How can your credit card dues affect your taxation during a pandemic?

by Mounica Kota | Apr 23, 2020 | Credit Card Dues, Tax Laws, Taxation

How can your credit card dues affect your taxation during a pandemic?

Do credit card dues affect your taxation during a pandemic? The impacts of the pandemic COVID-19 have been worsening the lives of the common people across the world. COVID-19 has affected around 7.7 lakhs people only in the US with around 41000 amongst them losing their lives. The growing impacts of this pandemic are also leading to financial hardships among the people of the US. With many businesses closing down and several people losing their livelihoods due to the COVID-19, the negative economic impact on the US is quite evident.

In such adverse circumstances, payment of credit card dues and payment of taxes tend to act as nightmares for the Americans.

a.Adverse health conditions

In current times when the number of Americans affected by COVID-19 is going on increasing, it has become imperative to consider health as a priority. If an individual starts showing up symptoms related to COVID-19, then there would numerous expenses incurred for the COVID-19 test and then the treatment if he result comes up as positive. In such a scenario where the health expenses would be shooting up, it would be nearly impossible for him to think about the payment of credit card dues and taxes.

b.Loss of job or income

This situation is quite self-explanatory. When a large part of the American population are losing their jobs or livelihood due to slowdown/closure of business in various sectors, they can’t think about taxes and the payment of their credit card dues.

So, to alleviate the financial stress on the common Americans there have been several initiatives taken by the Federal Government and different financial institutions in the country.

Relief on credit card dues

a.During these difficult times, many banks and credit card companies in the US are offering temporary relief and assistance to those customers who have huge credit card dues or are facing financial challenges

b.The Bank of America has taken the initiative to work on a “case-by-case” basis and allow its customers to stop making the credit card payments, mortgages, small business loans, and even auto loans. This relief would not be hurting the credit score of the customer but they will have to make the payments gradually.

c.The customer can contact the bank authorities personally and discuss his issues. Discussions can be made on matters related to the elimination of monthly maintenance fees, overdraft fees, late payment fees, waiver of interest charges, increase in the credit card limit, etc.

d.Similarly, many other banks American Express, Ally, Capital One, Wells Fargo, Citibank, etc. are also encouraging their customers to contact them for financial assistance. Various provisions like lowering of interest rates temporarily, removal of late payment fees, lowering of monthly payments, no charge for overdraft fees, deferral of payments, forbearance programs, fee waiver for monthly services, etc. can be availed by the customers who are facing financial hardships.

e.Financial institutions can also offer their customers with other options for financial assistance like a reference for a low-interest personal loan, 0% APR balance transfer credit card, suggestions for use of emergency funds, community assistance programs, etc.

Change in tax laws

a. The Federal Government has extended the deadline for federal income tax return filing and tax payment which was due on 15th April 2020 to 15th July 2020.

b. The State Governments in different States have also extended their tax deadlines with alignment to that of the Federal Government. Different states have also taken additional initiatives for reducing the stress of Americans due to State taxes.

c.The deadline for making the quarterly estimated tax payments for the first quarter and the second quarter which were due on 15th April 2020 and 15th June 2020 respectively have been extended to 15th July 2020.

d.Moreover, the deadline for making contributions to the IRA, HSA, and MSA has also been extended to 15th July 2020.

e.Under the CARES Act passed by the Federal Government, various provisions such as Stimulus payments paid leaves, Student debt relief, etc. would help in alleviating the stress of the Americans caused due to COVID-19. The Stimulus payments are the most important amongst these which ensures a one-time payment to be received by the Americans based on their 2019/2018 federal income tax returns and their Adjusted Gross Income (AGI).

Hence, the extension in tax dates by the IRS has given the common people sufficient time to make arrangements for the finances. At the same time, the relief made available on the credit card dues would allow the Americans to save some considerable amount of money and thus, make their payment of taxes according to the extended deadlines.

References

How can the pandemic affect my taxation as an NRI in the US?

by Mounica Kota | Apr 21, 2020 | coronavirus, HSA, IRA, Stimulus payment, Tax Extension, Taxation

How can the pandemic affect my taxation as an NRI in the US?

The impact of the pandemic COVID-19 is on an increase across the entire world. Currently, more than 2 million people have been affected by COVID-19 out of which 1.7 lakhs have already died. taxation as an NRI in the United States has also experienced a very rapid spread of the coronavirus with the number of affected people being 7.5 lakhs approximately whereas the deaths due to COVID-19 have reached 40 thousand persons.

Not only the lives of the people in the US are being affected due to COVID-19, but there has also been a hugely adverse effect on the livelihoods of common people. Several businesses have closed down leading to many people including NRIs losing their jobs. However, the Federal Government has implemented several changes in the tax laws for the NRIs intending to reduce the stress in such troublesome times.

Changes in tax laws for NRIs

a.Deadline extension for filing tax returns

The IRS and the US Treasury had declared that the deadline to file for individual federal income tax return has been extended to 15th July 2020. For this extension of 90 days provided by the IRS, there would not be any penalties charged by the IRS.

b.Deadline extension for tax payment

The deadline for making the federal income tax payment has also been pushed to 15th July 2020. This means if an NRI has tax to be paid this season then there is ample time to make the payments. For providing this extension in the timeline for tax payment, the IRS will not be charging any penalties. Moreover, this deadline extension is also applicable for the first quarter payment of estimated tax payments which were due on 15th April 2020.

c.No necessity for additional forms

An NRI would not need to file for a tax extension to avail of the extended deadline for federal income tax return filing and federal income tax payment as well. However, if an NRI thinks that he would not be able to file the tax returns or pay the taxes even after 3 months then he would have to file for an extension by 15th July 2020.

d.Deadline extension for quarterly estimated tax payment

For the self-employed NRIs who had their quarterly estimated tax payment due on 15th April 2020 and 15th, June 2020 would obtain an extension for the payment till 15th July 2020.

e.Changes in the deadlines for payment of State Tax

In general, the deadlines for filing federal tax returns and payment of federal tax are different from that of the State tax. However, due to the outbreak of COVID-19 the deadlines for Federal tax returns and tax payment had been extended. Most of the States have aligned their tax payment deadlines with that of the new Federal deadline. Some states have defined their guidelines for the payment of tax and deadlines. Complete information on the State tax-related changes and deadlines can be obtained from the respective State tax agencies.

f.Deadline extension for contributions to be made into IRA, HSA, and MSA

Along with the extension in the deadline of Federal taxes, there has been an extension in the deadlines for making contributions to the IRA, HSA, and MSA. The deadline for contributing to the IRA, HSA, and MSA has been extended to 15th July 2020. However, in the case of IRA, the NRI must ensure that when he is making the additional contribution towards the IRA the custodian should earmark the additional contribution for the year 2019 and not consider it as 2020 return.

g.Stimulus Payments

Under the Coronavirus Aid Relief and Economic Security (CARES) Act, the Federal Government has announced the process of one-time payments to be sent in the form of Stimulus payments. These Stimulus payments would mainly depend on the filing of tax returns for 2019 and the Adjusted Gross Income (AGI) of an NRI.

NRIs filing tax returns as single filers and having an AGI below $75,000 would obtain $1200 as Stimulus payment. When the AGI is above $75,000 then the amount obtained reduces by $5 for every $100 increase in the AGI above $75,000. NRIs filing tax returns jointly as married couples and having an AGI below $150,000 would receive $2400 as Stimulus payment. If the AGI exceeds $150,000 then the Stimulus payment received would reduce by $5 for every $100 increase in the AGI above $150,000. In both cases, an additional $500 can be obtained if the filer claims a dependent below the age of 17 years.

However, along with these changes being implemented in the tax laws, the IRS is also processing the tax returns according to the normal procedures. So, it is advisable for the NRIs also to file their tax returns soon if they have not done it yet and obtain their refunds.

References

Should capital gains taxation affect me?

by Mounica Kota | Jan 24, 2020 | capital gains, income tax, Investment & Income, tax deductions, Tax Refund, Taxation, taxes

Should capital gains taxation affect me?

Capital gains taxation a lot of things that we own for either personal use or for investment purpose usually qualifies as a capital asset. Some common examples of capital assets include house, property, bonds, and stocks held as an investment, home furnishings, etc.

When you sell any of these capital assets and make some profit on them, the capital gains taxation come into the picture. The basis of capital gains taxes is that when you sell or exchange your capital assets, you do so at a higher price than you had bought them. Similarly, if you sell a capital asset at a lower price than you paid to buy the same, it would be tagged as a capital loss.

Classification

Capital gains are either classified as long term capital gains or short term capital gains. Here are some details about each category.

Long Term Capital Gains

If you hold on to a capital asset for a minimum of 1 year and then decide to sell or exchange it, any gains that you make would be long term capital gains. And the applicable taxes also vary depending on the type of capital gain. For long term capital gains, most individuals would end up paying no more than 15% as taxes.

There is a possibility that some or all your capital gains might be even taxed at 0% if your income is less than $78,750. The standard rate of 15% is applicable if your income ranges between $78,750 and $434,500 for single taxpayers and between $78,750 and $488,850for taxpayers who are married and filing jointly.

Citizens with annual income exceeding the above, the capital gains tax works out to be 20%. Certain capital assets such as collectibles, selling stocks of small businessses, etc. are taxed at a maximum of 28%.

Short Term Capital Gains

Any assets that you sell or exchange within a year of buying or acquiring it qualifies as sort term capital gain. In the case of any short term gains, the gain is added to your annual income and taxed accordingly.

One of the major benefits of categorizing these gains is that you are entitled to lower taxes. If the same amount were to be taxed like your income, you would end up paying higher taxes. However, with short term and long term capital gains, you can reduce the tax liability by a considerable margin.

As a rule of thumb, short term capital gain taxes tend to be on the higher side. Since it is dependent on the annual income, the maximum taxes can go up to 37%. On the other hand, long term capital gains can be up to a maximum of 20%.

On the other hand, if you sold a capital asset at a lower price than what you acquired it for, you would incur a capital loss. And it is important to know that you can use those losses to offset any of your capital gains. They can offset gains up to $3,000 with the help of capital losses.

If you stay in the house that you are putting up for sale for a minimum of two years, capital gains up to $250,000 for individuals and $500,000 for married couples is tax free. Thus being aware of the taxes can save the day for you.

If you own any of the capital assets mentioned above, you are entitled to pay capital gains taxes on the selling of these assets. The presence of capital gains taxes impacts you in more ways than you realize. For starters, unless it is short term capital gains, you will end up paying fewer taxes.

Reference:

https://www.taxpolicycenter.org/briefing-book/how-are-capital-gains-taxed

https://taxfoundation.org/capital-gains-taxes/

https://www.irs.gov/taxtopics/tc409

Top 10 Tax Refund Takeaways From 2019

by Mounica Kota | Dec 15, 2019 | 401(k), capital gains, IRA, Tax Extension, Tax Liabilities, Tax Payers, Tax Planning, tax return, Taxation, taxes

Top 10 Tax Refund Takeaways From 2019

As winters approach, Tax Refund Takeaways 2019, taxpayers across the country have even less time to plan for their taxes. In no time Spring will be looming and you do not want to be caught in the crosswinds. This festival season, you can set aside some of your time and plan for your taxes, if you haven’t already done this. It is to ensure that your tax liability is low and that you have a better chance at a higher tax refund. Here are the top 10 takeaways considering the proposed changes in taxes in 2019.

1.401(k) and HSA

You can contribute towards traditional IRAs up to the 15^th of April of next year. However, you will miss out on the provisions for 401(k) and Health Savings Account if you do not make any contributions till the 31^st of December. Taxpayers can deductions up to $7,000 for contributions towards health insurance plans.

2.Delay Your Mutual Fund Purchase

If you wish to buy mutual funds during this time of the year, you might want to rethink the decision. Especially if you want to hold them in a taxable account. The problem with buying at this time is that you would have to pay taxes on the year end dividends. This is applicable even if you just purchased the shares.

3.Capital Loss Harvesting

Should you own any stocks that are at a loss, you can sell them and deduct up to $3,000 on the federal taxes that you owe. The only thing that you need to be careful about is that you do not violate the wash-sale rule. According to the rule, you cannot purchase the exact same stock or something substantially similar within 30 days of selling the stocks.

4.Opportunity Funds

You have the option to defer paying capital gains tax if you choose to reinvest in Qualified Opportunity Funds. The Tax Cuts and Jobs Act of 2017 brought the Opportunity Funds into existence. The fund aims at creating jobs and opportunities in communities that are distressed.

5.Charity

On reaching the age of 70 ½ years, senior citizens must take minimum distribution if they have 401(k) or IRA. If you do not need the amount for living, you can send it to a charity. Essentially it is a check issued by the IRA to the charity.

6.Traditional To Roth IRA

Any amount that you withdraw on retirement from a traditional IRAs taxable but any distribution from Roth IRA is fax-free. Roth IRAs also do not have minimum requirements, which can be beneficial to reduce your taxes. You can convert your traditional IRA to Roth IRA, but you need to be cognizant of the fact that the converted amount can be taxed.

7.Opt For Capital Gains Tax

If you belong to the 10% or 12% tax bracket, you can consider selling your stocks that are in green. You can sell stocks that have seen significant appreciation as you do not have to pay any capital gain taxes for the mentioned brackets.

8.Charity

You can club your charitable contributions together for more effective tax planning. You can club your contributions for two years and file in a single year. This will allow you to claim itemized deductions for alternate years.

9.Flexible Spending Account

You cannot carry forward any balance that is in a flexible spending account. It might be a good idea to put the amount to use before it expires.

10.Tax Advisor Services

To maximize your tax refunds, reaching out to tax advisor might be a good idea. And the earlier you meet, the better chances you have of getting a good advisor and good refunds.

Knowing the basics of taxation and ways to reduce liability is helpful in the long run and something that all tax payers must be aware of.

Reference:

https://money.usnews.com/money/personal-finance/taxes/articles/10-year-end-tax-tips