of Child Tax Credits or didn’t include any student loan deductions. Therefore, taxpayers have been advised to brace themselves given the fluid situation. 

Child Tax Credits

As discussed above, Child Tax Credits could impact your tax outlook for the year, given that Congress not only inflated the credits but also began to pay out half of the credit value in advance. 

This was done through monthly installments to help struggling families quickly. Additionally, the CTC was refundable (there was no minimum income required to claim it) but fluctuated according to income levels. 

Ideally, taxpayers who received the installments would receive the remaining half of the credits as a part of their tax refund, but reconciling exactly how much was paid can complicate matters. 

Some may have received more than they were eligible for, and others less. For this reason, it is imperative to safeguard Letter 6419 sent to all payment receivers so that it may be verified in your tax return.

Economic Impact Payments 

Stimulus checks of 1400 USD were issued to eligible receivers from March 2021 as a part of the Economic Impact Payments scheme. If you received the entirety of the payment, you need not include any information while filing your taxes. 

However, those missing some payments could be eligible to claim the Recovery Rebate Credit for the same. The missing amount would be included in tax refunds. You must note, though, Letter 6475 (Your Third Economic Impact Statement) plays a crucial role in determining whether this applies to you. Much like Letter 6419, it must be given equal importance as W-2 and 1099 forms.

Extending Your Submission Deadline

While it is never advised to miss tax deadlines, those who require more time can qualify for an immediate extension by filling and submitting Form 4868

This grants a 4-month extension, usually till October 15. However, with it being a Saturday, the final deadline is October 17. The IRS stresses that this extension is only for submitting tax returns and does not apply to payments. 

If an individual owes taxes, the deadline remains April 15. Failing to pay on time results in penalty fees. Taxpayers can incur hefty charges: 5% of the amount due each month, a monthly penalty of 0.5% of the unpaid amount, 3% in accrued interest, and a maximum of 25% of what is owed. 

When Can you Expect your Refund?

The IRS urges taxpayers to check thoroughly for document and numerical accuracy and to file their taxes as soon as their documentation is ready. 

The agency advises filing online and opting for a direct deposit to make the process as seamless as possible for a quick return. Taxpayers who choose direct deposits could see their accounts credited within 21 days of submission by approximately mid-February

However, refunds involving often misused credits such as the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (CTC) will take longer due to more stringent verification processes. 

Also read: All You Need to Know About How to File Tax Returns Online

What Next? 

Resting your laurels will not quicken or ease the process; hence compiling documents and visiting a tax planner should be top of your priority list. A non-exhaustive list of documents required are listed below:

  • W-2 form from your employer.
  • 1099 form for income earned from investments.
  • Mortgage payment proofs.
  • Letter 6149 for Child Tax Credits.
  • Letter 6475 for Economic Impact Payments.
  • Receipts and bank statements for deductible expenses.
  • Proofs of taxable transactions and investments for things such as cryptocurrency and Non-Fungible Tokens (NFTs).

As an Indian in unfamiliar territory, preparing to file your taxes can be a daunting task. AOTAX has been helping Indian professionals in the US with their tax requirements for almost two decades and provides hassle-free consultancy, planning, and filing services. So, sign up for free today and let us help you with financial peace of mind.